For those of you who aren’t familiar w/ my story - I had a significant shipment lost by FedEx last year that still hasn’t been located.
Anyway, I’m considering selling off everything that I have left - some at a loss. I’ve considered getting back into the hobby but unfortunately I’ve been priced out & feel as if moving on is my best option… My question is: does the IRS allow you to offset gains w/ losses on cards? All of these items have been held over one year.
I saw something stating the IRS will allow you to write it off if you’re considered an investor - rather than using the collectible for personal use. Looked but couldn’t find any info on how this is determined.
If any of you have experience / advice dealing with this, please let me know.
Highly recommend consulting a tax professional. But my suggestion would be to look at your entire collection as two pieces of info. Total costs vs total sale value. For example if you have $100 in costs in the entire collection and sell for $150, you owe tax on $50. This includes cards you profited on, as well as cards you took a loss on, as it will all cancel out when you compare your cost basis to your final sale value of everything. This is a very simplified view, but hope it helps. If after you sell everything, you haven’t covered your total cost basis, you would want to see if you can claim a capital loss overall.
If you get a 1099-K, then the income generated counts as self-employment and is associated with your overall income. I use TurboTax and there’s a section where you fill out how much the goods you sold cost you. If the cost of goods exceed your total sales then you won’t pay tax on any of the stuff you sold and it can even reduce your taxes overall.
I don’t know the extent of your “Pokemon business” but you could possibly write off that massive loss from the FedEx fiasco. Might wanna look into that.
I wouldn’t be deducting my lost shipment. Wish I could but that would raise major red flags.
There’s just a mixed bag of items that I still own. Some I’ll sell for a gain & other at a loss. I just didn’t know if I’d be able to deduct those losses from my gains since it isn’t determined by the IRS if I’m an “investor” or used the items for personal use.
Everything that I sell will be through eBay so I’ll get a 1099-k. Do I just say it’s regular sales income instead of gains / losses from sale of asset(s)? I’m very unfamiliar on how the IRS tracks these distinctions in income.
Yeah probably not the best place to be asking tax advice.
I understand sales vs cost. When I searched through Google I saw a few articles that made it appear as if you couldn’t claim capital losses on collectibles determined to be for “personal use.” So, where is the line in the sand between an “investor” or someone using for personal reasons? Seems very subjective for something like collectible cards.
It’ll all be 1099-k income so maybe I’ll just run it through my ordinary income instead of capital gains / losses. Who knows.
I would consult a tax professional now before you start making any major decisions about how you’re going to sell, that way you have all your ducks in a row and it isn’t dwindling in the back of your mind that maybe you’re missing something or going to be taxed at a different rate than you’re expecting.
I’d pursue the major FedEx collection loss… yea there will have to be some serious documenting I’d imagine to avoid an audit - but you legitimately had a major loss that could be written off I would imagine if done correctly.
I’m not a tax expert, but I’m fairly confident you could sell at a loss throughout 2022 (subtracting the COGS from your sales revenue) provided you meet the IRS criteria for a business. Basically, as a business, you would need to be regularly and actively involved in selling with a demonstrateable effort at turning a profit. This part might be tricky, unless you’re able to show a significant number of profitable sales, in which case, the losses would help negate some of the profits. You would likely need to document your purchase prices carefully and complete a Schedule C at the end of the year to include with your tradition Form 1040. If you are only casually involved or taking more losses than profits, I’m not sure this method would stand-up to scrutiny.
The other option may be to file as capital gains using Schedule D. Basically, this would imply you were buying as an investment rather than a collector. Using this method, I believe you are still allowed to deduct your cost basis (purchase price and improvements) from the sales revenue. Similar to above though, taking more losses than profits would likely raise red-flags.
In short, both seem like gray areas to me; I’d recommend speaking with a CPA before committing to anything. The first option seems a bit more feasible, since most businesses do report losses for the first few years; however, the IRS can retroactively recategorize income one or several years later and apply interest and late penalties . . . if you plan to cash out completely and operate as a business for only one year with a significant loss, that would probably be another red flag.
Agreed, unless the OP takes additional actions throughout the year that are profit-driven and consistent with the IRS’s criteria for a business, which may be possible. Seeking an actual tax professional is the best advice.
Look, I’m a CPA. I wanna answer these questions all the time but there’s certain liability with answering them. Also, I’m kinda new to some taxes so I don’t wanna give any misinformation, just in case I’m wrong.
But there are smart tax planning strategies for the sale of these assets we all buy and sell. Notice how I worded that last sentence; I didn’t use the word “collect”. Yes, consult with a local CPA. But it’s not that easy. It will cost money and it’s a busy time of year for them. Time is ticking. You may want to file an extension and consult with a CPA in May or June if you’re unsure about 2021 sales. Still gotta pay a tax by 4/15 though.
People gotta understand that some things are open to interpretation. But CPAs aren’t attorneys. They don’t have privilege with their clients. So you gotta ask questions to them carefully and have established trust. There’s excellent tax advice to follow when selling Pokemon but it’s not in CPA’s best interest to post it in a public forum.
If you’re selling and getting out of the “business”, it’s pretty easy. You really can get most answers with Google. Gross proceeds less related expenses.
If you’re not getting out of the “business”, here’s a tip. Cash basis taxpayer with gross receipts under $25,000,000. They have special rules with how to treat inventory. I’d ask a CPA about those rules.
I’ll still have a decent profit come year-end. Most of these items were purchase in 2018. But, I did buy a few things in 2020 which is why I’m curious if I can subtract those losses from my gains.
@mewtuw, If you’re still showing a decent profit and most of your sales are gains not losses, I would assume one or both options could apply to you in 2022 (depending on your personal circumstances). Which route you went (Schedule C or Schedule D) would depend on if you met the requirements to be considered a business or were treating your purchases as an investment. There are key differences to the tax treatment of both options as well: for example, in addition to paying federal and state taxes, businesses also pay a 15.3 percent self-employment tax. Capital gains don’t. However, a business is also entitled to a number of other deductions including office supplies, travel expenses, equipment purchases, related subscriptions, and more. Again, it’s a complicated question which depends on the specifics of your situation.
@zubat, I think the OP is talking about selling this year (not last year), so that should provide a nice window of opportunity to consult with a CPA after tax season.
@mewtuw , This is not tax advice, but consumer advice: If you’re going to receive a 1099, and not used to itemizing anything, then you should find a tax professional. I’ve been 1099 for much of my life, and once I started itemizing, the cost to file taxes with HnR block, Turbo, or whatever, plus the headache and lost time, made it far cheaper and gave me piece of mind going to a pro. You can ask them all the Qs, and in the end, they’ll have a clear idea of your situation and it will be much easier. I’m not sure of the ramifications of the hobby income on the 1099-K (vs the regular 1099 self-employment income I’m used to), so I’ll be making good use of my pro, this coming year. That’s my suggestion, as others have as well. And whatever you decide, best of luck with everything.
