Taxes ? on Auction House Consignments

[sb1]

Collectibles tax rate is 28%. That is net of the cost less the price sold for, regardless of tax bracket. Unless you inherited it, then you would need an appraisal at time of inheritance which would provide you a stepped up basis.

I am not an accountant either but believe these to be the correct answers.

[insidethewrapper]

My question is: If the consignor doesn't let the IRS know , how would they(IRS) know of the sale if not reported by the auction house ? I've never consigned before so I don't know how that works.

[swarmee]

You are required to report the income yourself, and you sign that you've done so on your tax form. Are you willing to lie to the federal government on your official tax form?

[insidethewrapper]

Thanks for the answer, now I know what I need to report if I consign in the future or decide to just leave for inheritance. It appears as a collector ( not business) you must report the full amount ( it doesn't matter what you paid for the item initially ).thanks

[Kidnapped18]

Yes any gains are taxed at the 28% rate
Yes you must self report, unless you want to expose yourself to tax underpayment penalties
You are responsible for your taxes not the auction house

You can check the Code sections for this info, which should also define collectibles which can include baseball cards
As always confirm with an accountant

Tony

[Casey2296]

In my State it's fairly simple to set up a small LLC in which case you could write off expenses against profits and report as Schedule C on line 12 of schedule 1. If you're talking about a substantial profit you may want to look into that. Also, if your heirs inherit your collection their cost basis goes up to current value at time of death, so if they sold the collection there would be no capital gain taxes assessed.
Sidenote, If you trade cards with another person that is a non-taxable transaction.

[Rhotchkiss]

Time out, I think there is some potentially dangerous advice being given out here. To qualify, I am a tax attorney by trade, with a masters in tax law from Georgetown; although I gave that racket up 16 years ago. I have not actively practiced for a long time and I am hardly an expert on the taxation of collectibles. But here is what I think:

Baseball cards can be considered collectibles. It will be considered a collectible if it was purchased for investment. This is a determination based on the taxpayer’s intent. A business that deals in cards does not buy cards for investment. Rather, they buy cards for resale (it’s inventory), which leads to different, and potentially worse, tax results (I.e., ordinary gains, which are often higher than 28%). This is one of the many reasons I would be weary about establishing an LLC or other business entity. Whether to collect through a business entity is a whole separate topic and I won’t go into that here except to say that it’s probably unnecessary or a bad idea for most of us. Assuming the card is not acquired by a business entity......

A card will be considered a collectible based on the intent of the acquirer. Cards are tough, so let’s use an antique car instead: you have a much better argument that you had investment intent If you buy the car and store it somewhere safe for 10 years than sell it vs you drove it around all the time, showed it off at car shows, and then sold it; the latter looks more like acquired for personal enjoyment than investment. If the item was acquired for personal use, you may have gains nevertheless, but it will be at ordinary rates; you likely will not be entitled to claim losses.

If the item is considered a collectible, and it was held over 1 year, it will be taxed at a maximum rate of 28%. You will be taxed on the amount recognized, which means gross sales price, minus your basis (acquisition costs) plus all costs (these get capitalized to the asset). So, if I bought a card for $500 and paid 6% state tax and $25 shipping, my initial basis is $555. If I hold it for a year or more and the sell it for a gain- lets say I sell for $700- I am liable for tax on $145 ($700 realized minus basis). You can net losses against gains, and sometimes you can bet normal longterm capital losses against longterm collectible gains, and vice versa, but this gets complicated.

We live in a country that depends on self reporting. You are supposed to report income/gains and pay taxes on that income/gains. If you don’t, the IRS may never find out. But if they do, you may get in trouble and pay penalties and interest on top of the tax you owed; and rightly so. It’s your choice whether you report gains on cards.

BTW- collectibles were distinguished from other capital assets and the 28% rate was initially enacted based on the theory that collectibles are the purview of the wealthy and the wealthy can afford to pay extra taxes on these assets; in other words, it was a politically correct tax aimed at generating additional revenue off gains in assets normally owned by the wealthy; as opposed to stock or real estate, which is more “common”. Opinions about this aside (I don’t mind the logic), it will be interesting to see what, if any, changes are made to the taxation of collectibles under a democratic administration seeking to amend the tax code.

[Eric72]

So, here's a situation most of us (presumably) will find ourselves in.

I bought a card at a show...paid cash, no receipt. For the sake of argument, let's say I paid $200. I keep a record of the sale; however, have nothing other than my spreadsheet (and maybe an ATM receipt) to show what and when I paid for it.

Fast forward a year or more. I now sell the card on eBay or some similar online site. Let's say I net $250 after fees and shipping.

Do I pay taxes on the entire $250 - or - does my record-keeping, along with self-reporting correctly, allow me to only pay taxes on the $50 gain?

[russkcpa]

Originally Posted by Rhotchkiss

Time out, I think there is some potentially dangerous advice being given out here. To qualify, I am a tax attorney by trade, with a masters in tax law from Georgetown; although I gave that racket up 16 years ago. I have not actively practiced for a long time and I am hardly an expert on the taxation of collectibles. But here is what I think:

Baseball cards can be considered collectibles. It will be considered a collectible if it was purchased for investment. This is a determination based on the taxpayer’s intent. A business that deals in cards does not buy cards for investment. Rather, they buy cards for resale (it’s inventory), which leads to different, and potentially worse, tax results (I.e., ordinary gains, which are often higher than 28%). This is one of the many reasons I would be weary about establishing an LLC or other business entity. Whether to collect through a business entity is a whole separate topic and I won’t go into that here except to say that it’s probably unnecessary or a bad idea for most of us. Assuming the card is not acquired by a business entity......

A card will be considered a collectible based on the intent of the acquirer. Cards are tough, so let’s use an antique car instead: you have a much better argument that you had investment intent If you buy the car and store it somewhere safe for 10 years than sell it vs you drove it around all the time, showed it off at car shows, and then sold it; the latter looks more like acquired for personal enjoyment than investment. If the item was acquired for personal use, you may have gains nevertheless, but it will be at ordinary rates; you likely will not be entitled to claim losses.

If the item is considered a collectible, and it was held over 1 year, it will be taxed at a maximum rate of 28%. You will be taxed on the amount recognized, which means gross sales price, minus your basis (acquisition costs) plus all costs (these get capitalized to the asset). So, if I bought a card for $500 and paid 6% state tax and $25 shipping, my initial basis is $555. If I hold it for a year or more and the sell it for a gain- lets say I sell for $700- I am liable for tax on $145 ($700 realized minus basis). You can net losses against gains, and sometimes you can bet normal longterm capital losses against longterm collectible gains, and vice versa, but this gets complicated.

We live in a country that depends on self reporting. You are supposed to report income/gains and pay taxes on that income/gains. If you don’t, the IRS may never find out. But if they do, you may get in trouble and pay penalties and interest on top of the tax you owed; and rightly so. It’s your choice whether you report gains on cards.

BTW- collectibles were distinguished from other capital assets and the 28% rate was initially enacted based on the theory that collectibles are the purview of the wealthy and the wealthy can afford to pay extra taxes on these assets; in other words, it was a politically correct tax aimed at generating additional revenue off gains in assets normally owned by the wealthy; as opposed to stock or real estate, which is more “common”. Opinions about this aside (I don’t mind the logic), it will be interesting to see what, if any, changes are made to the taxation of collectibles under a democratic administration seeking to amend the tax code.

Excellent post and I agree 100%. We just had a client in selling 4 cards in the current Heritage auction that should bring in $20K+ He was elated to hear that Heritage does not "1099" sellers. I clearly explained the law and what his obligation is. All I can do is put a note in the file and make him sign his Income Tax Questionnaire.
Russ