Reporting sales of large $$ items

[Yoda]

I believe your profit equation should be: Price sold - Price Paid + expenses = Profit. I certainly take expenses when I file my income taxes for Past Ball Vintage Cards.

[BobC]

Originally Posted by Yoda

I believe your profit equation should be: Price sold - Price Paid + expenses = Profit. I certainly take expenses when I file my income taxes for Past Ball Vintage Cards.

Depends, are you filing and paying taxes on card sales as a Dealer, a Collector/Hobbyist, or as an Investor?

[Eric72]

The hypothetical below is the way I understand things. If I'm wrong, someone please let me know.

Costs associated with the disposition of an asset should also be taken into account. To keep things simple, I'll use very small numbers.

Let's say you bought 1,000 Joe Shlabotnik cards a few years ago. they've doubled in price, so you sell them off.

You paid $10 each. You sold them at $20 each.

However, you also paid $4 in postage and supplies (bubble mailer, soft sleeve, top loader) for each one you shipped out.

Your total profit is $6 each after all is said and done. You would owe tax on the $6,000 profit.

[Frankish]

Originally Posted by Eric72

The hypothetical below is the way I understand things. If I'm wrong, someone please let me know....

I'm not a tax professional and may well be too conservative, but my understanding was that for a hobby (unless you are a reseller/dealer) you can't always add the costs of grading, postage, etc, to your cost basis, so I've always just gone with my gross cost. But if I'm wrong I hope someone will chime in!

[BobC]

Originally Posted by Frankish

I'm not a tax professional and may well be too conservative, but my understanding was that for a hobby (unless you are a reseller/dealer) you can't always add the costs of grading, postage, etc, to your cost basis, so I've always just gone with my gross cost. But if I'm wrong I hope someone will chime in!

That's not necessarily true, the direct costs to acquire and sell something can generally be deducted as part of the sales transaction. The big difference between deducting costs as a business (ie: Dealer) versus deducting costs as part of a hobby (ie: Collector or also as an Investor) is the person in business gets to also deduct the costs to operate and run the business. For example, a Dealer who operates a card business out of their house can take a deduction for having a home office, in other words, some utilities, RE taxes, R&M, and maybe even some mortgage interest expenses. A Collector, or an Investor, would generally not be able to deduct any of those types of expenses. Same would be true for other things like insurance on the cards or rental fees for a safe deposit box where your cards are kept, yes, deductible by a Dealer in business, and no, not deductible by a Collector or an Investor. And as for paying to have cards graded, I would say yes to those costs being deductible whether you're in business as a Dealer, or you're a Collector or an Investor. In the case of grading fees though, the business Dealer wouldn't just deduct those costs on his/her return every year, they would capitalize them and add them onto the the inventory (tax basis) cost of the card that was graded, and only get to deduct them when that particular card is actually sold. For Collectors and also Investors, they never get to deduct any direct costs in acquiring (or selling) a card, till it actually gets sold. Trust this helps better explain the differences.

[ValKehl]

Originally Posted by Yoda

I believe your profit equation should be: Price sold - Price Paid + expenses = Profit. I certainly take expenses when I file my income taxes for Past Ball Vintage Cards.

John, I believe a seemingly small, but important, adjustment to your basic profit equation is needed, as follows: Price sold - (Price paid + expenses) = Profit.