Ebay tax reporting drops from $20,000 to $600

[BobC]

Originally Posted by sb1

Bob,

I frequently see you refer to a person as being an "investor" for their taxable status. I have not seen this as an option, one is either in the business of buying and selling OR a collector in the eyes of the IRS. I believe some collectors will believe that by calling themselves investors they believe that their gains will be treated as either short or long-term capital gains and not the higher "collectible" rate. I do know that many collectors use the capital gains rate when figuring their taxes and have never had it questioned.

Can you enlighten us on how one would qualify as an investor in the eyes of the IRS and not fall under the collectible tax rate??

Scott,

Look at all the talk we have nowadays where cards end up being discussed in the Wall Street Journal, investment news shows, and the like. In the past, cards would likely not ever have been considered as investments, but times have recently changed. Though there is no hard and fast rule or measure to definitively say whether your cards are collectibles or investment assets, I don't think the IRS can just ignore anymore that sports cards can in fact be investments.

To show and help prove to an IRS agent that your cards are investment assets, you want to be able to show how you keep track of what you have, how you keep and store things, and if you ever do sell cards, the frequency, volume, and reasons behind such sales, and so on. All of this can be used and combined to help develop and establish a narrative where, if you ever do get questioned by the IRS, you can present what you're doing as an investment activity. In a much more simplistic way of maybe looking at this, an investor is more likely to keep their cards in a bank safe deposit box, or maybe PWCC or Goldin's vaults. A hobby collector is more likely to have their collectible items sitting in a display case, hanging on a wall, or otherwise exhibited in a man cave. You get the drift.

And I believe someone can be more than just one of these types. You can have a dealer, who maintains separate business and inventory records, also have a separate and distinct personal collection he proudly displays in his man cave at home, as well as maybe some '52 Mantles and early Ruth cards he picked up over the years that are sitting in a safe deposit box and are being left to appreciate till sold at some future date. The more records, details, and data you can present to an IRS agent (on the very slim chance you ever did get questioned and audited), the more likely they are to agree with your tax returns and your treatment of the cards you sold.

In the end, an IRS agent could still argue against your claim that your cards are investments, but as long as you don't end up selling them for what could turn out to be a non-deductible capital loss, you pretty much end up with the same tax results regardless of whether you reported them as collectibles or investments. I say this because there isn't a specific statement, determination or claim in the Internal Revenue Code or IRS rulings yet, to my knowledge, that still wouldn't maybe consider the underlying definition of a sports card as a collectible to override whether the card is treated as a collectible or investment for purposes of determining if a gain from its sale is subject to the 28% max collectibles tax rate, as opposed to the max 20% long term capital gains rate on regular investments (ie: stocks and bonds). I'm assuming the IRS will expect the 28% max rate, even if a card is considered as an investment for now. So to me, for now, the main advantage of assuming a card is sold as an investment is the ability to potentially deduct and carry forward any losses generated by its sale. Need more research to be done or info collected.

I hope this helps, and again is maybe a good reason to discuss such things with your personal tax advisors. They may not agree exactly with all my thinking, but they'll know much more of your personal and tax situation, and if there any other issues or considerations for you personally that I certainly am not aware of. Hope this helps.