Do you collect something, like coins, stamps, or baseball cards? If so, this article will help you with your taxes. A little planning and positioning can go a long way toward increasing your profits.
The collectibles sections of the tax law include rules that can trash all your deductions. Conversely, some rules can increase your profits. Your profits hinge on the rules you know and use.
Your collectibles activity—say, baseball card collecting—can fall into one of four categories, each with a different tax treatment. When you get a different tax treatment, you also get a different bottom line. This article explains when your collectibles activities fall into one of the four following activities:
The hobby category (this is the most undesirable category and can cost you a lot of money).
The investor category (this is better than the hobby category but not nearly as desirable as the next category).
The for-profit trader-type business activity category (this is the very best place to be if you are making money on your collectibles activity).
The dealer-activity category (this is the very best place to be if you are losing money on your collectibles activity).
You have more things to consider in a collectibles activity than in an investment in stocks. With stocks, you can execute your purchase and sale using the telephone and the Internet.
With collectibles, you probably need to see the items in person before making purchases. Further, when you sell, you probably want to be face-to-face with your prospects to facilitate the sale. Thus, you are going to have some travel, vehicle, and other business expenses. This is where the category consideration becomes a big deal. ... Log in to view full article.