Help!! Audited on my 2021 Taxes over baseball cards!!

[raulus]

Originally Posted by brian1961

Question, Nicolo: What if you're not a dealer, but just a collector who has sold one card in his collection through someone else? If Schedule C is not appropriate, then what schedule is?

Thank you, my friend. I need the help. (read as HELP!!!!!!!!!!!!!!!!!!!!!!!!!!!) ---Brian Powell

If you're an investor or a collector, then the fun starts on Form 8949, and flows to Schedule D.

If you read the instructions to form 8949, there are some instructions that specifically speak to the sale of collectibles, and how the action gets reported.

[notfast]

What kind of sales did you do in 2021

Dollar amount

[mrreality68]

Ugh

The pitfalls of collecting and/or investing

[bobbyw8469]

Originally Posted by notfast

What kind of sales did you do in 2021

Dollar amount

35k

[Exhibitman]

Not a surprise. Lower dollar and middle class tax returns are more likely to be audited than wealthy tax returns because small fry are easier to go after. You don't pick a fight with an 800# gorilla when you can beat up a spider monkey instead.

Your situation is unique and fact-driven, so there is no advice you can get here that will be worthwhile except to hire either an accountant or an attorney with audit defense experience. Sorry, but that's the reality of it. That said, I do have a few casual thoughts on the issues that part-time dealers face in general:

If there is a hobby vs. business challenge, did you follow the requirements of your state for doing business? For nearly all states, that would include applying for a resale permit and collecting and remitting sales taxes. If you did that, the odds of being labeled a hobby fall drastically.

One other thing to remember when dealing with tax authorities is that testimony is evidence. Just because you do not have a piece of paper does not mean you have no evidence of what you paid for a card. You will be surprised at how well you can recall card deals. I know I was recently when I bumped into a dealer who'd sold me some cards a decade earlier. I remembered exactly which cards I got from him. I can't remember to put away my shoes but the details of buying a 1967 Ken Holtzman signed card a decade earlier, yup.

Finally, preparation is key. Get your records in order and gather your thoughts in advance of meeting with the auditor and be ready to respond. Do not think you can outwit or anticipate the issue raised. You can't. You just have to play it where it lays.

[Moonshot Moose]

Also, is it a full audit, or are they doing a line-item audit? Usually done through the mail.

[bobbyw8469]

Originally Posted by Moonshot Moose

Also, is it a full audit, or are they doing a line-item audit? Usually done through the mail.

It's a line audit. All related to selling cards on Ebay. Nothing related to my real job.

[bobbyw8469]

Thank you Adam. No, no reseller id. I paid whatever the invoices asked for.

[Fred]

What if you don't have the purchase receipts or records for the cards you sold?

How can the IRS prove or disprove what is reported? Or will the IRS fall back on "it's up to the seller to maintain detailed records"?

What if the person or persons you bought cards from are no longer amongst the living and cannot be called upon to testify or provide a deposition to the claims a person makes about purchase price of a card or cards?

What are common triggers for an audit related to collectibles sales?

Sounds messy.

[SyrNy1960]

Before taxes being a part of Ebay, not many collectors thought about taxes. We bought and sold at shows, online, and traded. Receipts weren't a thought. So if you bought something 15 years ago at a show, sold it in an auction today, and you took a loss. How would you prove that without a receipt?

[raulus]

Originally Posted by Fred

What if you don't have the purchase receipts or records for the cards you sold?

How can the IRS prove or disprove what is reported? Or will the IRS fall back on "it's up to the seller to maintain detailed records"?

What if the person or persons you bought cards from are no longer amongst the living and cannot be called upon to testify or provide a deposition to the claims a person makes about purchase price of a card or cards?

What are common triggers for an audit related to collectibles sales?

Sounds messy.

Certainly everything in the guidance from the IRS requires good records. Gold standard is 3rd party documentation. Next step down is contemporaneous self produced documentation. Lowest level is your current recollection.

And when it comes to business audits, they definitely take a hard line around documentation for deductions. At the same time, I’ve never had the IRS attempt to challenge the gain calculation for an asset acquired decades earlier, so I’ve never seen that element play out.

A lot will probably come down to how tough the agent wants to play. And also how large the amounts are. If it’s a $10 purchase from 30 years ago, you might just be okay. If it’s 6 figures, they might not be so willing to let it slide just on your word.

[toledo_mudhen]

I have a 2012 Version of Quicken that I have been using forever.

Keeps track of my bank account and bills for me.

Every card I have purchased over the last 12 years has been a line item entry in Quciken detailing : Seller - Description - Cost

[Jersey City Giants]

I had a big deal many years ago that forced (yes forced and not because I needed money) more to sell through an auction house. Nabbed a ton of money but my issue was that most of the items were purchased many years before and had no receipts. Hence, my accountant had me do a "fair value assessment" on each lot (there were like 80 of them). This basically was me finding three recent sales of the same or similar item. Worked out bout some of the game worn items were tricky. Did my best as I wanted to pay my taxes. However, you can game it a bit (your PSA 4 that you sold was slightly off center but you can find a record of three nicer 4s that sold). In the mind of the government a 4 is a 4.

[doug.goodman]

Topps sent me a 1099 back in 1992 because I had "won" so many packs of the gold winner cards. They valued them at I think $3 per pack and I had gotten so many of them that I was able to put a complete set together.

For those of you who have never put a set together from packs, you probably need 5 or 6 times the number of cards in a set to make a set from packs. Maybe more.

19 year old union grocery clerk Doug got screwed in that deal, hahahaha.

And I still have the set,
Doug

[Gorditadogg]

Originally Posted by Exhibitman

Not a surprise. Lower dollar and middle class tax returns are more likely to be audited than wealthy tax returns because small fry are easier to go after. You don't pick a fight with an 800# gorilla when you can beat up a spider monkey instead.

Your situation is unique and fact-driven, so there is no advice you can get here that will be worthwhile except to hire either an accountant or an attorney with audit defense experience. Sorry, but that's the reality of it. That said, I do have a few casual thoughts on the issues that part-time dealers face in general:

If there is a hobby vs. business challenge, did you follow the requirements of your state for doing business? For nearly all states, that would include applying for a resale permit and collecting and remitting sales taxes. If you did that, the odds of being labeled a hobby fall drastically.

One other thing to remember when dealing with tax authorities is that testimony is evidence. Just because you do not have a piece of paper does not mean you have no evidence of what you paid for a card. You will be surprised at how well you can recall card deals. I know I was recently when I bumped into a dealer who'd sold me some cards a decade earlier. I remembered exactly which cards I got from him. I can't remember to put away my shoes but the details of buying a 1967 Ken Holtzman signed card a decade earlier, yup.

Finally, preparation is key. Get your records in order and gather your thoughts in advance of meeting with the auditor and be ready to respond. Do not think you can outwit or anticipate the issue raised. You can't. You just have to play it where it lays.

Adam, the IRS goes where the money is. The big guys have the highest odds of getting audited.

Sent from my SM-S906U using Tapatalk

[Exhibitman]

Originally Posted by Gorditadogg

Adam, the IRS goes where the money is. The big guys have the highest odds of getting audited.

Sent from my SM-S906U using Tapatalk

Logical but not true. Per the Motley Fool, in 2022, there were 12.7 audits per 1,000 returns filed by the lowest-income wage earners (making it a 1.27% chance of audit) compared with 3.8 per 1,000 returns filed by all other individual taxpayers. They don't go where the money is, they go where the low-hanging fruit is, and people who cannot fight are the easy ones.

[raulus]

Originally Posted by Exhibitman

Logical but not true. Per the Motley Fool, in 2022, there were 12.7 audits per 1,000 returns filed by the lowest-income wage earners (making it a 1.27% chance of audit) compared with 3.8 per 1,000 returns filed by all other individual taxpayers. They don't go where the money is, they go where the low-hanging fruit is, and people who cannot fight are the easy ones.

Not sure where the fool gets their data, although I suspect they could be right.

In other news, GAO published a report on IRS audits for 2019, which you can find here:

https://www.gao.gov/products/gao-22-104960

If you're too lazy to click the link, then you can read the table below.

I do wonder if part of the issue is people who make a lot more, but report a lot less. So they fall into the bottom group, yet they get audited a lot more because they're obviously hiding income.

[gunboat82]

Originally Posted by Exhibitman

Logical but not true. Per the Motley Fool, in 2022, there were 12.7 audits per 1,000 returns filed by the lowest-income wage earners (making it a 1.27% chance of audit) compared with 3.8 per 1,000 returns filed by all other individual taxpayers. They don't go where the money is, they go where the low-hanging fruit is, and people who cannot fight are the easy ones.

This is a bit misleading without context, because the higher audit rate for low-income earners is heavily skewed by people who claim the refundable Earned Income Tax Credit. And even with a credit so ripe for abuse with manipulated earnings, the IRS made it a point in 2023 to reduce the number of audits that target that group.

[bnorth]

Originally Posted by bobbyw8469

35k

Hire a CPA, get a tax license, and became a real tax paying business. I wish you the best. Report back on how it turns out for you.

[bobbyw8469]

Originally Posted by bnorth

Hire a CPA, get a tax license, and became a real tax paying business. I wish you the best. Report back on how it turns out for you.

But I'm a hobbyist.

[raulus]

Originally Posted by bobbyw8469

But I'm a hobbyist.

I wouldn't use the word "hobby" when discussing your cardboard activities with the IRS, unless you want them to classify your activities as a hobby, which means you get the worst of all worlds when it comes to how you're taxed.

[Moonshot Moose]

Originally Posted by bobbyw8469

But I'm a hobbyist.

One thing to keep in mind: Under the Tax Cuts and Jobs Act, for tax years 2018 through 2025, hobby expenses are not deductible at all.

Beginning in 2018 and lasting through 2025, miscellaneous itemized deductions are no longer deductible and therefore no hobby expense is able to reduce hobby income. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

[Moonshot Moose]

Originally Posted by Moonshot Moose

One thing to keep in mind: Under the Tax Cuts and Jobs Act, for tax years 2018 through 2025, hobby expenses are not deductible at all.

Beginning in 2018 and lasting through 2025, miscellaneous itemized deductions are no longer deductible and therefore no hobby expense is able to reduce hobby income. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

If your selling activities are classified as a hobby, it's crucial to understand these rules to correctly file your taxes and avoid issues with the IRS. If your hobby starts to make more money or if you're making concerted efforts to be profitable, it may be time to consider if your hobby could qualify as a business for tax purposes. Consulting with a tax professional can provide clarity and help you make the best decisions based on your specific circumstances.

[4815162342]

Originally Posted by Moonshot Moose

One thing to keep in mind: Under the Tax Cuts and Jobs Act, for tax years 2018 through 2025, hobby expenses are not deductible at all.

Beginning in 2018 and lasting through 2025, miscellaneous itemized deductions are no longer deductible and therefore no hobby expense is able to reduce hobby income. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

I haven’t sold a card in several years. “No hobby expense” sounds like you can’t deduct the cost basis for a card any more. Surely that’s not correct?


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[bobbyw8469]

Originally Posted by Moonshot Moose

One thing to keep in mind: Under the Tax Cuts and Jobs Act, for tax years 2018 through 2025, hobby expenses are not deductible at all.

Beginning in 2018 and lasting through 2025, miscellaneous itemized deductions are no longer deductible and therefore no hobby expense is able to reduce hobby income. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

I thought that was innate??? No one EVER buys a card hoping that they LOSE money on it???