How do you other Americans account for capital gains when selling your watches at a profit? Any tips?
Good question. In UK if you are deemed a "trader" if you sell more than three watches a year. Conversely, if you bought a watch some time ago and wore it, then it went ballistic at Sothebys, (like the Rolex PN for 274k in london) then you have a non taxable gain - as it is a machine for telling the time. If they taxed that gain, then they would have to allow deprecation on new watches. NOTE> As long as you never considered it an Investment!
In order to take advantage of favorable US capital gains tax rates, you have to be considered an taxable entity that is despised around here........An Investor. A collector will not be allowed favorable tax treatment. https://omegaforums.net/threads/some-sub-1000-seamasters.43230/#post-510192
1. If I buy a watch for personal enjoyment, then later sell at a higher price, I would not think to declare this as 'income' and therefore not a 'capital gain'. 2. If I were in the business of buying watches with the expectation to sell them at a higher price and therefore make a continuous profit off such transactions, then I would set up a business entity (protect my personal assets) and record all expenses associated with such a business. Incoming watches would be added to the balance sheet as 'inventory' and outgoing watches treated as normal 'goods sold'. Gains would be the delta between my total revenue less my total costs and related expenses. ... but then, I'm merely a dabbler in this hobby and so even #1 doesn't apply to me. Watches are personal posessions and therefore I don't declare them in any official tax documents, nor do I ever intend to.
Because the State (as in a government body) has a different definition of a trader as I have pointed out. If you sell more than a certain number a year you will be deemed a trader....dont you love that term "Deemed"? its a favorite among the deemers. "You are deemed liable....." In UK as I say that is only 3. I am wondering just how long people can walk through customs borders wearing 10k plus watches. (Europe has a 10k cash limit to walk through borders). Think of all those Paul Newmans wandering through undocumented. I mean once they start looking, there will be blood on the floor. Did anyone else see the Rolex collector on instagram post his tour of europe? He must have crossed borders with about a million dollars+. Actually if you really want to get creepy, you should know in UK you are not allowed to carry more than 500 pounds without the ability to prove where you got it from. (Should you be searched, and the money found, the police will remove it until you can account for its origin). So watch collectors worrying that their little activity might attract investigation might be a little paranoid now, but give it 10 - 15 years.
In terms of US law, see https://www.irs.gov/taxtopics/tc409.html One section in particular spawned my question: "Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate." @Larry S sometimes collectors sell their watches. As they are often for personal purposes, they might be considered capital assets, and thus subject to capital gains. @gostang9 according to the US Gov (if you are a US citizen) "Almost everything you own and use for personal or investment purposes is a capital asset."
Shoot, in California if you import a vintage watch from overseas you have to pay USE TAX!!! Drives me to post on WRUW all the time just to feel ok about it.
As far as I know, the IRS has been very lax about capital gains in regards to low to mid income level Americans, being as short-handed as they are, for the last 8 years or so, but technically, we are legally bound to account for every dollar that comes in and out of our accounts under Schedule D. If you haven't, it probably went by unnoticed or ignored, but regardless of how one feels about Trump, it's possible that could change. Having said that, he wants to give the IRS even less money, so maybe not. Still, better safe than sorry. There are ways to get around capital gains taxes and it is much harder to enforce on collectibles, but people, just pay your taxes (and import fees)
Well, capital gains are only incurred upon selling an asset. Luckily, my holding period for watches is the same as the "Oracle of Omaha's" preferred holding period (forever), so I won't have to worry about it. Besides, how many people net large sums of 'capital gains' from selling watches? After insurance, regular maintenance costs, etc, while a few highly appreciated pieces might get a lot of media attention, I doubt the majority of watches sold in the used market really bring a meaningful net 'capital gain'. For those rare few that do, the only way someone could be held accountable would be if there's a clear paper trail that can be audited.
I will off set my gains by selling my Invicata. But seriously, I am in for the fun of collecting, if I ever had to account for taxes, then it would no longer be fun and I would move on (or not sell). My taxes are already a headache and I need more headaches like I need another Speedmaster. When I do sell, I guess I will be selling via this message board. At some point when I sell my Ed White, which will be 10 -20 years from now, I certainly won't go to an auction house, that would only raise red flags, in my opinion. Serial blacked out due to paranoia.
There is no such thing as "personal use" when it comes to capital assets. In other words, Uncle Sam wants his cut when you win, but he makes is difficult for you when you lose. Sales of collectibles (including watches) are subject to a special 28% federal income tax rate after a 1-year holding period. If you are a serial flipper who holds watches less than a year, then regular tax rates will apply, except that you can only offset losses against other capital gains. You can claim up to $3,000 in net capital losses in total in excess of your capital gains per year, with any difference carrying over to be used against gains in subsequent years. At one time the IRS tried to get eBay and some of the other online sales outlets to issue Form 1099-K, based solely on a dollar volume basis ($20K if memory serves). The auction houses and eBay got together, screamed to their lobbyists, then got the rules changed on the minimum reporting requirements to 200 transactions and $20K in volume. That's probably going to exempt most of us except the true professional sellers in the audience. So there really is little reporting and oversight on this area of tax law. That does not exempt you from having to pay tax voluntarily. The preceeding only applies at the federal level. Each state has their own rules on state income taxes. Some states (like my home state) have no personal income taxes. Some states (CA) have rates approaching 13%. Combined NY state and NYC taxes can be as high as 14%. That's after federal tax, and these states have no special reduced rates on collectibles like the feds do. The states also have their own rules on sales tax (for intra-state transactions) and use tax (for out of state transactions). And politicians wonder why very few comply with these laws? gatorcpa
@Spacefruit, I'm not going to quote your posts above but, as you have undoubtedly bought and sold more watches than I will ever own, at just what point would one be deemed a "trader"? For instance, if one sells watches in order to finance other purchases, is that still deemed trading? If so, is roll over relief applicable? Also, £500??? I carry that at most, if not all, markets and auctions ... just for what you can get from the dealers "for cash". "Yes, I can prove where it came from, Officer ... that slot in the wall outside Sainsburys".