Gun sales & taxes

[Abbey]

I've seen a couple threads about taxes but at the size of capital gains that some of us are sitting on, I'm surprised this topic doesn't come up more often. No judgement if you ignore capital gains - I don't expect anyone to reply and say "I never pay taxes on capital gains" - but as someone who has been and is still at a high risk of audit due to self-employment activity, I chose to avoid as many red flags on my finances as possible. This probably affects NFA more given appreciation but technically is applicable to any collectible sales.

What are your strategies for reporting capital gains? I have records for the purchase of all NFA but I don't have receipts for many non-NFA guns. (To be fair, only a few of my non-NFA have appreciated.) I don't have records for all upgrades I've put into guns that would increase the cost basis.

The way I see it, there are basically only a few options:

1. keep good records to substantiate your cost basis, report the capital gain, pay the taxman

2. Same as 1 but try to defer sales to years you have lower income to pay a lower rate

3. Never sell, leave expensive assets to your heirs who get a step-up basis and can sell them with minimal tax impact once you're dead

Any other tricks I'm missing here? What do y'all do to manage capital gains? I'm looking to buy something expensive and sell something not quite as expensive so this isn't just a theoretical exercise.  

[StrangeRanger]

I'll take what's behind door #3.  Make it someone else's problem.

[taylorwso]

all cash

 

[Got Uzi]

Captial gains is a crock of bull$hit.....why should you have to pay taxes on something you bought years ago and decided to sell?  I'll start paying that when Congress stops their insider trading scams.....and we know the answer to that.

[Uncle Zeek]

Heh, I just posted a discussion about this subject on a hunting forum that I belong to.

I'm a licensed tax attorney in Texas, and so things like capital gains are near and dear to me.  Here's a cut & paste of my column:

***********************************************************************

Had a new client meeting awhile back to followup on the death of his wife, and his future estate plans. Along the way, discovered that the gentleman had a substantial dollar value of firearms (like, over $100k worth) which he wanted to sell. His tax preparer heard him use words like “collectible”, “antiques”, and “old Winchesters” and decided that the gains from sales were taxable as collectibles at a tax rate of 28%. My opinion was that he had “hobby income” taxable at his ordinary tax rate of 12%

Yes, there's the "cash and carry" school of thought, but that's a different subject.  Most of the time when one of us sells a firearm, the dollar amount involved is pretty low (say under $2,000) and it’s in cash, which just gets absorbed into the sellers spending budget. But sometimes you sell a firearm with substantial value and for various reasons, it’s safest to report the income on your tax return. This tax preparer decided that the guns in question were antique “collectibles” under the Internal Revenue Code simply because the client said they were. I disagreed with the preparer ...

The IRC says that a collectible is “(A) any work of art, (B) any rug or antique, (C) any metal or gem, (D) any stamp or coin, (E) any alcoholic beverage, or (F) any other tangible personal property specified by the Secretary for purposes of this subsection.” No mention of firearms in particular, but “antiques” are considered collectibles.

The NFA defines “Antique Firearms” as “any firearm not intended or redesigned for using rim fire or conventional center fire ignition with fixed ammunition and manufactured in or before 1898 (including any matchlock, flintlock, percussion cap or similar type of ignition system or replica thereof, whether actually manufactured before or after the year 1898) and also any firearm using fixed ammunition manufactured in or before 1898, for which ammunition is no longer manufactured in the United States and is not readily available in the ordinary channels of commercial trade”.

The NFA also happens to define a “Curio and Relic” firearm as “Firearms which were manufactured at least 50 years prior to the current date”. That is not the same thing as an “Antique Firearm” until you get to a firearm made in 1898 or earlier. Therefore, a “Curio and Relic” is, by definition, not an antique and therefore not a “collectible” in the eyes of the IRS. So, in my opinion, for whatever y’all think it’s worth, pretty much any old conventional centerfire or rimfire firearms made after 1898 and before 1974 is merely a “curio and relic” rather than an “antique” and so is not a “collectible”. Therefore – again, just my opinion – any capital gains from the sale of such a firearm is merely hobby income at your ordinary tax rates rather than “collectibles” income at the special 28% (or higher!) rate.

This is just food for thought, and I am merely sharing my opinion. This is not intended as legal advice to anyone here.

Edited February 2 by Uncle Zeek

[Labanaktis]

Joined 2 weeks ago.. posted in selling high value firearms and now asking about reporting gains…. 
 

Fed?

[Abbey]

1 hour ago, Labanaktis said:

Joined 2 weeks ago.. posted in selling high value firearms and now asking about reporting gains…. 
 

Fed?

I don't think a fed would be so obvious. Apologies for being out of the scene for awhile. I did most of my stamp collecting in the '00's and haven't been around since this site was redone. I was surprised that subguns was no longer a site.

[Abbey]

3 hours ago, Got Uzi said:

Captial gains is a crock of bull$hit.....why should you have to pay taxes on something you bought years ago and decided to sell?  I'll start paying that when Congress stops their insider trading scams.....and we know the answer to that.

I agree with you in spirit, but personally can't avoid paying them because the alternative for me is worse. Last time I was audited took 2 years to resolve. I was able to resolve it in my favor, but the stress & time was worth much more than what I'll pay if I sell a machine gun.

[MontanaRenegade86]

I've sold a couple of machineguns and paid the capital gains tax on them. It's not too bad to track. I kept receipts and made up an Excel spreadsheet showing all the data. 

When I sold my Uzi to a dealer, I sold him another gun right along with it. The second gun was a POS Kahr that I took a hit on. The loss on the Kahr dropped my capital gains on the Uzi a bit.

[trosupp]

I have also noticed that invidicual vendors of mail order reloading components vary in their sales tax policy. Recently, I purchased from Precision Reloading with no sales tax charged.

[gun_nerd]

Sorry, first post had gigantic font for some reason, mods please delete this one. See below

Edited February 7 by gun_nerd

[gun_nerd]

Whether or not a company collects sales tax on your purchase as an out of state buyer depends on how much business they do in your state. Each state has what's called an economic nexus, which is basically a dollar amount threshold (which varies from state to state). For example, if you sell more than $100k a year worth of goods to Pennsylvania residents, you're required to collect PA sales tax, then file and remit those taxes to PA, even if your company is based outside of PA. This is also why Gunbroker, as an "online marketplace" under these rules is now required to collect sales tax for most states. Same story with eBay, Amazon, etc.

You can thank the Supreme Court for this...the decision was South Dakota v. Wayfair.

So if a company isn't charging sales tax they either sell a small enough amount per year to remain under the threshold, or they're unaware of the requirements, or they're hoping they fly under the radar and don't get caught.

It's actually a huge burden for small businesses to track what needs to be collected (think about how many cities now charge extra sales tax on top of the state tax), then file taxes in every state and remit the correct payments. I have partial ownership of a small computer software and hardware business that sells to customers nationwide and the amount of money we pay for accounting staff and tax prep is obscene. It's just one more way that small businesses are being squeezed and regulated out of existence.

[Aaron in Mohnton Pa]

Lots of great info in these posts. Thanks guys ….. @gun_nerd you ain’t lying about it being hard for small businesses trying to keep track of all the states they have to collect sales tax for. Fortunately (for smaller businesses) , the economic nexus is a huge number in some of the gun friendly states… Texas for example is $500,000 in annual sales (which for some businesses isn’t a lot) ….. Sometimes it’s just easier to sell on Gunbroker … being they automatically charge you for sales tax and they remit it to the appropriate state. Takes the hard work out. 
 

Aaron - Mohnton, Pa 

Edited February 10 by Aaron in Mohnton Pa