Question for tax experts

If a collector (not a dealer) travels to a show and buys coins, do the travel expenses become part of the cost of the coins when calculating capital gains or losses when the coins are sold? I’m assuming the collector can justify coin acquisition as an investment rather than simply a hobby. I’m not sure how IRS can determine this other than by what the collector states.

Cal

 

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Well, I'm no tax expert but I do have opinions on your questions.

First of all, I don't think it matters at all whether you call yourself an investor or a hobbyist. I think what matters is if you are a coin business or a non-business citizen.

If you wish to claim expenses as part of your business enterprise, you must have a business and be filing tax returns as a business in order for your investments in coins (and business expenses) to be adjudged as business inventory and therefore NOT an acquisition subject to capital gains taxes.

If you a hobbyist or even call yourself an "investor" but are not a certified business (see above) then your acquisition expenses such as gas or tolls or mileage to and from coin shows are possibly not attributable to the cost basis of the coin(s) since you would have to keep extremely detailed records. Plus, let's say it cost you $500 to travel to and from a coin show and feed and house yourself. At that coin show you paid $10,000 for 8 coins at different prices for each. How do you apportion the $500 among the coins? $300 divided by 8? On a pro rata basis?

I am not sure about this since taxes, auction fees, coin insurance, shipping, and storage costs certainly are attributable to the capital gains cost basis. And things like insurance and storage costs are spread over many individual coins and to be cost basis applicable there would have to be some recognized method of apportioning those costs over each coin.

Here's a link that may provide some insight into at least some of the questions.

https://www.bullionmax.com/kb/tax-precious-metals-coin-collections/

Maybe our lawyers and CPAs can fix my errors since I'd like something definitive on this also as I'd like to increase my cost basis beyond the records for purchase price, shipping and auction fees that I currently maintain.

 

@Treashunt might have some insight.

 

Good luck seeing him till August......

 

You would be far, far better served by either a professional advisor (advice here is worth what you pay for it) or going to the sources

https://www.irs.gov/newsroom/heres-...tween-a-hobby-and-a-business-for-tax-purposes



https://www.irs.gov/forms-pubs/about-publication-334 especially section 6.

 

Personal capital gains and losses are reported on line 7 of form 1040. However, usually a form D and perhaps a form 8949 may be needed too. The instructions for these forms are informative to a point. And collectibles are treated differently. Gains on collectibles can be taxed as high as 28%, which is higher than most other types of assets. And no, you don’t have to have a business to report capital gains/losses … you’re required to report them, business or no.

My question is about basis … the total cost of the collectible by the time it’s sold. Obviously, the purchased price is part of basis. But is the cost of getting to the purchase point part of basis? My guess is the answer is in case history rather than being spelled out explicitly by IRS. It may rest on the primary motive for the trip. Was it only for enjoyment or only to buy coins or a combination?

Basis can be adjusted with time. For example, with real estate, property improvements add to basis. With coins, certification cost is probably a legitimate adjustment to basis. But what about cost of shipping coins to a dealer or auction house?

Cal

 

Not a tax pro, but those expenses would be business expenses if you were a business - part of the cost of goods sold.

If you are a hobbiest, you do not have business expenses..

 

Whether your travel/lodging/meal costs are part of the cost basis probably dependent on whether the trip was solely for the purpose of purchasing the items.

 

Not a Tax expert. I still pay $150 to have our taxes done. Our Tax guy has been with us for many years.
Doesn't sound possible if it's NOT a business and therefore an expense.

 

Actually what you really want if you have serious tax problems is an IRS Enrolled Agent, not a CPA. (Yes, You can obviously have multiple credentials - I'm both a Boomer and a Curmudgeon).

https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information

There is also a lesser credential, registered tax return preparer, that requires demonstration of a level of tax knowledge above the usual strip mall provider:

Back in the day, we had a deal - the consultants would fix the tax people's computers, the tax people would review our tax returns (had to love form 2106) and we both told the auditors to pound sand.

 

Back to your original question. Let's say you travel to a two-day coin show and have a total of $1000 expenses and at that coin show you engage in the following activities out of a total possible 16 hours (8 hours per day) of possible activities:

1) Giving coin presentations - 2 hours
2) Attending coin presentations - 2 hours
3) Attending club meetings - 2 hours
4) Socializing - 2 hours
5) Selling coins on the bourse - 2 hours
6) Shopping and buying on the bourse - 6 hours

Of those activities, only Number 6 has a direct and indisputable nexus to the cost of acquiring any coins you buy. I think you could probably pass a tax audit on capital gains basis with #6 (See note below). Activities 1 through 5 either have no direct nexus to the cost of acquiring coins or only a nebulous connection. It would be very easy to make the case that you would have spent money on these activities even if you never bought a coin, therefore they aren't costs associated with the acquisition.

Note: Since your hours spent purchasing coins is less than a majority of the time you spent at the show, IRS could argue that you would have gone to the show anyway even if you didn't intend to buy any coins. This kind of argument has been applied by them successfully before in other areas - think home office tax deductions.

In this hypothetical example with only Activity Number 6 counted toward costs, the portion of the $1000 of expenses to attend the show would be:

6 hours divided by 16 hours = 0.375 = The portion of expenses directly attributable to acquisition of the coins.

The amount that could be applied to the acquisition of coins = 0.375 times $1000 = $375.

The acceptable/approved/preferred methodology of applying a portion of that $375 to each coin you purchased is certainly open to debate in the absence of an IRS-mandated method.

But from this example, you can see how if you're going to use trip costs as part of your basis, you should at least have a methodology that your records can support and that at least has some rationale that doesn't quite literally stink of tax evasion.

Of course this whole basis discussion is irrelevant if the coins are inherited because the basis then becomes the post-mortem appraisal performed by the heirs.

Disclaimer: I'm not a tax lawyer, a tax accountant, an IRS employee or any kind of person who professes to any expertise on these tax matters. You should consult credible tax experts.

 

When I was young I used to bark at the squirrel in the trees and I claimed private security for the real estate.

For some reason, it didn't woik.

Now I ask myself if the deduction is reasonable and will pass the "Huh?' test @ IRS. I consider that it may be OK in the rush of the season, but (there is always a "but"), that is not when the IRS attacks the Wagon Train. They wait (up to 7 years) to release arrows.

I have learned that if it isn't clearly interpreted as a no questions deduction when I read the Rules, I don't waste my time and I certainly don't use an accountant slap-happy opinion, because the accountant isn't on the hook, I am. I don't care if it is a CPA, a RahRahRah Interpretation Expert or my neighbor.

I sleep well, by not worrying about it. So I pay a few more tax $. Big deal.

Truth in editing: changed "d" to "f". It happens.

 

If your a collector you get no tax deductions on any of your expenses. It just part of collecting. If your a dealer and have a tax number, then it’s a different story and you need an expert in the field of tax preparation.

 

Travel expense = business expenses if you are operating as a business perhaps and want to include that expense in with your other business-related expenses for tax purposes.

 

Starting point to all the above would be whether you are a business or a hobby.

Key among the business definition is both the intent to make a profit and - if you have been in business that long - having done so in 3 of the 5 prior years.

That is less important if you have substantial business activities - a place of business, employees, sales tax permit and payments, etc. But you can't be a vest pocket dealer and always have losses.

 

I just stopped by for a minute.

Remind me and I'll answer about a week or so

 

You guys got me concerned with this thread. Having collected coins since 1969, I have quite the hoard. Because I never considered future consequences, I haven’t recorded any of my coin purchases and with the spot price of gold rising as it is, just what I keep in my SDB is …. Well, sizable. So I sent an email to my CPA asking him what to consider if I choose to sell any of my hoard….. I expect a short and very curt response sometime shortly after April 15th (he isn’t known for his jovial personality)…. Followed by his invoice….

 

Worst case is its all considered gains. But realistically if you know approx when you purchased stuff, you can use an old Red Book as your basis.

 

What gold? I don't see no gold!