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

[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?

[GeoPoto]

The best alternative to a lack of receipts is a "diary" kept contemporaneously. Since you don't have that, you make a plausible guestimate of what you paid (including any related expenses). As long as you don't guess $1,000 paid for an item you just sold for $1, your estimates, assuming they are plausible, will tend to be accepted. The IRS can hardly "prove", or even suggest, you paid $0.

[ValKehl]

Originally Posted by GeoPoto

The best alternative to a lack of receipts is a "diary" kept contemporaneously. Since you don't have that, you make a plausible guestimate of what you paid (including any related expenses). As long as you don't guess $1 paid for an item you just sold for $1,000, your estimates, assuming they are plausible, will tend to be accepted. The IRS can hardly "prove", or even suggest, you paid $0.

George, I think the IRS would be super happy if you were to "guess $1 paid for an item you just sold for $1,000" because this would maximize their tax revenue.

I have sold many zero cost baseball cards in the last few years, as I have been selling off the cards I got out of 5-cent wax packs in the 1950's when I was a kid. And yes, the taxes I have paid (22% federal and 5.75% Virginia) on these collectibles gains are painful. But, then I realize how fortunate I am that Mom didn't toss my cards out after I left home (she called before tossing them out several years later and asked if I still wanted them).

[4815162342]

Originally Posted by ValKehl

… I have sold many zero cost baseball cards in the last few years, as I have been selling off the cards I got out of 5-cent wax packs in the 1950's when I was a kid. …

That is very cool, Val. I don’t even have my original pack-pulled cards from the 80s!


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[raulus]

Originally Posted by ValKehl

yes, the taxes I have paid (22% federal and 5.75% Virginia) on these collectibles gains are painful.

Unless you’re a dealer, the federal tax rate on collectibles gains is 28%. Plus a bonus 3.8% net investment income tax for taxpayers whose adjusted gross income exceeds certain thresholds. Plus state and local rates where applicable.

For dealers, they pay tax at their ordinary income tax rate, which for fed can be as high as 37%.

For those of us who meet the NIIT thresholds, and live in states and cities with high rates, we often end up paying 40%-45% or more on our gains.

[gabrinus]

Guys remember when you pay taxes you are perpetuating the Gerontocracy!!...Don't do it!!...Jerry

[ValKehl]

Originally Posted by raulus

Unless you’re a dealer, the federal tax rate on collectibles gains is 28%.

Not so, Nicolo. The basic federal tax rate on collectible gains is the LOWER of 28% or your incremental tax rate on ordinary income. My incremental tax rate is 22% - yours may be higher.

[raulus]

Originally Posted by ValKehl

Not so, Nicolo. The basic federal tax rate on collectible gains is the LOWER of 28% or your incremental tax rate on ordinary income. My incremental tax rate is 22% - yours may be higher.

Fair enough. I hadn’t considered that possibility.

[Fred]

Val,

Just curious, are you a CPA or tax preparer? It's not that I doubt anything you're saying, but there were comments about looking for tax advice on a internet chat board (ok, in our minds, we're more than a casual chat board) that make sense.

Worst case is that anything you sell has a $0 cost basis for you which means the entire sale would be considered "taxable" (for the most part). An assumption is that you would take the sale price and subtract the total cost basis of the item and that would be the taxable portion of the sale.

If the above is the case, are you indicating that the tax rate is either 28% (maximum) or if lower, what the sellers actual incremental tax rate is after all considerations (deductions, etc.)? Bottom line, it sounds like you have to add the sales/profit to your declared income, then that could possibly move you to a higher tax bracket (depending upon the amount of sales/profit being delared).

How does state tax work on that? Any considerations there?

Regarding a resale license/document. What if I have a resale tax license/document and I buy something from an auction house but may not put it up for sale because I'm part hobbyist (wink, wink). Is that allowed? Or is it one of those things where there's like an honor system and everyone should pay the tax on items that may not be for "immediate" resale.

Technically, someone could say that they purchased the item (no taxes due to resale license) with an intention of selling it, much later in the future.