Selling in volume regarding taxes.

[npa589]

Bill:

Even though I didn't start this thread, these were all questions I've had for a few years. Thank you for making available your expertise with such willing generosity.

I think you hinted at this in this answer, but I wanted to ask specifically if it was okay to: assign value to a card within a lot for the calendar year it was purchased, and if not sold that year, I carry it over to the next year as a value/cost/expense of "0$", and kept the expenses in the year they were purchased during. The way I see it is that it evens out in the end, because, in that year I sell it in, I am recording it as pure profit. I've done that 2010-2012, and it was not an LLC at that time. It became an LLC in October of this year though, so I may need to do something different. Is the way I've done it from 2010-2012 moronic?

Originally Posted by birdman42

Lance,

Yes it's unnecessarily complicated, but that's not your doing. Pin this one on our tax code.

It's true that you don't always know what you'll get for an item until it actually sells, but you know what you figured it at when you bought the group, so that's an acceptable valuation.

Hobby purchases are treated differently from business purchases.

Hobby:
How to handle a lot breakup depends on what you're doing with the lot. If you buy it with the intent of breaking it up and selling it all, there probably isn't much difference between assigning individual values and simply splitting the cost evenly among all the pieces. But if you're buying a lot for one or two items and selling off the rest, then it does make a difference.

Say you buy a lot of 12 T207s for $600. There's a Johnson (which you want to keep) and 11 commons. You sell off the commons for $40 each ($440), so in your mind you now have $160 in a nice WaJo. Can you show a tax loss of $10 each on the commons? Probably not a good idea, because that leaves you with a basis of only $50 in the WaJo. When it comes time (in a few years) to sell off your collection, the IRS would frown on that valuation, saying that you were improperly offsetting current income with long-term capital gains. (Not looking for a response here, but a board member recently faced a similar decision. He posted an extremely rare card that he bought in with a group of commons.)

Business:
If you're talking about inventory and cost of goods sold, that's a business. Then it doesn't matter how long you hold onto something before you sell it; inventory is an asset rather than an investment, so it's all profit taken now or later and all taxed the same. You do need to assign a value to your inventory, but as long as you're consistent in how you assign values it all comes out even in the end.

Leon's way of dividing price by # of pieces will work in a general sense, but if, say, you bought a 520 set of T206 for $26,000, it wouldn't make sense (or be supportable if it came to that) to value the Cobbs and the Schaefers all at $50 each.

Bill