How do you navigate the tax burden of selling expensive cards?

[Hordfest]

how do you guys navigate the complexities of selling precious prewar cards without having an outrageous tax burden? I understand ultimately I will probably hire a CPA at some point, but figured I'd start by asking around here.

[ullmandds]

https://www.net54baseball.com/showth...ighlight=taxes

https://www.net54baseball.com/showth...ighlight=taxes

[Hordfest]

Ah thanks. I should have done a search. Shame on me.

[Republicaninmass]

Buy more

[Hordfest]

Originally Posted by Republicaninmass

Buy more

Honestly, the more I dig into this the more I kind of agree. Our tax code seems to incentivize investing into your business at a very high level. It's no wonder businesses are so growth minded. Things are starting to make sense.

[Smarti5051]

I realize I should read the other thread, but I am not sure how "buy more" actually helps reduce tax burden. My understanding is that you pay tax on the difference between net sale price and your basis in a card. So, if you have 5 cards that you bought for $10,000 and sell them this year for $210,000, you would have a net gain of $200,000, which is subject to income tax. If, during this tax year, you bought an additional card for $200,000 (let's say a Ruth Goudey), but you continue to hold it, you can't reduce your gain with the new inventory purchase. I need BobB to check in on this one, but that is my understanding. Otherwise, a company could perpetually increase their assets by buying new cards to offset gains on old ones without ever paying taxes (which is generally frowned upon by the tax man).

I would love to be wrong on this one, so please let me know if this is inaccurate.

[Johnny630]

Selling for Cash in Person Works Great

[puckpaul]

Originally Posted by Smarti5051

I realize I should read the other thread, but I am not sure how "buy more" actually helps reduce tax burden. My understanding is that you pay tax on the difference between net sale price and your basis in a card. So, if you have 5 cards that you bought for $10,000 and sell them this year for $210,000, you would have a net gain of $200,000, which is subject to income tax. If, during this tax year, you bought an additional card for $200,000 (let's say a Ruth Goudey), but you continue to hold it, you can't reduce your gain with the new inventory purchase. I need BobB to check in on this one, but that is my understanding. Otherwise, a company could perpetually increase their assets by buying new cards to offset gains on old ones without ever paying taxes (which is generally frowned upon by the tax man).

I would love to be wrong on this one, so please let me know if this is inaccurate.

I don’t think that was meant to imply you can avoid taxes this way, just that it is inevitable, so don’t sell, just buy….i think it was a joke.

[MikeGarcia]

Originally Posted by Johnny630

Selling for Cash in Person Works Great

...an undercover IRS spook , wired up and wearing a body camera , could have a field day ... fat stacks of Jacksons and Franklins and Grants are a fixture , ; , right up there with New Jersey concealed carry permits and Rolaids...... I can't wait for this show......been too long.....

..

..

[Exhibitman]

Originally Posted by Johnny630

Selling for Cash in Person Works Great

Not if you want to avoid a stay in the Cross-Bar Hotel

[Peter_Spaeth]

Originally Posted by Smarti5051

I realize I should read the other thread, but I am not sure how "buy more" actually helps reduce tax burden. My understanding is that you pay tax on the difference between net sale price and your basis in a card. So, if you have 5 cards that you bought for $10,000 and sell them this year for $210,000, you would have a net gain of $200,000, which is subject to income tax. If, during this tax year, you bought an additional card for $200,000 (let's say a Ruth Goudey), but you continue to hold it, you can't reduce your gain with the new inventory purchase. I need BobB to check in on this one, but that is my understanding. Otherwise, a company could perpetually increase their assets by buying new cards to offset gains on old ones without ever paying taxes (which is generally frowned upon by the tax man).

I would love to be wrong on this one, so please let me know if this is inaccurate.

You can't roll over your gain into the purchase of another card and thereby avoid being taxed on it. The only thing I know of you could do to reduce your taxes would be to sell other assets at a loss and offset the loss against the gain.

[ahmanfan]

If you’re taking a loss on something else throughout the year and are considering selling, may be a wise time to do so.
Otherwise I think it makes sense to stack. Why sell a card, pay taxes,and put the $ into something that may perform worse, equal, or better but is a mystery (IE the market)? Doesn’t make sense.

[butchie_t]

Street corners man....street corners.

[mrreality68]

Taxes sucks paying them

But many people would be happy to have them problem of making the money to have to deal with the tax question.

[sb1]

Unfortunately a "loss" cannot be used on "collectibles" for tax purposes....

The moral of the story is that you probably need to be identified as a business OR as an investor(which is somewhat of a new area and largely untested water). From reading the info I posted below, identifying oneself as an investor is fairly straightforward and largely subjective.

[sb1]

Here's a very good page for reading

https://www.thetaxadviser.com/issues...lectibles.html

[Leon]

Originally Posted by sb1

Unfortunately a "loss" cannot be used on "collectibles" for tax purposes....

I lost 5k on a card approximatly 15 yrs ago. I reported the loss and got audited by the IRS. I showed my cost basis and sales price. It flew past the audit with no problem. I honestly missed a 1099 that year and had to pay around a $100 penalty plus the tax.
.

[sb1]

The loss is probably is taken and passes far more than one would think. I imagine it has to do how it was listed on the return. And. as vague as the codes are many agents probably don't know the correct answer as well.

[Touch'EmAll]

Business vs. Collector vs. Investor - big question. I go with "investor" and Schedule D on my tax return.

By the nature of my acquisitions I feel I can prove investor. I do not collect sets with all the commons, I only collect the most biggest of names and relatively highly graded at that. I do not have an IRA and money for retirement goes into higher end cards, and for the most part stays there. My intent is investment for profit - capital gains.

Keep track of cost basis, and sales price. Declare all sales transactions. Should be good to go.

[ullmandds]

calling ones self an "investor" seems to be the smarter play for tax purposes...what a ruse. enjoy a passion filled hobby to fill the time and enjoy with others and get punished for it! Claim your "collection" is a portfolio for the sole purpose of making money and u are rewarded...cuz this is Merica!

[Exhibitman]

The secret of America is...money, Pete. Everything is money.

https://youtu.be/qHDBDTlrp0o

[Jewish-collector]

Remember the Cyndi Lauper song, "Money Changes Everything"
beer chug.gifbeer chug.gifbeer chug.gifbeer chug.gifbeer chug.gif

[Popcorn]

Taxed when you buy and taxed when you sell. Make some dough pay the toll lol

[molenick]

I am unclear how declaring yourself an "investor" or a "collector" on a tax form would change your tax responsibility if you sell a card for profit. I am also not clear where on a tax form this would be noted...there is a place for your occupation, which for most of us would be our 9-5 job. I don't see anything on Schedule D that asks if I am a collector or investor.

Maybe I need a new accountant!

[Edited to add that I just read the link from sb1 which was informative (even if I didn't understand it all). I can see the difference between someone who's job it is to buy and sell collectibles (e.g., a dealer) and someone who is buying them but whose job is something else. The investor/collector difference is still eluding me...unless it is that you can claim your occupation is "investor" and that will make a difference.

[BobC]

Originally Posted by Smarti5051

I realize I should read the other thread, but I am not sure how "buy more" actually helps reduce tax burden. My understanding is that you pay tax on the difference between net sale price and your basis in a card. So, if you have 5 cards that you bought for $10,000 and sell them this year for $210,000, you would have a net gain of $200,000, which is subject to income tax. If, during this tax year, you bought an additional card for $200,000 (let's say a Ruth Goudey), but you continue to hold it, you can't reduce your gain with the new inventory purchase. I need BobB to check in on this one, but that is my understanding. Otherwise, a company could perpetually increase their assets by buying new cards to offset gains on old ones without ever paying taxes (which is generally frowned upon by the tax man).

I would love to be wrong on this one, so please let me know if this is inaccurate.

Hey Smarti,

It is BobC, not BobB, so you did get that part wrong. LOL. But you're right on the money with pretty much everything else. You treat each item as a separate unit you buy and then sell, and figure your gain or loss on each item accordingly. And as Peter Spaeth said in his post, you can normally only reduce your taxable profits/gains from selling one card/item by selling another card/item at a loss. But even then, that depends on if you're filing as a dealer/business, an investor, or a hobbyist/collector. If you file as a hobbyist/collector, you can't offset losses against other taxable gains/income.

The concept Smarti is sort of alluding to, reducing one's taxable gains/revenue by buying more inventory/assets, falls under a provision/concept known as a Like-Kind Exchange transaction, pursuant to Section 1031 of the Internal Revenue Code (IRC). The concept is that you could defer paying taxes on something you sold for a gain by taking some/all of the profit from that sale, and using it to buy something similar to what you sold. Under current tax law, that is only applicable for buying and selling real estate. Doesn't work with cards.

[Collectorsince62]

I hope to remain in the situation where I never need to liquidate my collection. I would love to pass it on to my children who can do whatever they want with it. My two sons know what I have and also know the options available for selling. I believe their cost basis is the market value at the time of inheritance regardless of my cost basis. Someone please confirm. If they sell at that basis, what is their tax liability? Thanks.

[BobC]

Originally Posted by Hordfest

how do you guys navigate the complexities of selling precious prewar cards without having an outrageous tax burden? I understand ultimately I will probably hire a CPA at some point, but figured I'd start by asking around here.

The threads Pete Ullman included in post #2 is a good place to start, but doesn't begin to really cover all the pertinent questions you may/should have. The link in Scott's (SB1) post #16 to the Tax Adviser is very informative, but also very technical, and not as easy to understand. It is the kind of stuff I end up reading a lot.

If you want something a little more geared towards tax issues from just baseball cards/memorabilia, and in a little less technical jargon, go to near the top of this or any on page in this forum, and find the box on the right-hand side of the page that says "Welcome" followed by your username. On the line just below that box, find the "Search" link, and click on it. When it opens, click on the "Advanced Search" option, and then on the subsequent page it opens, go to the "Search by User Name" box in the upper right-hand part of the page and type in BobC as the username. On the top left-hand side of the same page, go to the "Search by Keyword" box and type in the words "tax" and "taxes" in the Keyword(s) line/space. Then go to the bottom of the page and click on the "Search Now" button.

This should then take you to all the threads I've posted in where we ended up talking about taxes. This includes sales tax and business taxes as well, but you may as well run the whole gamut, so you get the idea of what you're dealing with. You can ignore my posts and responses to any trolls encountered. After that, just let me know if you still have further questions or need some additional clarifications on anything. Good luck.

[BobC]

Originally Posted by molenick

I am unclear how declaring yourself an "investor" or a "collector" on a tax form would change your tax responsibility if you sell a card for profit. I am also not clear where on a tax form this would be noted...there is a place for your occupation, which for most of us would be our 9-5 job. I don't see anything on Schedule D that asks if I am a collector or investor.

Maybe I need a new accountant!

[Edited to add that I just read the link from sb1 which was informative (even if I didn't understand it all). I can see the difference between someone who's job it is to buy and sell collectibles (e.g., a dealer) and someone who is buying them but whose job is something else. The investor/collector difference is still eluding me...unless it is that you can claim your occupation is "investor" and that will make a difference.

The big difference between a "collector" and an "investor" is that if you sell a baseball card you can argue you treated as an investment, and it sells for a loss, you can deduct that loss against other taxable gains on your return, and potentially all other taxable income on your tax returns, just like if you sold a stock you owned for a loss. However, if a card you sold for a loss was instead treated as sold by a "hobby collector" as a pure collectible, and not as an investment, you cannot deduct any of that loss against taxable gains, or any other taxable income on any of your tax returns.

Another potential difference is the max long term federal capital gains tax rate on selling investments, like stocks, which is capped at 20%. The max federal LT capital gains tax rate on a collectible is capped at 28%. The trick is to be able to prove that your cards are investments and not collectibles, which isn't necessarily a slam dunk and easy to do if you get questioned about it by the IRS. There can be some risk involved in trying to push the investor/investment side.

[BobC]

Originally Posted by Collectorsince62

I hope to remain in the situation where I never need to liquidate my collection. I would love to pass it on to my children who can do whatever they want with it. My two sons know what I have and also know the options available for selling. I believe their cost basis is the market value at the time of inheritance regardless of my cost basis. Someone please confirm. If they sell at that basis, what is their tax liability? Thanks.

You're correct, under current inheritance tax law, your sons would get a stepped-up tax basis equal to the FMV of each card/item you leave them on the day you pass. Always keep in mind that this can change in the future.

As for what their tax liability would be, that depends on what they may sell items from your collection for, and what else they are reporting on their respective tax returns in the year(s) of such sales.

[Hordfest]

Originally Posted by BobC

The big difference between a "collector" and an "investor" is that if you sell a baseball card you can argue you treated as an investment, and it sells for a loss, you can deduct that loss against other taxable gains on your return, and potentially all other taxable income on your tax returns, just like if you sold a stock you owned for a loss. However, if a card you sold for a loss was instead treated as sold by a "hobby collector" as a pure collectible, and not as an investment, you cannot deduct any of that loss against taxable gains, or any other taxable income on any of your tax returns.

Another potential difference is the max long term federal capital gains tax rate on selling investments, like stocks, which is capped at 20%. The max federal LT capital gains tax rate on a collectible is capped at 28%. The trick is to be able to prove that your cards are investments and not collectibles, which isn't necessarily a slam dunk and easy to do if you get questioned about it by the IRS. There can be some risk involved in trying to push the investor/investment side.

Thanks Bob! You seem to be the resident accountant around these parts. Lots of reading to do for me.

[Jewish-collector]

BobC is the greatest !!! If I can get out to the Strongsville show, I want to meetup with him.
beer chug.gif

[BobC]

Originally Posted by Hordfest

Thanks Bob! You seem to be the resident accountant around these parts. Lots of reading to do for me.

Yes, I passed the CPA exam in one try and started out working for a Big Eight accounting firm back in the 70s, so I've been doing this awhile. LOL
There are other accountants and tax preparers on here, I've just been speaking up a lot more lately because of all the crazy changes going on the past few years. And to hopefully offset some of the real crazy stuff that sometimes get posted by people who may have believed they knew, but actually had bad information they were passing on that was totally wrong.

And the reading can get very confusing real quick. If there is something you're still not sure of after reading through all those threads and posts, just ask.

[ullmandds]

I met with my new accountant today…my old one of almost 20 years retired. Mike is likely mid/late 30’s if I were to guess.

The topic of taxes for the sale of collectibles, art, etc came up…I guess I brought it up. And it certainly seems to me that there are a lot of gray areas in tax “law?”

I brought up the concept of “collector” vs “investor” as a way to possible get a break on losses terming myself an investor. We discusses length of ownership…rationale for the initial purchase.

Mike gave me an example of a guy with a muscle car purchased new for 3-4K in 1970 or so. The car was purchased as a car…as transportation…not as an investment. It just turned out the car turned out to be aq helluva investment…recently sold for 80K…NO TAXES WERE PAID.

A family heirloom…handed down generation to generation…never intended to be sold…but eventually sold I’d assume NO TAXES WERE PAID as when someone inherits something the value on the day of the inheritance is the cost basis?

An older gentleman who bought packs of bb cards in the 40’s-50’s…like 
Ted Z!!!!! A time when these cards had no value and could not possibly have been purchased as an “investment”…just a fun hobby that turned out to be a good investment. This to me is one of the grey areas? Are these taxable?

For sure the Plank card that Ted bought in later years would be taxable as at this point in time this card had significant value?

I hope Ted doesn’t mind me using his name here!!!!!

Or someone like me…been collecting cards since the mid 70’s. We did not consult price guides after opening packs to see how much money we had made…or lost. But this did start happening in the following 10 years.

Someone like me will be paying taxes on all of my card sales because in my lifetime…bb cards have had value…therefore whether I am/was/is a collector vs investor…I’m paying!!!!! It’s the differentiation between collector vs investor which still irks me. It seems the IRS is judging me based on assumptions?

So nothing revolutionary…I thought the car story was interesting.

Turns out Mike is a collector too…still has his childhood collection…is a big jersey collector.

I like Mike!

[Yoda]

Originally Posted by Hordfest

Thanks Bob! You seem to be the resident accountant around these parts. Lots of reading to do for me.

I think I just became an investor rather than a collector.

[BobC]

Originally Posted by ullmandds

I met with my new accountant today…my old one of almost 20 years retired. Mike is likely mid/late 30’s if I were to guess.

The topic of taxes for the sale of collectibles, art, etc came up…I guess I brought it up. And it certainly seems to me that there are a lot of gray areas in tax “law?”

I brought up the concept of “collector” vs “investor” as a way to possible get a break on losses terming myself an investor. We discusses length of ownership…rationale for the initial purchase.

Mike gave me an example of a guy with a muscle car purchased new for 3-4K in 1970 or so. The car was purchased as a car…as transportation…not as an investment. It just turned out the car turned out to be aq helluva investment…recently sold for 80K…NO TAXES WERE PAID.

A family heirloom…handed down generation to generation…never intended to be sold…but eventually sold I’d assume NO TAXES WERE PAID as when someone inherits something the value on the day of the inheritance is the cost basis?

An older gentleman who bought packs of bb cards in the 40’s-50’s…like 
Ted Z!!!!! A time when these cards had no value and could not possibly have been purchased as an “investment”…just a fun hobby that turned out to be a good investment. This to me is one of the grey areas? Are these taxable?

For sure the Plank card that Ted bought in later years would be taxable as at this point in time this card had significant value?

I hope Ted doesn’t mind me using his name here!!!!!

Or someone like me…been collecting cards since the mid 70’s. We did not consult price guides after opening packs to see how much money we had made…or lost. But this did start happening in the following 10 years.

Someone like me will be paying taxes on all of my card sales because in my lifetime…bb cards have had value…therefore whether I am/was/is a collector vs investor…I’m paying!!!!! It’s the differentiation between collector vs investor which still irks me. It seems the IRS is judging me based on assumptions?

So nothing revolutionary…I thought the car story was interesting.

Turns out Mike is a collector too…still has his childhood collection…is a big jersey collector.

I like Mike!

Yes Pete, there are a lot of "grey' areas in tax law, just like regular law. The Internal Revenue Code is quite large, but the IRS/Treasury Regulations that are published to further explain the various tax laws are much larger, and detailed, subject to change over time after appeals, court rulings, and such.

The Collector vs. Investor vs. Dealer conundrum I've mentioned on here multiple times is often as clear as mud, and why I generally always recommend people contact a qualified tax professional if they have questions and issues. Sounds like you got a good one!

Next time you talk to him, try running by the very simplistic way I've often described as a base difference between a supposed Investor vs. a Collector. A Collector has his collection hanging on his wall or sitting on a shelf in his man cave. An Investor has his investments sitting in a bank safe deposit vault or in a new vault like at Goldin or PWCC. Curious as to what he thinks of my over simplified example, and if it gets a laugh out of him.

The argument about whether one is an Investor as opposed to just a Collector is still somewhat more recently confusing as the idea of cards being investments has been growing and getting more and more publicity in the media and the public, to the point where even the IRS can't completely ignore such a transformation and taxpayer position. You should also ask your new tax guy how he feels about the possibility that a person can be all three, Collector, Investor, and Dealer, all at the same time, as long as records are kept and maintained that keep and treat various parts of his collection/investments/inventory separate from each other. The trick then, if ever questioned by the IRS, is to be able to show and convince an IRS agent that you are any/all of these different categories. And for that there is no real, simple, defined line that definitively says you are or aren't one of them.

I am curious as to the example you mentioned regarding the 70's muscle car though. Are you saying the original person buying it for $3-$4K held it all these years, and then sold it for $80K and paid no taxes, or that they left it to their heirs, who were able to get a stepped-up tax basis in the car so when the heirs sold it they ended up paying no taxes? It wasn't really clear from your description as to exactly what occurred. If it is the same person that originally bought the car, and then many years later sold it for $80K, I'm pretty sure they should be paying tax on the income from that sale, most likely as a long-term capital gain. If it was inherited and subject to a stepped-up basis, that has nothing to do with whether the car was considered a collectible or an investment. And if it was sold by the same person that originally bought it, it doesn't really matter if it was an investment or collectible either because it was apparently sold for a profit. The one big tax difference between a collectible and an investment is that if you sell an investment for a loss, you can offset that loss against other capital gains, and potentially other ordinary taxable income as well. If you sell a collectible for a loss, you can't deduct the loss against anything, it is considered a hobby loss and is totally not deductible.

The other big tax difference between collectibles and investments is the potential federal tax rate that can be charged on the capital gains from their sales. This only applies to sales that are long term, where the items being sold are held for twelve months (one year) or longer. Short term sales of collectibles and investments held less than one year, if sold for a profit, all result in ordinary federal taxable income (like salary and wages) and are subject to the top individual federal tax rate currently at 37%. Long term gains are treated as capital gains and are subject to a maximum federal tax rate of 20% for investments (stocks and bonds), but 28% for collectibles. I am currently unaware of anyone trying to sell a baseball card as an investment, and successfully claiming it is an investment subject to the max federal capital gains tax rate of 20%, if challenged by the IRS. But given the change in the markets and perception by the media and public, it is virtually impossible for the IRS to continue ignoring this new treatment/classification for baseball (and other sports) cards. Interestingly, in the rules and regulations the IRS has defining "collectibles" they specifically mention several things they deem as collectibles, but sports cards are not one of them. This is one of those "grey" areas/lines people refer to. At some point in the future, I can see one of these "modern" investors selling one of their million-dollar plus cards, and end up going to appeals/court to argue that it is an investment, and therefore only subject to a 20% max capital gains rate. It is at that point that we may get some better clarity as to what can/will be considered as an investment versus a collectible, and what level of proof will be required to demonstrate that. Until then, it is still arguable by a taxpayer, and therefore not truly illegal tax evasion on their part by claiming it. But you have to make the claim on your tax return first, and the IRS has to actually choose to look at your return to make it an issue where you may have to prove your position.