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The Tax Man Cometh; Are You Ready?

Buying, selling, and trading sports collectibles can easily become a very lucrative hobby. With the online auction sites like eBay  as well as specialized sports collectibles sites and shows, it can be very simple to find the items you need for your collection, and sell the items you are ready to get rid of.

If you’ve got the right touch, investing in sports memorabilia can be a fun way to increase your nest egg and enjoy your favorite teams, athletes, or sports.

Of course, the IRS will want to have some input when large amounts of money begin to change hands – especially if you sell items that have appreciated a great deal between the time when you bought them and the time when you sell them. The profits you earn from selling collectibles are seen as income by the IRS, and will be taxed accordingly.

Tax Tips Collectors Should be Aware of

When you sell collectibles, you have to recognize that the IRS will require that you pay taxes on any profit that you make. If you own items that are worth quite a lot of money, the best thing you can do is keep them for a while. If you have owned a collectible for more than a year before you sell it, you are eligible for a lower tax rate on the sale.

It is a good idea to have your items appraised before a sale because the appraisal fee can be deducted from your total profits. Since you are only taxed on the profits you make when an item appreciates, appraisal can lower the taxes you are required to pay.

When to Report Sale and Loss Activity

If you are an investor or dealer who approaches collecting as a business, of course you’ll want to maintain good records.  Also keep track of your business expenses.  Traveling to card shows, hotels, meals, gas, parking, your phone, office supplies, professional subscriptions and dues, the computer on which you conduct business, advertising expenses and all related costs can help reduce your obligation.  If you’re not sure whether you’re selling enough to be considered a business, contact a tax professional.

People who buy and sell collectibles simply for the fun of collecting have less need to worry about the tax implications. Capital gains taxes only apply toward items that are recognized as collectibles by the IRS, which can be a relatively murky category. There is a specific list of items published by the IRS, but there are some gray areas that allow many items that are not listed to qualify as collectibles.

The main thing to consider is whether you are holding the item because you believe it will appreciate in price and you plan to sell it for a profit. If you do quite a bit of selling and buying, you should report the profits or losses that you’ve accumulated when you file your taxes each year. When you prepare your taxes, use the IRS long form instead of the short form, and be sure to include all of the total investments and profits that you’ve experience through collecting.

The Impact of Selling at a Loss

When you experience a loss because you have sold an item for less than you paid for it, you need to report the loss in your capital gains tax filing. Losses are not required to be filed in the year in which they occurred, however, which gives you some flexibility when you apply them. You must report losses within 7 years. That means that if you have a particularly high capital gains expense in one of the 7 years following a loss, you can choose to apply those losses to offset your gains in that year. Carefully applying your losses to your capital gains tax burden can help decrease the amount of taxes you have to pay.

Professional Advice

If you will need to include capital gains information on your tax return because of the sale of collectibles, it is a good idea to have a professional help you with the paperwork. Be sure to keep excellent records of the purchases and sales of collectibles so that you can quickly and easily refer to the records while you prepare your taxes. A professional tax preparer will help make sure that you report the correct amounts, and you only pay what you are required to pay.

Related content:  Collectibles and Taxes; What You Should Know

About Rich Mueller

Rich is the editor and founder of Sports Collectors Daily. A broadcaster and writer for more than 30 years and a collector for even longer than that, he's usually typing something somewhere. Type him back at [email protected].

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