Taxation on coin sales

Hi,

I recently started a website to sell coins as a way to finance the purchase of other coins. I don't intend to make much profit, but simply finance the enlarging of my coin collection. Will I need to pay self-employment taxes on the sales income? Or as long as I spend the profit on more coins, I won't have to pay the self-employment tax?

In another words, would this be considered hobby income, or does it have to be considered business income since I started a website? Would this be considered different than selling a few coins on ebay as part of a hobby? The website only costs 15 bucks to set up for a year - quite a bit less than ebay fees.

Thanks!

 

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There was a huge discussion of this on another thread a couple of months ago and I don't think we reached a concensus.

The simple answer is - you will owe self-employment tax on whatever income you report from the sale of coins. Those of us who are self-employed know this wonderful little 15.3% tax very well.

 

It would probably be in your best interest consult a CPA, financial advisor, or tax accountant or you could inquire on a financial forum.
http://www.grasmick.com/board/?topic=topic2

 

If it is a hobby - you must pay capital gains.

If it is a business - you must pay SS, income, unemployment etc.

You must decide which it is (and be able to justify that decision to the IRS).

 

So you are disagreeing with hobo? He is saying that any sale of coins must pay self-employment tax.

 

I agree with this statement. If you haven't gotten an employer ID # from the IRS, than you are not a business yet.

If you're doing it for a hobby, how honest are you? Have you saved, or are you going to save every receipt from everything you've purchased and documented it or are you planning to in the future? Without receipts, there's no telling if you paid 100 dollars cash for that coin from your buddy or 20. Then if you sell it online for 80, and you paid 100 , you just lost 20 dollars!! It goes the other way too.

Plenty of people come up with phony businesses for themselves and then write off losses, (on a grander scale than stated above). You can write off losses for 7 straight years, close up shop on that business, start a new one and start over. I think this is the reason they say so many small businesses fail is because there's so many people out there starting up phony ones to write off everything they want for their hobby and get 25% of their money back from the government.

If you're just doing it on the side as a hobby, it's going to be hard to prove what you've bought and sold unless you call the IRS up and talk to them about it. Small time deals are hard to prove and I really don't think they have the time or the manpower to worry about it. If somebody tips them off that you're making 200,000 a year, then maybe they'll investigate.

I don't think they get too worried until you start doing something like that and it becomes your primary income that you're living on. Or when over a certain percentage of your income, comes from doing something on the side.

I'm not sure why you wouldn't just want to be an anonymous seller on ebay and leave it at that. Unless you really want to do this for a living.

BTW, if you do decide to become a business, now you're required to issue receipts to everyone and charge sales tax for all purchases made within your state. Right there you will lose many people within your state of residence to ebay.

 

Oh. I missed this part at the end. It sounds like an excellent idea but I really don't know how it works if you have your own website. Such as special rules in place. Maybe somebody else does.

You can always call up the IRS and see what they have to say about it. Your taxes pay their salary.

 

call your state's comptrollers office and ask them. each state is different. being a vest pocket dealer is not the same as being self-employed. if you work alone and only earn a small percentage of your total income, than you should be fine. but i would ask the government official in your state to be safe.

-Steve

 

Okay, thanks for the info. Too bad our taxation system doesn't have clear rules and guidelines.

Let me know what your experiences are? Anyone else have something to offer.

 

To provide a little more info:

I don't plan on selling more than a few thousand dollars worth of coins per year. Perhaps, much less. I may only sell a few hundred dollars worth. I have no idea. It will depend upon whether or not I get any customers. My intention is to use the money to fund my hobby of collecting coins. I will purchase more coins with the money, and so have no net gain. I don't need the money for income.

I have no intention of creating a phony business to make tax deductions with. I don't want/need to deduct anything. My income is only around 25,000 a year, and with a wife and kid, I have practically no tax obligation anyway.

I just want to make sure I report the income correctly.

Thanks!

 

It doesn't sound like you have anything to worry about. But for the record, purchasing more coins with the money is certainly a net gain. That is increasing your assets.

The following is just an example.

FWIW, if you have a credit card with a 1k balance. You stop paying it for a long time. The interest and fees rack up for several years. They write it off and it goes to a collection agency. Now the CA says you owe 2k to them but they're willing to settle the debt for 1k. Essentially, the original amount of the debt you owed.

You pay them back the 1k that you spent. The 1k worth of fees and interest that they canceled for you is classified as net income! They have to report it to the IRS and you get a 1099-C in the mail. You have to pay taxes on the 1k that was cancelled because that was a gain for you. Even though you never got any of that money or spent it. It was an obligation you had that was created by their TOS and they used it as a write off. Which also benefited you financially, so you pay taxes on that amount.

Just saying, the definition of income can be pretty loose.

 

Thanks for the information, Vess1. I now see how this is a net gain. So what form do I use to report this gain? Is there a form for hobby income?

 

Not exactly. I said that you will need to pay the SE tax on any income from coin sales that you report.

 

Okay, I need to know how to report a net gain in my coin collection. I don't think it will classify as "income" because I'll simply be putting any money I make back into more coins.

 

Consult a tax expert for your particular situation, and this should include Ebay sellers as well. Everyone will get personal and accurate info that way and only that way.

 

This is some good advice. But I think you're seriously worrying too much about it IMHO.

In your case, between you and me , I wouldnt report a d*** thing. I say try it out. See how profitable it is. See how easy or hard it is to make that few hundred or thousand, and go from there. Nobody knows what you made but you. Nobody's sending them a W-2 or 1099. Paypal doesn't report to them as far as I know.

If it really wears on your conscience that much, next year when you fill out your 1040, enter the amount of your "Other Income" on line 21 and describe what it's from. Then it will be added with your gross income. Since you're not a business, they would never have any idea how much extra income you had unless you fill that line out.

IMO, you'd be donating to the treasury. They'll take whatever you're willing to send in.

Seriously, if you want to get that technical, probably everybody here is guilty of tax fraud at some point in their lives. If you bought and sold anything and made a profit in your life AND didn't report it that year, technically you've broken the law. Most people don't keep track or do anything. It isn't a big deal, unless you're eventually living off of the income as your primary income.

 

Obviously you have never been through an IRS audit.

 

Then I'd be out of business!

 

Howdy,

Good luck.

The IRS has mixed messages in some respects. They define any sale of an asset for a profit as a taxable event. This means that if you sell that coin for more than you paid, it's a capital gain and a taxable event. The same would be true for that '57 chevy you bought new for $1500 and stored in the barn and is now worth $20K or so.

But, they also cut us all some slack with their 'garage sale' exemption from the above. This basically allows us to sell misc. stuff in a garage sale type method and not have to report. [most collectors use this exemption whether we actually qualify or not]

Now the other aspect of this is whether the taxable event (your selling a coin for a profit) is taxed as an individual (hobby) or a business. If a hobby, you can't deduct expenses. If a business you can.

However, they make it tough to call yourself a business as they pretty much require 3 years worth of business history.

This means that it's all a bloody mess and you're dealing with the IRS which can be enormously unfriendly to deal with. You simply cannot blow them off or take them lightly.

1. You MUST keep great records or EVERYTHING regardless of which path you choose.

2. If you're doing any real dollar amount of business, you better contact a tax accountant.

3. Do not even consider ever lying to the IRS for any reason whatsoever. If you fly under the radar for a year or so, fine, but if they catch you, fess up immediately and pay at the window. If the Fed's will jail Martha, they'll take you and I out and shoot us.

good luck,


rono