Render Unto Caesar

Taxes...Am I Right?

So, if you’re like me, you just did your taxes on extension. Actually, in the last two months I did five different tax returns, for reasons I needn’t get into. I am taxed out, but that doesn’t matter. We are in the 4th quarter, and it is time to assess my year and implement any tax minimizing strategy for 2023.

My uncle the tax attorney used to say: “just pay your taxes”. Yep, pay the damn taxes and don’t even think twice about it. But be smart about it too. Tax evasion is illegal. Tax planning is an industry. Understanding how your card deals are taxed is critical. It can take a hell of an unnecessary bite out of your ass if you let it. Pay your taxes. But do what you can to plan for and minimize them.

And now, my common sense disclaimer: Taxes are intensely personal. There is no one-size-fits-all formula. No advice column that is tailored to your needs. Call your CPA or attorney and have a professional figure out your card tax planning for you. That ain’t me; I don’t give tax advice and this blog is not meant to professionally advise you, only to raise questions. My advice is free and it’s worth the price. Really, I’m just some know-it-all jackass commenting on things I find interesting about card collecting, and taxes are one of the more interesting subjects that are rarely discussed but that merit it in this day and age of extremely high card prices. So, disclaimer made and assumed understood, let’s talk card taxes.

Taxes should help dictate what you do if you are smart enough to factor in taxes. Not dictate but HELP dictate. For example, in some situations, losses can offset gains. One of the beauties of running cards as an investment or business is that you can choose when to realize your gains by selling; the flip side is that you also control when to take your losses. It is no different than running a stock portfolio. Investors often dump unprofitable stock at the end of the year and realize the losses to offset their taxable gains. It is called “Tax Loss Harvesting”. The same theory applies to cards held as investments. If you are having a profitable year and you have some cards you bought way too high, or that fell from grace when the player on that signed Bowman Chrome card got caught laying a beating on his wife or mainlining a steroid cocktail, ask your tax advisor about selling them at a loss to offset your income. Let the government eat a chunk of the loss if you can. It’s legal and it is fun too, and if your marginal tax rate for state and Federal taxes is near the top, it can put a big chunk of your loss on the tax man.

“Business should be conducted in a business-like manner”—Kaspar Gutman, The Maltese Falcon.

Another thing to consider is the IRS hobby rule, a tax doctrine designed to separate hobbies from businesses. Basically, if you are going to be a business and want to be treated as such, you must act as if. Have a profit motive and show it. Run the business legitimately. One component of avoiding being labeled a hobbyist (and have all your gains declared as income and none of your expenses deducted) is to do a little proper administration of your card business. Set up some sort of record-keeping system and use it. Register for a resale permit if your state has sales taxes and pay your sales and use taxes for your transactions. Do that and the odds of being declared a hobby should be dramatically lower even if the tax people come knocking.

Another decision is whether to use a business entity. There are some reasons to form an entity and run your card business through it once your revenue reaches a certain level, but there are also administrative costs (like filing entity tax returns) that offset the benefits. In general, until you are running at least $60K a year through the business, it will probably cost you more to use an LLC or S Corporation than the tax savings, but that is for you and your attorney and accountant to figure out.

You should also start thinking about all of the expenses that go into your business and how to run them through it. Just about every expense you have to operate and stock your business counts offsets revenue. I attend a lot of events to hunt for inventory: flea markets, antique shows, paper fairs, etc. Some charge admissions. Some are at places where I have to pay for parking. Those costs may be legitimately expensed against the business. Supplies is another obvious one. If you are going to do mail order you will need supplies and everyone needs card holders. You might run those through the business too. If you go on the road for real, say to attend a card show far away from home, your travel expenses could be paid with pre-tax dollars. That big show I worked in Anaheim, you better believe my travel expenses are being paid through the business.

This tax stuff is important and complex. We will talk a lot about taxes as they pertain to cards in future columns, because if you aren’t paying attention to taxes, you are probably missing some savings and you may be in for a rude surprise when you sell your T206 Wagner.