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

[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.

[ValKehl]

Fred, yes, I am a CPA, but my certificate has not been active/current since I retired in 2007. I probably am a rare CPA in that I have never done income tax returns for anyone (or any company) other than myself and my family members. FYI, the two major chunks of my career (16+ years each) were spent with the USA subsidiary of a British company where I was mostly involved in contract administration and with the finance department a large county government (which doesn't pay income taxes). However, I do know enough about income taxes "to be dangerous."

With respect to the cards I've sold that I got out of wax packs as a kid, while my cost of these cards was zero, I did have some costs to offset against what the cards sold for, such as TPG grading fees and eBay selling fees. The profit on collectibles sales (total sales $$ minus total costs $$) becomes part of one's federal taxable income, and this amount could be enough to put one in a higher incremental federal tax bracket. Here's a link to the federal tax brackets for 2023: https://www.irs.gov/filing/federal-i...other%20filers

You asked, "how does state tax work on that?" I believe state income taxation varies considerably. Having lived in VA my entire life, I am not familiar with other states. In VA, one pays the same income tax rate on the profit on collectibles sales as one does on other types of income.

Fred, I hope I have adequately responded to your questions, except for those you raised related to selling cards as a dealer, which I don't feel I have enough expertise to answer.