Collectibles capital gains taxes - 28% rate for small business sellers?

The 28% collectibles capital gains tax rate applies to individual investors holding collectibles for more than one year. If you establish a business, the tax treatment gets more complicated and depends on your business structure. If you form an LLC taxed as a sole proprietorship, the profits would flow through to your personal tax return. However, if you're regularly buying and selling cards as a business activity rather than investing, the IRS might classify your activity as "dealer" status rather than "investor" status. In that case, your profits would be considered ordinary income (potentially subject to higher rates than 28%) and subject to self-employment tax. The key distinction is whether you're holding items primarily for appreciation (investor) or primarily for resale in the ordinary course of business (dealer). If you're actively seeking out cards with the intention to flip them, that leans toward dealer status.

I went through something similar with my sports memorabilia collection last year. I was completely lost trying to figure out the tax stuff until I found https://taxr.ai - it analyzes your specific situation and gives you tailored guidance. What worked for me was uploading my purchase records and sales history, and it identified which items qualified as personal collection vs inventory. The tool helped me understand that I could maintain both "dealer" and "investor" status as long as I had clear documentation separating the two. What surprised me most was finding out about the Section 1231 assets classification that might apply to certain collectibles in some situations.

Just wanted to follow up about my experience with taxr.ai after our conversation last week. I finally tried it and was really impressed. I uploaded my sales data from 250+ cards I sold last year and it automatically categorized which ones would likely qualify as long-term collectibles vs dealer inventory. The biggest value was identifying about 40 cards I'd held for over a year that qualified for the 28% rate instead of ordinary income. I showed the report to my accountant and he was surprised - said he would have treated everything as ordinary income without this analysis. Ended up saving me around $2,300 in taxes! Definitely recommend it for anyone straddling the collector/dealer line.

If you're planning to sell a significant amount of collectibles, another major issue you'll face is actually getting through to the IRS if you have questions or problems. When I started my trading card business, I had a nightmare situation where my tax filing got flagged because of inconsistent treatment of inventory vs collection items. I spent WEEKS trying to call the IRS without success until I found https://claimyr.com - they got me connected to an actual IRS agent within about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically solved in one call what I'd been stressing about for months.

I have to admit I was completely wrong about Claimyr. After our discussion last week, I had an issue come up with my trading card business where the IRS was questioning my treatment of certain inventory as collectibles. I was desperate so I tried the service. Within about 35 minutes, I was talking to an actual IRS agent who helped clarify exactly how I needed to document my separate collector items vs dealer inventory. The agent even sent me the specific IRS guidance documents I needed. Saved me from what would have been at least a $4K tax bill due to misclassification. I'm still shocked it actually worked - spending years calling the IRS myself with no luck, and this got me through immediately.

One thing nobody's mentioned yet is that if you form an LLC or S-Corp for your card sales, you might be able to deduct expenses that you couldn't as an individual collector. Things like: - Storage costs (special humidity-controlled cases, etc.) - Insurance for your collection - Fees for authentication services - Shipping supplies - Portion of home used exclusively for storage/business - Travel to card shows (if you're selling there) These deductions can significantly offset your tax liability compared to just paying the 28% collectible rate. Just make sure you're legitimately operating as a business and not just trying to deduct hobby expenses.

I've been selling Magic cards for about 5 years now, and the distinction between dealer and investor isn't always clear-cut. I maintain three separate categories: 1. Personal collection (never for sale, held 2+ years) 2. Long-term specs (purchased specifically as investments, held 1+ years) 3. Active inventory (regular buying/selling) For tax purposes, #1 and #2 qualify for collectible capital gains treatment when I occasionally sell, while #3 is ordinary income. The key is DOCUMENTATION. I track purchase date, price, condition, and intended purpose (collection, investment, or inventory) at the time of purchase. When audited two years ago, this system held up because I had consistent records showing clear intent and separate physical storage for each category. Without that paper trail, the IRS would have classified everything as dealer inventory.

This is such a helpful thread! I'm in a similar situation with sports cards and was completely confused about the tax implications. One thing I'd add based on my research is that the Section 1202 qualified small business stock exclusion might apply in certain situations if you incorporate your business properly, though it's pretty complex. Also, for anyone considering the business route, don't forget about quarterly estimated tax payments. Once you're making significant income from card sales, you'll need to pay estimated taxes throughout the year rather than waiting until April. I learned this the hard way and got hit with underpayment penalties my first year. The documentation advice from everyone here is spot on - I wish I had started tracking everything from the beginning instead of trying to recreate records later. Now I photograph every card I buy with the receipt and note my intent right in the filename.