1099-K Legitimate Question - Not a rant

[ajderamo]

I have been a toy collector for as long as I can remember.  I often buy large collections and absorb them into my personal collection.  However over the the last several years (as you can see from my feedback rating) I've sold maybe 300 items.  I completely understand the taxation of income as required by the new 1099-K reporting guidelines and that is not my issue.  

The problem I have is my collection is vast.  I have probably 8,000-10,000 items in my collection.  Over the years I have never asked for receipts for anything as I've bought items from ebay, stores, local sellers, etc.  Now if I sell some of those items and it's over $600 annually (which is likely), how do I legitimately show the profit on those items?  In most cases I have no idea what I paid for them 5 or more years ago.  So if I sell an item for $100 I don't know how to say x% of that was cost and the rest is taxable income.  I have no way to prove the cost I paid for those items.  

Any help on how to handle this issue would be great.  I've been wanting to pare down some things to make room for other items, but I also don't want to get myself in trouble with the IRS either.

Thx for any help....

[espresso_warehouse]

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@ajderamo wrote:

I have been a toy collector for as long as I can remember.  I often buy large collections and absorb them into my personal collection.  However over the the last several years (as you can see from my feedback rating) I've sold maybe 300 items.  I completely understand the taxation of income as required by the new 1099-K reporting guidelines and that is not my issue.  

The problem I have is my collection is vast.  I have probably 8,000-10,000 items in my collection.  Over the years I have never asked for receipts for anything as I've bought items from ebay, stores, local sellers, etc.  Now if I sell some of those items and it's over $600 annually (which is likely), how do I legitimately show the profit on those items?  In most cases I have no idea what I paid for them 5 or more years ago.  So if I sell an item for $100 I don't know how to say x% of that was cost and the rest is taxable income.  I have no way to prove the cost I paid for those items.  

Any help on how to handle this issue would be great.  I've been wanting to pare down some things to make room for other items, but I also don't want to get myself in trouble with the IRS either.

Thx for any help....

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Going forward, keep better records. Get receipts for everything or at least keep a ledger. Get a document scanner and literally scan in everything, keep it backed up offsite via google drive or dropbox.

If you start doing that now you'll probably be fine. In the rear view, you'll have to make your best guess. Don't be egregious, try to be as accurate as possible. One question I have is what you've been doing up until now on your return? Not reporting this income at all? If you get audited, that could actually be a bigger problem than not knowing your cost basis.

You maybe able to claim 'bad record keeping' during an audit. But the chances of you getting audited are slim. Just keep better records going forward and if they do end up coming around, tell them the truth. The IRS is usually pretty reasonable if you are.

[ajderamo]

Yeah to be honest I haven't been reporting.  I sold a total of 50 items last year for like $2k which would have been maybe $500 worth of income at max.  So yes while it's probably auditable it probably could have been written off if I had kept records or treated it as a business.  I spend more on my storage locker each year for the collection.

[espresso_warehouse]

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@ajderamo wrote:

Yeah to be honest I haven't been reporting.  I sold a total of 50 items last year for like $2k which would have been maybe $500 worth of income at max.  So yes while it's probably auditable it probably could have been written off if I had kept records or treated it as a business.  I spend more on my storage locker each year for the collection.

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Super unlikely you'll ever have to answer questions about that. You can deduct the storage locker anyway.

At those levels I wouldn't sweat it. What I said was overkill in this case.

[shado-x]

So if I sell an item for $100 I don't know how to say x% of that was cost and the rest is taxable income. I have no way to prove the cost I paid for those items...

Sell the items and create a cash flow by paying yourself first with the before tax income, and then pay the tax you owe.  Watch a vintage Robert Kiyosaki video----that may at least provide an educational foundation about cash flow.

[luckythewinner]

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how do I legitimately show the profit on those items?  In most cases I have no idea what I paid for them 5 or more years ago. 

You obviously cannot legitimately show your actual profit because you don't even know what that profit is. So your choices are to either (a) not deduct any cost of goods sold; or (b) come up with a number that you can't justify with receipts. 

A philosophical argument could be made that in a way you have extracted your investment by exchanging it for the use of the item. 

[collectfest]

In a collection as vast as you describe I would advise at least 1 session with an accountant. You do have options. A good legitimate accountant will be able to help you through this A-OK. 

[silverstatetreasureboxes]

@ajderamo 

Hun I like how @espresso_warehouse 

explained it, move forward. Take about 50 of your collectibles and look up each one before you list them. Write down an estimated cost on a note pad and description and you might be surprised that some items you'll remember  what you paid originally.

     If you bought them on the bay you can go back 3 years and print off the pages so there's those receipts.

     Keep a nice little ledger for your sales and future purchases, one poster stated that he takes a notebook in the car for garage sales and writes down what he bought, price and dates it.

     Use this year to get organized and study what write offs you can take for next year. Best to you.

[slippinjimmy]

@ajderamo 

You are selling action figures, for the sake of this discussion let's say you sold 50 figures from the 1980's.

You should have a pretty good idea of what an action figure sold for at that time, if for example (I don't know the real prices) the average retail price (if you bought at retail) was $20 then maybe use $15 as your cost price for accounting purposes.

Obviously you want to assign as high a value as you can to reduce your profit on resale but maybe more important to be confident that under an audit you would explain your valuation system and have the auditor say "yes that seems reasonable".

You might get flagged for an audit if it seems that you are never making any profit at all. Of course new businesses often lose money getting started (which could be a couple of years) but if you consistently report (more examples....) $5,000 in sales, $4,800 in expenses and only $200 profit year after year it could raise eyebrows.

When you don't have documentation to prove your lack of profit it can raise eyebrows and technically an auditor could deny any and all deductions that are not properly documented.

[johnrj1226]

Can you come up with some evidence that would show what the same or similar items fair market value might be.  Like what it sold for at a thrift store or similar store  - say Goodwill or or on eBay.

I used this technique once when I  filed an insurance claim for  5 used fishing rods  that were damaged as in broken in shipment via UPS and they (UPS)  packaged  the shipment.  Got paid.  We had no receipts but found evidence of their value on the net -  as in printout outs of what the same or similar items sold for on eBay and what the sold for new at Bass Pro Shop.  Carriers are a bit  hard to deal with and try not pay any claims.  But I was fair  -  as I recall these fishing rods sold for $150 to $200 each new at  BPS.   And I used it with my insurance company when we were robbed at  home for items valued  for $1900 plus -  on a Super Bowl Sunday in 1987 in a gated community - we  were away at a party for about 4 hours.  Obviously, we didn't have receipts  - for items like - a Winchester, model 42  410 gauge shot gun that I bought in 1956 (last year it was made in 410 gauge) - current  value was $950  I bought for $69.00 when  I was 12 yo.  Both of  our HS class rings from 1963 (10K gold)  and other gold items ( like 10K with diamond    chips ankle  bracelets, Black Hills gold earrings, etc)  - were taken and other stuff could be easily pawned.  We had replacement value  insurance, provided  affidavits from various sources and State Farm paid  up with no adjustment to our claim amount.

[johnrj1226]

One more thing

When I was actively selling I used  an excel type spread sheet like the one attached  to that showed the my acquisition price of my items I sourced  from  garage/estate sales, thrift stores, etc. and  what ever receipts I had - obviously none from  yard sales and  and some from estate sales in case I was audited - never happened.  This sheet does not reflect  current selling fees or postage costs but can be easy updated if you know a little about excel..  just an idea and it is free..