OT: IRS Paypal Tax Situation

[BobC]

Originally Posted by vtgmsc

Bob,
I just read your post and this got me wondering if you might be overlooking another fairly simple Course of Action. If the items that he sold via paypal in 2014 were actually purchased a certain time ago (is it more than a year?) for this problem lets just say that his stuff was purchased in 2011-2012, can't he simply fill out a Schedule D and not worry about CoGS and begginning inv/end inv etc...??

I am anxious for your answer as it seems to me this would be ok if he held those assets for a long time (sorry not exactly sure if it a year or more?) Please advise, thanks!

Peace, Mike

Let me add a little more to this regarding the holding period of the assets you also asked about. If the person is in the business of selling cards, there is no capital gain or collectible treatment you can get tax-wise. You're in business and the cards you bought are inventory, period. Doesn't matter if you hold them two months or two years, when you sell them, the profit you make on the sale over what you paid for them is considered ordinary income. Now you also get the benefit of being able to deduct other expenses for the operation of your business, like postage, advertising, etc. A collector who buys and sells occasionally just for investment purposes is not in business and doesn't get to write off expenses. What he/she pays for the card is their basis in it till they sell it, give it away or otherwise dispose of it. For example, if I'm a card dealer and you call and tell me you have a killer collection you want to look at for possible purchase, and I fly out to see you and look at it, my cost of travel to come and see you is a business expense I could write off for tax purposes. If I'm just a true collector and investor, that travel expense is not tax deductible. See the difference? There's pros and cons going both ways.

Also, if you are in business and then stop and get out of it, there's nothing that says you can't take your former inventory and convert it to collectibles that you own personally. You'd want to give it some serious time from when you last transacted business as a card dealer though till when you tried to sell something and claim it as a collectible subject to cap gain treatment. You'd also have to watch out for what kind of business entity you may have held the assets in. Putting items into a corporation can have different results when you take them out as opposed to running your business as a sole proprietorship or even an LLC treated as a partnership or disregarded entity. Now you're getting into areas that start to get a little too technical and you begin to overthink these things. trying to keep it general and simple.

BobC

BobC