[USA] Collectibles capital gains tax rate - is it 28% for business sellers?

As someone who's been in the collectibles space for over a decade, I can shed some light on this. The 28% collectibles capital gains tax rate applies to individuals selling collectible assets they've held for more than a year. This includes trading cards, coins, art, etc. If you form a business entity, the taxation changes significantly. For a sole proprietorship or single-member LLC (taxed as a disregarded entity), your profits would be reported on Schedule C and then flow to your personal return. The key difference is that these would likely be considered ordinary income, not capital gains, since you're essentially "dealing" in these items as inventory. This means potentially higher tax rates than the 28% collectibles rate, plus self-employment taxes. For a corporation or LLC taxed as a corporation, you'd pay corporate tax rates on profits, but would face double taxation when taking money out as dividends.

I went through something similar with my vintage video game collection. I tried figuring it out myself but kept getting conflicting information online. I eventually used https://taxr.ai to analyze my specific situation and it was super helpful. Their system looked at my buying patterns, holding periods, and sales frequency to help determine if I was likely to be classified as a collector/investor vs. a dealer. That distinction makes a huge difference for your tax rate! They also provided documentation I could keep with my tax records in case of an audit that showed my investment intent. For collectibles like your TCG cards, the dealer vs. investor distinction is critical since the tax treatment is completely different. Might be worth checking out since your situation sounds pretty similar to what I dealt with.

Just wanted to update after trying taxr.ai based on the recommendation. It was incredibly helpful for my situation! I have a baseball card collection I've been building for years and was worried about the tax implications of selling some valuable cards. The analysis showed I was firmly in the "investor" category based on my holding patterns and limited sales frequency, which meant I could indeed qualify for the 28% collectibles capital gains rate rather than ordinary income treatment. They also flagged specific items in my collection that might be at risk of "dealer" classification based on how recently I acquired them and suggested a holding strategy to strengthen my investor position. If you're serious about collectibles as investments, it's definitely worth getting this kind of specialized advice rather than trying to piece together information from forums.

If you're planning to sell high-value collectibles, another important consideration is getting timely documentation from buyers for large transactions. I sold some rare Pokemon cards last year and had a nightmare situation where a buyer claimed they never received a $3,000 card that USPS showed as delivered. After weeks of trying to contact the IRS about how to handle this on my taxes (since I technically received the money but might have to refund it pending investigation), I found https://claimyr.com which got me through to an actual IRS agent in 20 minutes when I'd been trying for days. You can see how it works at https://youtu.be/_kiP6q8DX5c The agent was able to clarify exactly how to document this disputed transaction on my return. Definitely keeping this service bookmarked for future tax questions now that I'm selling more of my collection.

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it myself since I had a complex question about reporting some graded card sales where I paid for the grading services (wasn't sure if I could deduct those costs). It actually worked exactly as advertised. I put in my request around 9am, went about my day, and got a call around 11:30am saying an agent was on the line. The IRS person I spoke with was super helpful and confirmed I could include the grading costs as part of my basis in the cards. For anyone dealing with collectibles taxation questions that aren't clearly answered online, being able to actually speak with the IRS directly is invaluable. Saved me hours of hold time and probably some tax overpayment too.

One thing nobody's mentioned yet is that if you're truly operating as a business rather than an investor, you might be able to deduct legitimate business expenses that you can't as an individual investor. Things like: - Storage costs for your inventory - Insurance on your collection - Travel to card shows or auctions - Professional grading services - Research materials/subscriptions - Home office deduction if applicable This might partially offset the potentially higher ordinary income tax rates vs. capital gains rates. Just make sure you're keeping meticulous records of all business-related expenses.

Have you considered setting up an S-Corporation instead of a sole proprietorship? I switched to an S-Corp for my collectibles business once I was clearing about $40K in profit annually and it saved me a bundle on self-employment taxes. The basic approach is that you pay yourself a reasonable salary (which is subject to SE tax) and then take the rest as distributions (which aren't). There are additional compliance requirements and costs, but it might be worth exploring if your operation gets big enough.

This is a really comprehensive discussion that's helping me understand the complexity of collectibles taxation better. One thing I'm still unclear on is the timing of when you transition from investor to dealer status. If I follow my original plan of acquiring for 3-4 years without selling, then start a business and begin regular sales, does the IRS evaluate each transaction individually or do they look at your overall pattern of activity across multiple years? For example, if I sell a card I bought in year 1 (clearly investment intent) but sell it in year 5 when I'm operating as a business, is that specific transaction still eligible for capital gains treatment, or does my business status at the time of sale override the original investment intent? I'm trying to understand if there's a clean way to maintain two separate buckets - my original investment collection versus new business inventory - or if starting business operations potentially taints everything retroactively.