Selling a card you inherited - Income tax

[BobC]

Originally Posted by ruth-gehrig

Bob you're pretty awesome! Your posts make learning about taxes, and these various scenarios, interesting

LOL

Not sure I've ever heard someone talk about this kind of stuff being interesting before. It can often be extremely complex, with an awful lot of gray areas though. Most people think tax law is pretty much black and white, but that is so far from the truth. In my case, I have the advantage of having been involved with so many different people and their tax situations over the last 4-5 decades that I can probably relate to and talk about almost anything people on here will ask about.

Hopefully at least a few members will get some answers to tax and/or estate related questions they may have in regards to their collections and activities. I apologize to those that may take offense at my "six walls of text" in trying to answer and explain different things. But if you take the time to read and follow what I'm saying, you'll quickly realize that real short and quick one or two line answers usually won't cut it, and can often end up giving the wrong or an incomplete answer to someone's question. Plus, I've always felt that the more someone knows about the true and complete background behind things, the better they can then understand and appreciate how they truly work.

[BobC]

In regard to some of the earlier comments in this thread concerning auctions houses, and their treatment/implications for tax purposes, it has already been discussed in other threads how technically an AH does not have to issue a 1099 form to people consigning items to them. People or companies that buy or pay for certain types of income or services are normally required to issue specific types of 1099s to the people/entities they paid (along with copies to the IRS), after reaching threshold amounts.

Technically, it is not the AH that pays and buys items from their consignors. It is the people who won the auctions who are actually paying the consignors. All the AH does is act as a sort of agent on behalf of the consignors, and simply collects the monies for them, and forwards it to the consignors, sans the AH's commissions and fees of course. Plus, there actually is no 1099 requirement to report any sales of tangible personal property, which is primarily all that most AHs deal in and sell. On other seller platforms, like Ebay, the 1099 reporting isn't because of what was paid for the tangible personal property being sold. The 1099s are issued and reported because of the payments from buyers going through a third-party payment service or platform (like Paypal) that handles and ultimately remits the moneys coming from buyers to the sellers through special accounts set up on and for a seller's behalf.

This is most likely why you don't see many AHs accepting payments from auction winners via these third-party payment platforms/methods, like Paypal and Venmo. Because if they did, these payment platforms would be required to send 1099s to the AHs reporting the total gross sales proceeds they paid to them. But the AH's actual taxable income is really only the commission/fees portion of that money they collected on behalf of their consignors, not the entire amount that they would have reported on the 1099s they'd get from those third-party payment platforms. And because they'd have those entire gross payment amounts reported to them on 1099s, the AHs would also have to report those same 1099 amounts as gross income on their federal income tax returns. And since only a portion of those gross reported sales were actually taxable income to the AHs, that means they would have to now declare and report some tax deduction or expense on their tax returns as well, showing the amount of money they actually paid to their consignors. So now if/when an IRS agent contacted an AH about their tax return, they could ask them what that big expense deduction was on their return. And when the AH responds that it was payments to consignors for money that was incorrectly reported as income to the AH on 1099s from third-party payment services, the agent can simply ask, "Prove it!". And now the agent can request and make the AH give them names, addresses, and amounts paid to consignors, so the IRS can validate and verify what the AH deducted, and then also go double check the returns of those consignors to make sure they properly reported as sales income on their tax returns, the exact same amounts the AH claimed as deductions on theirs.

Actually, there is a long-standing tax rule that when someone receives a 1099 reporting income that is not all theirs, and/or received on behalf of someone else, they are considered and referred to as a "nominee". And to properly report to the IRS the portion of that "nominee" income that isn't theirs (or in this case the AH's), and to also properly inform the true recipient of the income amount they are supposed to be reporting, the "nominee" is supposed to issue a 1099 to the person/party for their share of the 1099 income originally reported to them. And now you know why many AHs likely don't accept Paypal and Venmo. So they aren't forced to turn around and report to the IRS on 1099-nominee forms what their consignors actually received.

Truth is, if there are any 1099s to possibly be sent to anyone, it would be from a consignor to the AH to report the commissions/fees in excess of $600 in any calendar year paid to the AH for the services they performed for the consignor. (But that would only be the case if the AH wasn't incorporated. A 1099-MISC form is not required to be sent to incorporated entities.)

[parkplace33]

Great information, thanks all!