Question about Capitial Gains Taxes on Collectibles.

[Khromak | 769]

There are an awful lot of ideas in this thread which are tantamount to tax fraud/money laundering. I will echo the sentiments of the others, you owe tax on this thing. Now is not the time for you to debate the morality or fairness of the government being involved in your transaction, you will lose.

So then you have to determine the lowest amount of tax you can pay for it, sure, I think that's fair and what any sane person would do. Again, to repeat what others have said in this thread, your best option is to hire someone who knows WTF they're doing. Even if you spend $1,000 on a CPA or other professional it will be wildly cheaper than the fees and penalties you'll end up paying the government when you inevitably fuck it up and end up in court. Plus whatever you have to pay your tax lawyer.

Trying to be cheap about paying tax is natural and understandable, trying to be cheap about the way you handle your tens-of-thousands of dollars of tax liability is moronic and asking for trouble. Just get a professional involved so you know you're paying exactly what you owe, not too much (that's why you hired them) and not too little (so you don't end up owing more later + fees, penalties, and court costs).

I mean you're talking about getting hundreds of thousands of dollars for doing nothing other than holding on to a game in a drawer for a while. Don't look a gift horse in the mouth, and pay what you've gotta pay.

[Californication | 1,477]

That 10K bank rule you guys are talking about is interesting. I mean theoretically it makes sense, but banks have literally handled the money from the Mexican drug cartels for years and almost nothong happened when it became news. The drug cartels deposited so much cash with HSBC the cartel made their own deposit boxes that would fit perfectly in the tellers window.

[arch_8ngel | 1,597]

13 hours ago, usmsci said:

I am pretty sure how the long term gains work is taxed after your ordinary income. So for example. If you are married Filing jointly and your Taxable Income (after all deduction, etc) is $80,800 or below (I think this is right for 2021). Then your long term capital gains tax is 0%. In that case I think I would free and clear. 

if someones taxable income is $100,000, you would be taxed at ordinary income levels then $100,000 - $80,800 = $19,200 would be the portion you would be taxed on for capital gains. Thats my understanding. I could be wrong. 

It very definitely stacks on top.

Otherwise, imagine a scenario where you have $0 in earned income but $500,000 in long term capital gains.

Do you actually think those LTCG are taxed at 0% in that case?

They stack on top of ordinary income rates and then follow their own related bracket structure.

 

https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates#:~:text=Long-term capital gains tax is a tax on profits,term capital gains tax rates.

^^^ Here is a link to a simplified calculator that shows you how this works.

Basically your LTCG rate is considered "on top of" your non-capital-gains income.

So comparing two scenarios:

1) You have $79,999 of ordinary income and $100,000 of long-term capital gains

--  only $1 of your LTCG is at the 0% rate -- the other $99,999 is at 15%

2) you have $0 of ordinary income and $180,000 of long-term capital gains

-- $80k of gains are at 0%, the next $100k of gains are at 15%

 

Hopefully that makes it more obvious how these stack up, and how the LTCG brackets work.

Edited May 8, 2021 by arch_8ngel

[arch_8ngel | 1,597]

12 hours ago, Code Monkey said:

This is the reason decentralized finances exist, trade it for Bitcoin. Bitcoin is a commodity, not a currency, just like loaves of bread. You only have to pay taxes on it when you convert it to Fiat so as long as you just trade one commodity for another commodity, you haven't actually made any money on it.

I'm not an accountant and could be completely wrong.

Part in bold is 100% incorrect - at least in the USA.

You owe taxes based on the value at time of conversion/transaction for cryptocurrency.  (converting one to another type is a taxable event at the time of conversion)

Other countries may handle this differently -- but for US taxes "barter" (one commodity directly for another) is a taxable event.

[arch_8ngel | 1,597]

13 hours ago, Tanooki said:

I suppose the only way kind of above board you could avoid paying the taxes is getting paid in cash, and then over a period of years slowly start to deposit the amount into your bank account so it falls well under the radar of profitable sale so they can't sniff it out and have you pay taxes on your own stuff. 

Intentionally evading the deposit-reporting is a felony called "structuring".

[usmsci | 34]

36 minutes ago, arch_8ngel said:

It very definitely stacks on top.

Otherwise, imagine a scenario where you have $0 in earned income but $500,000 in long term capital gains.

Do you actually think those LTCG are taxed at 0% in that case?

They stack on top of ordinary income rates and then follow their own related bracket structure.

 

https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates#:~:text=Long-term capital gains tax is a tax on profits,term capital gains tax rates.

^^^ Here is a link to a simplified calculator that shows you how this works.

Basically your LTCG rate is considered "on top of" your non-capital-gains income.

So comparing two scenarios:

1) You have $79,999 of ordinary income and $100,000 of long-term capital gains

--  only $1 of your LTCG is at the 0% rate -- the other $99,999 is at 15%

2) you have $0 of ordinary income and $180,000 of long-term capital gains

-- $80k of gains are at 0%, the next $100k of gains are at 15%

 

Hopefully that makes it more obvious how these stack up, and how the LTCG brackets work.

@arch_8ngel

yeah thats what I had looked at. looks like my capital gains will be $28k counting my additional income. Thats not counting my "costs" associated with storing it, getting it graded, mailing it back and forth or whatever. I have no idea what I paid for it on ebay 20 years ago, so if the IRS wants a receipt, they are going to be out of luck. I never bought it with the intention of re-selling it. No one on earth thought SMB carts were going to be 6 figure sales. 

At least some child tax credits will offset some of that (its $3k per child this year instead $2k). 

Edited May 8, 2021 by usmsci

[DoctorEncore | 3,691]

This thread is an amazing mix of answers ranging from straight up tax fraud to reasonable accounting. I'd probably take that as a sign you should hire a CPA.

[fcgamer | 4,732]

Just bite the bullet, hire someone, and pay the taxes.

Thing that I honestly always get confused about is I'd you bought something for $20 or $500 or whatever and then can literally get $500,000 or whatever, for doing nothing, what's the big issue on paying taxes on it.

Taxes always suck, but given the situation  I don't get it.

 

 

[RH | 4,924]

1 hour ago, arch_8ngel said:

Part in bold is 100% incorrect - at least in the USA.

You owe taxes based on the value at time of conversion/transaction for cryptocurrency.  (converting one to another type is a taxable event at the time of conversion)

Other countries may handle this differently -- but for US taxes "barter" (one commodity directly for another) is a taxable event.

 

1 hour ago, arch_8ngel said:

Intentionally evading the deposit-reporting is a felony called "structuring".

 

I was going to pop in here after reading through this thread and 100% give the same caution.  I looked into taxes a LOT when I was heavily in crypto, and that was the early days back when the laws were hard to apply to the new concept and as the laws were being written, I read them all, thoroughly, and tried to digest them.  I hate takes, but I'll keep my personal political philosophies to my self.  Regardless, when the IRS comes knocking, it might be an "if" case, they will be unrelenting.

Do NOT ever consider hard cash or crypto as a way to avoid taxes.  Sure, there is a good chance you could do that and get away with it, but it is illegal.  IMHO, it's best to be 100% on the up and up.

Regarding taxes of crypto, I can't 100% recall but transactions fall into 2 categories, or at least they use too.  The first were the set of rules drafted by the IRS for miners.  They "generate" the funds so when the funds were earned, they were recorded as face-value into your account ledger for reporting at tax time.  I think, at one point, funds earned through mining were actually not taxable until they were cashed out, or exchanged for good and services.  I think think the idea was seeing the operation as something akin to investing in a stock.  You can invest in a stock and for years not have to pay takes on the value increase.  It's when you sell it you figure your cost basis, profitability, and then determine if it's short term or long term capital gains.  This is beneficial to the miners because they can potentially bank BTC (or whatever) for years and cash out and pay taxes at that time.

This does not apply to your case, or anyone here selling goods for crypto.  If an established market exists for the crypto you are receiving, you are responsible for recording the fair market value of the transaction and reporting it at tax time.  If there is no FMV for a crypto (maybe you receive a hot new crypto that's not on an exchange yet) you determine the general value of the good sold, and record that value as a barter transaction.  And to be clear, the IRS even wants you to tax on your barter transactions.  That is to say, I spend $5 on flour, eggs, yeast, oil, etc and I make bread and then trade it all for $10 worth of chicken, no cash exchanges hands but that $5 "profit" in the barter is suppose to be taxed.  These types of transactions are dead-easy to hide but regardless, if you barter a lot, you should tax off of your "profits". 

The same is true for crypto when no value is established yet for the specific cryptocurrency.  Determine the value of the good or service and record that as your income.

Please note, I got out of crypto around 2018.  Laws have been refined since then, but I doubt they've changed that much.  I highly doubt you, OP, are planning on going the crypto route but if anyone else reads this thread and considers it, just realize if you want to be legit and on the up-and-up about this, these are the general guidelines you should consider and if you plan on making a BIG sale (IMHO, $25k or more) you may want to consult a CPA who's versed in cryptocurrency.

[arch_8ngel | 1,597]

57 minutes ago, RH said:

 

  Laws have been refined since then, but I doubt they've changed that much.  

https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies

Current official language from the IRS for anyone in the USA wondering about this subject.

From the FAQ

Q–1: How is virtual currency treated for federal tax purposes?

A–1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

...

Q–6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?

A–6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.

 

So switching from one virtual currency (a type of property) to ANOTHER virtual currency ("other property") is a taxable event.

 

and with respect to miners:

Q–8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?

A–8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.

 

So mining is taxable at the time of mining.

 

 

[RH | 4,924]

@arch_8ngel Thanks for posting that, especially Q8.  As I mentioned, I've been out of the loop for a while, and I was heavily into trading and haven't mined since 2015. Thanks for the clarification.

Edited May 8, 2021 by RH

[Code Monkey | 2,011]

7 hours ago, arch_8ngel said:

Part in bold is 100% incorrect - at least in the USA.

You owe taxes based on the value at time of conversion/transaction for cryptocurrency.  (converting one to another type is a taxable event at the time of conversion)

Other countries may handle this differently -- but for US taxes "barter" (one commodity directly for another) is a taxable event.

So that would mean I can trade my 10 loaves of bread to you for your 10 loaves of bread and have to pay tax on that. Or do I only pay tax on the gains?

[RegularGuyGamer | 2,014]

9 hours ago, Californication said:

That 10K bank rule you guys are talking about is interesting. I mean theoretically it makes sense, but banks have literally handled the money from the Mexican drug cartels for years and almost nothong happened when it became news. The drug cartels deposited so much cash with HSBC the cartel made their own deposit boxes that would fit perfectly in the tellers window.

I know certain branches require the tellers to flag the account. I dated a girl who had a regular come in and deposit 9,5k to avoid being flagged and the tellers were in charge of flagging any activity like that in excess of 10k

[RegularGuyGamer | 2,014]

1 hour ago, Code Monkey said:

So that would mean I can trade my 10 loaves of bread to you for your 10 loaves of bread and have to pay tax on that. Or do I only pay tax on the gains?

Straw man argument:

A straw man is a form of argument and an informal fallacy of having the impression of refuting an argument, whereas the real subject of the argument was not addressed or refuted, but instead replaced with a false one. One who engages in this fallacy is said to be "attacking a straw man.

[GPX | 1,370]

I asked a similar question in another thread but pertaining to Heritage Auctions:

Basically in the last post, I asked was it mandatory to report a sale of a high-end item?

All this crazy price hikes is starting to annoy the hell out of me. One main reason being I never liked accounting as a subject!!

[GPX | 1,370]

10 hours ago, DoctorEncore said:

This thread is an amazing mix of answers ranging from straight up tax fraud to reasonable accounting. I'd probably take that as a sign you should hire a CPA.

I think this thread is a reasonable reflection on there being a spectrum of tax avoiders/compliers.  

It almost seems like asking “should I get my gallstone electively removed?” on a gaming forum. Best to talk to your own doctor, would be my suggestion!

Edited May 9, 2021 by GPX

[arch_8ngel | 1,597]

2 hours ago, Code Monkey said:

So that would mean I can trade my 10 loaves of bread to you for your 10 loaves of bread and have to pay tax on that. Or do I only pay tax on the gains?

Exact like-for-like isn't really a barter, assuming you're talking about identical loaves of bread.

But if you're trading baguettes for sourdough loaves, or something, then yes, you're paying taxes on the gain in USD of your loaves on the day of the trade, from the time you bought them -- and that value is your new cost-basis in the new loaves you traded for.

 

Basically, even in a like-for-like barter -- you are basically setting a new cost-basis and paying taxes on the gains to get to your newly established cost basis.

 

[arch_8ngel | 1,597]

42 minutes ago, RegularGuyGamer said:

Straw man argument:

A straw man is a form of argument and an informal fallacy of having the impression of refuting an argument, whereas the real subject of the argument was not addressed or refuted, but instead replaced with a false one. One who engages in this fallacy is said to be "attacking a straw man.

I agree that it's a really silly example that he picked -- but you can still use it to explain that the point of taxing barter is that you are taxing any appreciation and in exchange you get a change in cost basis.

[arch_8ngel | 1,597]

45 minutes ago, RegularGuyGamer said:

I know certain branches require the tellers to flag the account. I dated a girl who had a regular come in and deposit 9,5k to avoid being flagged and the tellers were in charge of flagging any activity like that in excess of 10k

She was an idiot, because that is "structuring" if you're doing it on purpose.

[RegularGuyGamer | 2,014]

15 minutes ago, arch_8ngel said:

She was an idiot, because that is "structuring" if you're doing it on purpose.

Both of those statements are true. She was super hot tho... I was just happy she was talking to me. 

[Californication | 1,477]

1 hour ago, RegularGuyGamer said:

I know certain branches require the tellers to flag the account. I dated a girl who had a regular come in and deposit 9,5k to avoid being flagged and the tellers were in charge of flagging any activity like that in excess of 10k

For sure. I mean I believe it's a rule. And I am sure it is helpful in prosecuting people or flagging them for investigation. 

I'm just saying that at the end of the day, if you manage to pop a bunch of small time people here and there, but then let one of the main suppliers of drugs to the U.S. get a pass, it kind of defeats the purpose. 

[Tanooki | 4,940]

What's it take to do any mining though?  I've heard of it for years, just never bothered to dig into it.  I doubt my computer would rake in anything anyway as I think I heard it's video card based, and me running an nvidia 980 8GB probably won't cut it.