Capital Gains

Re: Capital Gains

Thom D


>It's straight forward capital gain up here. In certain areas, if one lacks the paperwork, they will just impose the numbers and extract their tax regardless of the real numbers. Periodically the governemnt does things to preference certain forms of gain like small businesses, farms, Stock savings plans, principal residences, etc... But the fact it's a tool doesn't change the situation up here as far as I know. How much of this kind of thing ever gets reported, I couldn't say.

The real issue is --- Way OT

Wiley Horne


>Did somebody cut a 1098 on that transaction, or no.

Wiley

Pithy, laconic, a little cryptic, almost...wily!

woodburnbob


>I googled 1098. Mostly saw stuff on mortgage interest and student loans. Care to elaborate on your comment?

I'm not trying to induce you to turn seditious, just wondering what exactly you are alluding to. Tell me via PM if you prefer.

I regretted my post the instant

Wiley Horne


>I hit the send button, because it's dipped in uncharacteristic cynicism. IRS Forms 1098 and 1099 (and perhaps others) are used to report disbursements of various kinds. Many institutions are required to issue them, cc: to IRS, to document payments that have been made. I apologize to all for using bandwidth on this.

Wiley

Unless you're audited

Bill Houghton, Sebastopol, CA


>and they ask where that $1,000 deposit in your bank account came from...

Entirely aside from the ethical issues, into which we should not delve since a conversation like that heads towards politics, not part of this community for good reason, it's darned hard to hide money from the tax folks if they really want to find it.

Re: Capital Gains

Dave Thompson


>To me, it sounds like a garage sale would be analogous, and I suspect that would ammount to an awful number of criminals out there. I just did a quick google on "IRS tax garage sale exemption" (refine as you please) and came up with this Indiana gov tidbit.. The gist being your triple back flip #1 sale is fine, but the Shelby which needs to be titled and licensed is not.

Re: Capital Gains

Todd Hughes


>From what I have been told ,like banks, auction houses have to report any transactions over $10,000 to the IRS. What some used to do for people they knew would cut several checks to keep it under the $10G though my friend that writes for antique magazines and covers the auction beat told me that after the IRS crack downed on several cases they are more hesistant to do this now though still probably happens with the auction house spreading out the payment.

I think if you sold a No. 1 Stanley for $1,000 at a local auction ,or on ebay for that matter, and didn't report it on your taxes the chances of the IRS getting you would be about slim or none....a 2 M car would be another story......Todd

going back to another time in my life...

V Parisian


>I gave up my CPA license in about 1997 after practicing as a CPA for the general public primarily small tax returns and various small businesses for about 15 years after 8 years in industry. My approach to this problem is rather pragmatic.

It is not a capital gain, but a hobby gain (If you really aren't in the business to buy and sell tools for a living nor do you realistically suppliment your income with this, then it is a hobby.) The IRS uses the phrase Hobby Loss to dicribe the losses generated by what appears to be a hobby. They like to banter this about anytime a taxpayer gets into a business without a business plan etc. and starts to write off expenses (usually far) in excess of income for several years running.

Example: Bob sells three hundred dollars in tools this year, but manages to deduct all the miles, meals, travel, entertainment and heating and cooling of his shop, depreciation on his equipment etc. (don't forget dog food and vet bills for Fifi the guard pooch)amounting to several thousand dollars as "legitimate" business expenses of his "tool selling" business.

Let's say for good measure that Bob also works 50 hours a week and earns in excess of $60,000.00 from his employment.

Without the proper arguments prepared in advance, and without a well thought out business plan etc, the IRS will let this slide two or three years. But in the 4th year Bob has got to show a profit,shut down the business,or risk having to go back and restate income under the Hobby Loss Rules and pay taxes, penalties, and interest on the deductions (to the extent that they exceeded sales)that are now dissallowed.

This isn't to say that a guy can't start a business and loose money for several years. This sort of person usually runs out of funds eventually and folds up shop, declares bankruptcy (gets a divorce along the way) and finally goes and gets a real job. I feel sorry for this guy, and his losses are very real and truly deductable. Remember there is no law against being stupid or being a poor business person.

Now back to Bill (or was that Bob) the guy who is buying and selling a few tools a year and turning a pretty fair amount of money at this. I suspect Bill/Bob could most likely come up with several thousand dollars of legitamate deductions that more than offset the gains without having to get very creative accounting wise. (Yes expenses related to Fifi the watch dog are legitimate.) If this is the case, then keep records of all the expenses and the income, and compare to see if you are still generating a loss. If the IRS were to audit you and suggest that you should be declaring these sells as profits, you can pull out all your receipts and say; "I'll report the sells if you allow me to offset the sales with these receipts." Oh ya baby... I love to leave an audit where the good Uncle Sam owes me a few shekels :>).

Tax lesson 101 is now concluded.

Victor-getting down off the podium. Come on Fifi,lets rehab a plane tonight.:>)

Thanks, Victor...wish you'd written this years ago

woodburnbob


>I was able to google the term "hobby loss" and found a wealth of information, official and otherwise.

I don't have a lot of $5 tools now worth $1000. But I do have a fair number of tools I paid $200 for that are now worth $300. I have lots more that I paid $50 that are now worth $20. I acquired all impulsively and later on began rationalizing the cash flow (out) by telling myself if worse came to worse, I'd sell them off gradually to pay off my monthly utilities and buy cat food. My fantasy was to do it via Ebay. I haven't started any selling and now see a variety of dilemmas.

The biggest issue isn't thinking up "hobby loss" costs but finding the "basis". I guess I need to find some tool database program and spend a few months/years before kitty can get any food.

I've gone on to suck it up and googled the words "tax Ebay sales". It's clear that the answers I was hoping for are yet another of my many delusions.

Excellent reply! Now I know why I surf here...

Scott Burr in Ben Lomond, CA

Re: going back to another time in my life...

Thom D


>That's very interesting. I had a friend in Canada who tried that three year business/hobby loss every 3 years or so, kept it rolling. Always wondered what would really happen...

You have put this question in the likely frame that an IRS person would use to view this transaction. But is it still a capital gain? I see what you mean about whether a person is professionally or not in the business of flipping planes, which is probalaly a non-existant segment. But is the backstory determinative in conceptual terms, or just as far as IRS behaviour would likely be concerned.

Re: Capital Gains vs dealer status...

V Parisian


>This is an area that is foggy/cloudy at best.

Google capital gains vs dealer or investor vs dealer

Capital gains treatment is preferrable in many ways for some items, and becomes a function of your business habits. If the person buys an item(s) to resell and holds the item(s) out for sale continually he is likely a dealer. As a dealer he/she can deduct all the costs of his enterprise collectively against the aggregate of all the sales made during the course of the year. This netting will either result in a net loss that has no limit (as a practical matter) on the tax return, or a net profit which is subject to self employment taxes etc and is added to other income on the return and becomes part of taxable income.

On the other hand if the person is buying items as an investment, deliberately buying when the market is down and holding until market conditions are more favorable and then selling as one might sell a stock or a bond; the sales price in excess of basis (basis equals cost plus hard costs of improvements to the item) is a capital gain with the tax treatment in the US favorable if long term (held over one year) or less favorable if held less than a year.

As an investor if there is a loss on the sale of the item then the loss is aggregated against other short term or long term gains and losses and is limited to $3,000 loss in a given year with the balance of the loss carried forward until used up at $3,000 per year or offsetting gains in subsequent years.

What is curious about capital gain treatment for these sales is that expenses related to your business as an investor can not be deducted against the capital gain (or added to the capital loss) but instead are carried over to misc. itemized deductions on schedule A of form 1040 where they are agregated with other misc deductios and the agregate is subject to a 2% of income test. The usual results being A) there was too much income so the 2 % agregate test results in Zero deduction, B) Since your income was relativly modest (smaller home mortgage lower taxes etc) the standard deduction is larger than total itemized deductions and again the result is Zero. On the plus side there are no self employment taxes due on capital gains.

So the question becomes can the "investor" re-style his/her business practices to become a dealer for maybe more favorable overall tax treatments or can the dealer re-style his/her business to get capital gains treatments? There are a lot of factors to consider if this applies to you, you need to be talking to an accountant who can think outside the box. I would suggest one with at least 10 years or more of tax experience.

No more on taxes, I promise.

Victor

Years ago I wasn't as smart. :

V Parisian