Capital Gain Taxes

On a similar note; I was reading in Coin World about the new requirement for Green Bay, WI second-hand dealers and other resellers to report all of their coin/gold/jewelery sales to the police. It turns out that they were already required to report them on paper and this change is to have them submit the reports electronically.

I don't think I ever really have any money. My income is taxed, I pay sales tax on everything I buy, I then pay personal property tax on the things I own, and if I decide to sell something... please take the rest of what I have left.

Thanks,

Jim

If you invest serious money in coins, it's important to keep records, particularly receipts showing purchase prices. The receipts establish your "basis" for tax purposes in case there is a question as to what the profit is when a coin is sold. Your heirs/beneficiaries should know where the records are in case the worst happens.

In general ALL income is reportable. The question is how it is reported (Capital Gains is for items held OVER a year. Items held less than a year are not subject to capital gains. At least that is my understanding.)

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Here's the key part: Sale of personal items. If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry or silverware, your gain is taxable as a capital gain. Report it on Schedule D (Form 1040). You cannot deduct a loss.

However, if you sold an item you held for investment, such as gold or silver bullion, coins or gems, any gain is taxable as a capital gain, and any loss is deductible as a capital loss.

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The key here is that in order for the IRS to accept the income or loss as being from an investment you MUST have detailed records that clearly illustrate that you are actively pursuing it as an investment. Keep detailed records of purchases (who from)and sales (who to) and profit/loss on each item, charts tracking values between times, subscribe to investment newsletters dealing the type of items you are investing in. Keep them stored separately from any non-investment material. (Suggestion get a local tax resale license it can be used as an argument that it isn't just a hobby, but if you do you should probably also file a schedule C and treat the coin buying and selling as a business. Make sure you show a profit at least three years out of five. Added benefit is that as a business you can write off some expenses that you can't as a hobbyist.) If you can't clearly demonstrate to the IRS that they are strictly an investment they will be ruled to be a hobby and all of the profits will be subject to Capital Gain treatment. And here is another insult. While many other things are taxes at a lower rate under capital gains (maximum rate is 28%), coins and collectibles are taxed at a FIXED rate of 28%. (My income is taxed at a lower than 28% rate, but if I sell my coins THEY will be taxed at 28%, not my normal 15% rate.)

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An interesting item of note is that in many states buying bullion (e.g. American Silver Eagles) is a tax free sale, since it is an investment,

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For purposes of state sales tax, not IRS income taxes.

While capital losses are not allowed on non-investment, they CAN be used to offset capital gains. You just can't claim a net loss if it isn't an investment. If you can prove that you are actively pursuing it as an investment then you can carry over losses to subsequent years.