Accounting, Taxes and Coins

I don't know if others on this forum have had trouble with getting their figures straight when trying to figure profits, taxes and record keeping in general on coins, bullion or collectibles in general. I have had numerous CPAs tell me either not to worry about paying taxes on things like this that government does not get reports of when we sell, or to pay at lesser levels and again, no one will hold me accountable. At least with stocks, bonds, interest bearing bank accounts reports are generated matched to Social Security numbers.

Does anyone have some guidelines on how to get their numbers straight in this area? I checked with the Bank of America people about downloading bank numbers into an excel program without getting any clarification on this.

 

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How much you bought it for, minus what you sold it for, equals capital gain. (You can have a negative capital gain, but can only offset that loss by other gains)
If you held it for less than one year, your capital gains taxes will be a higher percentage than if you held it for more than one year. (I don't know the percentages, though)

This is assuming that one actually lists the income on their Form 1040 as required by law.
When you list the gain, you must be able to prove your cost against the sale price.

If the buyer did not fill out a Form 1099, the IRS has no knowledge of the transaction, causing some to violate the law, and not report the income.

 

What's this profits thing you speak of?

 

The buyer, if he gave you a slip stating what he bought from you should have your name on the slip or if he paid you with a check this is a paper trail. If he ask to see your ID than there is a record somewhere. And and CPA that tells you to break IRS laws by not reporting your profits from the sales of coins, this is not the CPA you should use. When they tell you to not report it have that CPA put that in writing so if you do get caught you can show that to the IRS and maybe the CPA will get fined instead of you.

 

Wrong.

Hobby gains are ordinary income.

Hobby losses may not be deducted.

 

What if it's just bullion?
What if it's his business?
What if it is world currency's?

I think there is to many questions to just give a yes or no answer here, thanks to our complicated tax system. That's why a Flat Tax system would be better!
Yea it's not perfect but I bet most of us could figure out what we owe in tax's.

Back to the op's question...if a cpa can't tell you what makes you think a forum will get it more right?

 

From WWW.IRS.Gov

Table 16-1. What Is Your Maximum Capital Gain Rate?

IF your net capital gain is from ... THEN your
maximum capital gain rate is ...

a collectibles gain 28%
an eligible gain on qualified small business stock minus the section 1202 exclusion 28%
an unrecaptured section 1250 gain 25%
other gain1 and the regular tax rate that would apply is 25% or higher 15%
other gain1 and the regular tax rate that would apply is lower than 25% 0%

1 Other gain means any gain that is not collectibles gain, gain on qualified small business stock, or
unrecaptured section 1250 gain.

Collectibles gain or loss. This is gain or loss from the sale or trade of a work of art, rug, antique, metal (such as gold, silver, and platinum bullion), gem, stamp, coin, or alcoholic beverage held more than 1 year.

Collectibles gain includes gain from sale of an interest in a partnership, S corporation, or trust due to unrealized appreciation of collectibles.

 

For one thing CPAs don't always get it right when it comes to individual taxes. Also the IRS rules are very strict on what is considered a business and what is not, specifically when it comes to hobbies. If you have questions, IRS Publ 17 is the basic guide to use. Despite what a CPA or anyone else tells you, you are ultimately responsible for your tax return and what is reported on it.

 

I thought I read a few months ago there was a bill that would eliminate taxes on coins with a face value. Did it get lost in the muck, or what?
Guy

 

Did you pay taxes on it when you bought it? Supposedly everyting you buy even through the internet you are supposed to pay sales tax on but... who actually does?

 

I believe that the OP is asking about Income Tax on short term and long term capital gains.

Taxpayers complete their tax returns based on the "Honor System". The taxpayer is responsible for everything reported on the tax returns that they submit. If a taxpayer receives bad advice, they are still responsible for the error.

Most paid tax preparers say that they prepared the return based on the information provided by the taxpayer.

Some folks gamble that they will not be audited, and that any false information reported will go undetected.

As dirty Harry said: "Do you feel lucky?"

 

I don't know how it is elsewhere, but here if the IRS audits you, they also audit your CPA. Mine is always extra careful to get things right.

 

I think what you meant, is that your CPA may participate in and represent a taxpayer in an audit.

The CPA 's business or personal returns are not effected by a client being audited UNLESS the IRS detects a pattern or a high frequency of problem returns signed by a paid preparer.

 

Two different types of tax.
Sales tax is a tax levied by the individual states and is a percentage of the purchase price. Some states tax sales of coins and some don't.
Income tax is a tax on the profits made in the trading of the coins levied by the US government and by some states.

Paying sales tax when you make the purchase does not eliminate any capital gains taxes on the income generated when you later sell those coins.

Special note to Treashunt: Thanks for the correction. When I post, there is always the possibility that I am wrong, and I always appreciate it when I'm set straight.

 

Though they are attempting to do it, it's not clear that a state has a right to tax a retail transaction with a retailer in another state.

 

If you are a dealer who buys and sells PM, the gain from the sale of a coin would be considered business income, not a capital gains.

 

You could be taxed for self-employment business if they want to prove their case, I have not known of a case where either the state or federal tax people have done this. The difference between self-employment income and investment or hobby income is significant. Once upon a time they probably made cases out of this, but less and less these days. I have heard of a couple dealers being audited, but this too is infrequent. I once spoke to JJ Van Grover about his having been audited by the NYC tax department and he was accurate down to the farthing he said.

Tax non-compliance is fairly substantial these days, and of course, there are huge ranges of violations, from a few hundred here and there to six and seven figures. If people had really accurate auditors to get all their deductions, etc., the tax quickly gets minimized. It is more the value of seeing the numbers and the gross and net profits that gives those buying and selling a good idea of whether it is profitable or not.

Theoretically book-keeping and accounting are supposed to be done a certain way. Accountants know that if their customers pay more than they expect to, they may lose customers to other CPAs with different methods. Accountants told me how customers had eluded taxes with separate bank accounts, cashing checks at the payee's bank, etc.. They know all the tricks, and unfortunately, an honest filer may have to work to get the accountant to do it honestly. That has been my experience.

 

Has anyone ever heard of any coin collectors getting audited and penalized for selling coins and not declaring the profits as capital gains? TC

 

I believe California (and perhaps other states) tries to get around this by charging a "Use Tax" (equal to the sales tax) to California residents when no state sales tax has been paid. I recall seeing this on the CA540 tax form.
But then again, I'm not an accountant or tax lawyer.

 

This is the exact position today, as it has been litigated to death, and the Supreme Court has ruled clearly:

A state does not have the right to make an out of state firm collect sales tax in its state without nexus. In short, nexus is a physical presence. So, a NC company selling via mail order to a CA customer cannot be forced to collect sales tax for CA. However, every single state with sales tax has also "use taxes", which if the resident of the state does not have to pay sales tax on the purchase, the taxpyer themselves are liable to pay the use tax.

Use taxes compliance audits are on the increase, simply because states want more money. NY found people avoiding the use tax on art work a few years ago, and taxes owed, and penalties and interest, were in the millions. One person even went to jail over it. If you live in a state with sales tax, and the person selling it does not charge you sales tax, you personally are legally liable to pay use tax unless the purchase was tax exempt. Period. If they catch you, (big if I understand), you are in trouble.

My background is a CPA with 20 years experience with Sales and Use taxes, and have served on US Treasury panels regarding the IRS. If anyone wants case citations, or more info please just let me know. I am trying to make this post short and sweet.

Chris