usmsci

4 hours ago, bergalon said:

Thanks for closing the loop on this! I would love to argue with IRS about their definition of collectible but it may depend on what HA submits more than anything? The amount I had to pay wasn't much compared to your situation (super jealous btw since one of my original goals I had back in '98 or so was a sealed BB set, which I failed totally atl) so it may be worth risking an audit, sending letters, etc.

Here's where the vagueness is spelled out in content-less form (408m):

https://uscode.house.gov/view.xhtml?req=(title:26 section:408 edition:prelim) OR (granuleid:USC-prelim-title26-section408)&f=treesort&edition=prelim&num=0&jumpTo=true#substructure-location_m

 

yeah Comic Connect doesnt send a 1099-K or anything, so it's all on me to report and how. I guess HA does? 

22 hours ago, bergalon said:

My accountant said yup, they will take 28% regardless.  Worse still, if you can't show the original purchase price they will assume that all of fair market value is the "gain"; so it would be 28% of that full amount! The examples on investopedia also agree with this. It's just because a 1099K (?)  isn't auto-generated by PayPal/ebay (yet) until you go over 20k or so that we have ignored this. Apparently, we should have all been paying 28% on every Nintendo Fiber, POG, and NES cart I'll just claim the "turbo tax didn't have that box" defense in the future.

I look forward to hearing what they say! Thanks!

I talked to a CPA and its clear that its a long term capital gain. The question is, is it a collectible? She wasn't completely sure because theres no, what they call, "long-standing" in the market. After the original Super Marios Bros that sold for $100k two years ago, did that automatically make all other sealed video games collectible? Was that game that sold collectible, just out of the blue? 

The other thing is, is that we pretty much know how many original Van Goghs or Mona Lisas there are in the world or a particular 1920 Gold coin that was only minted for one year but we don't know the rarity of all video games. Supposedly theres only one sealed 2nd production of Super Mario known (the one on Pawn Stars). What about the others? 

If everything that people sell, goes for a lot of money, or people buy and trade things online for the purpose of hanging it on their wall or putting it in a showcase then by that definition, everything is collectible and the IRS shouldn't bother with their 'collectible' list. 

 

18 hours ago, bergalon said:

My accountant said yup, they will take 28% regardless.  Worse still, if you can't show the original purchase price they will assume that all of fair market value is the "gain"; so it would be 28% of that full amount! The examples on investopedia also agree with this. It's just because a 1099K (?)  isn't auto-generated by PayPal/ebay (yet) until you go over 20k or so that we have ignored this. Apparently, we should have all been paying 28% on every Nintendo Fiber, POG, and NES cart I'll just claim the "turbo tax didn't have that box" defense in the future.

I look forward to hearing what they say! Thanks!

another question to ask is, is just because we all sell some special game, does that make the entire video game market a 'collectible' market. Obviously the IRS hasnt specifically outlined that videos game are collectibles but really this insanity has only been going on a few years. With art, rugs, precious metals or whatever has firm foundations of collectibility because of rarity of all those categories. Does a few unique Super Mario Bros games make the entire genre collectible? If thats the case, the IRS could make anything collectible it wants just because someone made a big pay day on one item.

Also, theres no way in the world I am going to have a receipt for the game when I bought it on Ebay 20+ years ago. I didnt even think about it because I wasnt planning on reselling it. It was just a hobby to collect a sealed game. The person who sold it to me honestly probably never even considered, just as I did, the rarity of a specific production run. I also bought a bunch of other games that were sealed that probably havent changed value that much since then. 

14 hours ago, bergalon said:

I think it's because if you sell it within a year then that will be at your own tax rate, so you could pay less than 28% if you sold that quickly.

no that is specifically for short term capital gains. thats why I am confused as well. I have a free consultation with a local CPA here on Monday. Will let you know. 

Lets say someone who is dirt poor discovers their great grannies long lost diamond ring and sells it for $50,000 at auction. Now the government wants $14k out of that when that person might need that money for like paying bills or getting out of debt or poverty or something. Thats why it seems strange that the tax would be 28% no matter how poor or rich you are. 

Reading articles about why they instituted the 28% really points to the wealthy people who naturally innovate, hire people, have businesses, etc. I don't think they ever considered 'normal' people having access to high dollar collectibles. If its not based on taxable income - it should be.

41 minutes ago, operationivy said:

My accountant (who is extremely well regarded) told me the profits would be 28 percent as well. yes, self employed. No, not some high bracket. Told me no way around it whatsoever.

why does the IRS (on their own link above) say that 28% is a maximum? That means thats the most you will pay on it. Which means that it can be less than that. Its not totally clear, other than some places mentioning taxable income, how much less that can be. 

Maybe that means its 28% maximum because you are making $3 million for the year you still pay the 28%. I think that was a bit of an oversight when making those rules. If someone who is dirt poor has a windfall of selling something valuable and needs that money to survive on - then thats pretty harsh to take 28% vs someone who is very wealthy to begin with (which this rule targets the wealthy).

59 minutes ago, bergalon said:

Let us know how it goes. My understanding was all gains tax on collectibles was 28%, no graduated rate or anything based on income.

 

OK I will let you know. The key word in that IRS document is maximum. Ive noticed other articles also out there just say you'll pay 28% no matter what. Some others says 28% (or lower depending on ordinary income) which I think is in line with what the IRS says above in their own link. I feel like if it was straight up 28% they would say it, instead inferring that there is a number below maximum that you'll pay on collectibles. 

I am 100% self-employed as well but I don’t think that makes a difference. The 28% is a maximum just like regular long term capital gains. (But at 20%, if you make more than 496,600 MFJ). At least that’s what the IRS says. If there is a maximum then there has to be a minimum tax on it. They don't specify directly in the link below however, so I assume it depends on your taxable income. 

https://www.irs.gov/taxtopics/tc409

10 hours ago, bergalon said:

My experience (in IL) and for an order of magnitude less sale than yours was this wasn't the case. I did my usual Schedule D and had to pay 28% since I had the item for more than a year. I was able to prove my net profit was a little less than the sale price but that's about it. Hopefully you found a work around (it's painful to pay 28% on a sale but only 15% on grant money!). I have an LLC, but perhaps if you make an s corp you can do something to reduce the rate and pay yourself as an employee type thing. Given the large sum I'd definitely get some professional advice, although maybe stressing out isn't the best way to enjoy a bunch of cardboard becoming worth a house

We talked to a few accountants but were still stuck with over 50k in self-employment and capital gains taxes.

Congrats again on the sale!

What was your taxable income with the sale ? Even if you count the sale as added to your income that still puts me in the 15% bracket. You may have paid too much.

The maximum tax rate is 28%. Thats the difference between capital gains taxes on collectibles and regular capital gains taxes, (which is 20% max) but they both get taxed off of your ordinary income. Maybe @arch_8ngelcan verify. 

 

2 hours ago, operationivy said:

Are you certain? I asked my accountant a similar question and he said it adds the profit then checks the bracket for capital gains.

 

yeah the way it works is that you make $X amount of money. After all deductions you have what is called Taxable Income. If you have capital gains tax to calculate. the first $80k is taxed at 0%. 

So if you make $200K on game and your taxable income is $50k, $30K will be taxed at 0% and $170K would be taxed at 15%, which would be $25,500. If your Taxable Income is already of $80k then the full amount would be taxed at 15% (200,000 * .15) which is $30,000. 

thats the way I understand it anyway. Its 28% unless you ordinary tax income bracket is lower. So if you made $1 Million(40% tax income bracket) your rate on the capital gains would be 28%. 

https://1040return.com/collectibles-tax-collector/
 

Collectibles tax rate good or bad. The 28 percent capital gain tax on collectibles is the maximum tax rate. For example, if you are in the 15 percent income tax range, your collectible gain is taxed at that rate. If your income tax bracket is higher than 28 percent, the collectibles tax rate is capped at 28 percent. This results in a potentially lower tax rate versus ordinary income taxes.

Acutally it looks like I might be in the 12% tax bracket (Married Filing Jointly) with a taxable income less than $81,050, including calculating QBI. 

https://www.kiplinger.com/taxes/tax-brackets/602222/what-are-the-income-tax-brackets-for-2021-vs-2020

5 hours ago, Dumars2001 said:

First and foremost, a big congratulations to you and the buyer! So, are you going to have to pay that 28% capital gains tax?! That comes to a whopping $63,000 tax hit or was there any way to lower that capital gains tax? anyways, you still made an enormous profit from this sale! Congrats again on the sale!

Thanks! 28% is the max for capital gains but you are ultimately taxed on your taxable income bracket. So I will probably make enough this year to be in the 15% tax bracket so it will be about 15% maybe a tad less depending other deductions but thats about right. probably $28k or so. 

@RH 
  Thanks! Oh I will. I am going to contribute the full amount allowed into an IRA (which will help tax time a little) and the rest in an online savings account - which the interest rates on those are about 5-8x times higher than your normal banks or credit unions. 

I just sold it at Comic Connect. Been working with them every few days. 

https://www.comicconnect.com/item/919370
 

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). 

2 hours ago, Mr. CIB said:

If you own a business and going to make a 6 figure sale you shouldn’t be looking for a free consultation. You are cruising for a bruising with this one. In any event your focus should be elsewhere. 

1. I would verify if Comic Connection is going to issue you a 1099.

2. Banks are required to report 10,000 transactions on IRS Form 8300 and they will hand it to you the minute you make a cash deposit. Check deposits are hardly ever done but it depends on if you usually move this kind of money or if the teller thinks the activity is suspicious.

It’s your gamble. If your found trying to evade the tax you’ll lose a lot more than whatever your tax basis is. 

I don’t own a business. I’m a simple sole proprietor. Yeah I’ll have to ask CC. Does heritage send out 1099-ks?

3 minutes 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.  Not practical though really.  I suppose maybe if you knew how to put the money into an off shore account made in a country where US tax laws can't be applied as they refuse to report back would be another, but then they'd probably try and sniff out every other thing you do above board in country.

Doesn't the bank just report it to the IRS so the feds can track you or make sure that the trail of money doesnt lead to smuggling drug money? I thought that was the only reason for it. I mean people with really good jobs deposit more than $10k per month in the bank just from employment (the magic number here is $10k for the bank to report by law). The IRS doesnt start writing them letters asking them where they are getting all this money. 

6 minutes ago, arch_8ngel said:

This potentially changes things.

If you're self-employed -- talk to a CPA and see what they think about your ability to run the sale through your business so that you can max-out a solo-401k (lets you defer up to $57k, or so, between your contribution and "employer match").

Not saying that is definitely possible -- but worth asking a pro about, given how much you'll save from the 28% bracket with that amount of deferral.

 

And Long-term and short-term gains all stack up when determining your various brackets (they just have different tax rates within their respective brackets).

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. 

@AdamW

Not really true at all. I bought the Super Mario on Ebay 20 years ago. Had it delivered to my door by UPS. Stored it, wrapped up in the house ever since then. The only thing I am going to do to make the sale final is to drive to the post office and mail it and come back home. Also, I think most local roads are owned and operated by the State anyway. 

So the feds don't own the streets that I will use to go mail it, the internet provider I used to buy and eventually sell the game is owned by a private company and materials I used to store and keep the game in a cool place was bought at a private store. I won't even be mailing it USPS but through a private company like FedEx. 

So yeah - the federal government was not used in any way to facilitate the eventual sale of the game in any way. The idea that the government taxes stuff people buy and sell privately is ludicrous. 

I work self-employed(sole proprietor)(so dont have company 401k or HSA but do have an IRA) and I have never paid quarterly, even though you are technically supposed to and never been fined or had to pay interest. I don't know why you say I am supposed to pay the gov't quarterly on sales. the IRS doesnt say anything about this. 

I dont know about Turbo Tax but I use credit karma for filing. I find that they are the best at making sure you get all that you are owed. 

Also, I am pretty sure long term capital gains are taxed separately and do not raise your ordinary income. Thats for short-term gains. (gains that you've held on to for less than a year). 

@arch_8ngel thanks for the input. 

I am not selling it via a business and I live in a state with no state income tax. So thats a good thing. This is a 6-figure sale(or offer) that I have got. 

I will probably try to call up a CPA firm to see if I can get a free consult or talk over the phone. 

Actually I was looking into this a bit further and it looks like I would be taxed at my ordinary tax rate, which for me is 15%. 

The tax code has special treatment for collectibles, which can include artwork, rugs, antiques, gems, stamps, metals, coins, and alcoholic beverages, according to the IRS. When you sell collectibles, the special 0%, 15%, and 20% tax rates on long-term capital gains don't apply. Instead, you'll owe tax at your ordinary tax rate, with a cap of 28%.

Also this: 

The IRS will consider your hobby to be a business if you made a profit in three of the last five years.  While at one time you could deduct your hobby expenses from your hobby income, since 2018, hobby expenses are no longer deductible.

Well i definitely fall under the "hobby" category. Not sure that, being the case, if it would be reported as regular yearly income or capital gains. Perhaps theres some lawyers in here. (I have seen you all talking about crypto)

Is the IRS necessarily going to write a letter about it? i wonder how many people actually get IRS notices for depositing large checks? What is their normal process once the bank reports it? 

Does Comic Link/Comic Connect/Heritage report sales as well? I know Ebay does. 

As some of you might have seen, I had posted some pics of my WATA Super Mario Bros. that I had graded. 

you can find that here: 

I went to Comic Connect to sell this for me and I got an offer this afternoon. Obviously I don't want to give the government 28% of the sale for something that they had no hand in at all. When I collected a lot of these sealed games, I was collecting them to show them in my room much like the baseball cards of old, not to get rich. Back then (probably 2001ish?) most people were trading and selling as a mere hobby - no one had any idea certain games were going to be a fortune. That idea has only surfaced in the past 3 or 4 years. 

Assuming I accept an offer, that means going to the bank and depositing it... and then the bank has to report it to the IRS.

It looks like at the surface, the tax rate is 28% ,no matter what your taxable income is for the year, unlike other long term capital gains taxes. On the IRS website they say the 'maximum rate ' is 28%. They dont spell out a minimum. 

If the IRS does come calling - is there an option to tell them that this particular sale was based on a hobby and I am not in the business of making profit on Nintendo Sealed Games. What wiggle room is there as far as lowering or eliminated having to pay 28% on a 6-figure sale? 

Welcome all thoughts. Thanks! 

That's still pretty common then I would think? Looks like a near mint 9.0+ with the text/offer is around $8k, based on recent HA listings. 

yeah No Mega Man 1 - i never got around to getting that one when i was collecting them haha

I havent seen a sealed MM 3 with the "no text"/no offer on the yellow stripe that has sold before. I am guessing its rarer than the one with the text/offer on the yellow stripe.