Capital Gains Tax on Instruments

[DirtPoorRobins]

Hi quick tax question. What is the procedure for when I sell musical equipment that I've claimed as write offs in previous years? ie: capital gains tax. What if I trade it?

[JimB52]

Talkbass OT is only good for medical, legal or romantic advice.
You should check with a tax professional.

[MatticusMania]

I think tax info can fall under legal info, at least when it concerns the IRS.

[bassrique]

Originally Posted by DirtPoorRobins

Hi quick tax question. What is the procedure for when I sell musical equipment that I've claimed as write offs in previous years? ie: capital gains tax. What if I trade it?

I used to know the answer to this question, but even if I were to recall the info, it's probably changed by now.

If you barter, there is no trail, though IRS still wants a piece of the action.

[hdracer]

I am not a CPA, but my rule is buy with cash-sell for cash= no IRS

But I would talk to a accountant.

[bassrique]

Originally Posted by hdracer

I am not a CPA, but my rule is buy with cash-sell for cash= no IRS

But I would talk to a accountant.

Yes and no

[bassrique]

Recent tax law [healthcare bill] may state that a 1099 form must be sent to the payee and IRS if the transaction is more than $600.

I could be wrong though. Hopefully someone will come by later and correct me. [I only remember this because I hate 1099 forms, and the threshold used to be $5000 IIRC.]

[seismic]

Originally Posted by bassrique

If you barter, there is no trail, though IRS still wants a piece of the action.

If you trade a bass, valued at "X" for an amp, valued at about "X", there is no monetary gain and thus, no capital gain. The values should be roughly approximate, so that the IRS cannot make a determination that one party obtained a financial gain though the transaction.

If the trade is not equal and/or a cash kicker is required, then tax payments could be required.

[bassrique]

Originally Posted by seismic

If you trade a bass, valued at "X" for an amp, valued at about "X", there is no monetary gain and thus, no capital gain. The values should be roughly approximate, so that the IRS cannot make a determination that one party obtained a financial gain though the transaction.

If the trade is not equal and/or a cash kicker is required, then tax payments could be required.

But they don't want you determining that. The barter groups I know of operate secretly, and you need an invite to get in. The IRS frowns on trailess transactions.

Think about it. Let's say I'm a dentist and you are a roofer. Normally, I'd pay for a roof and the roofer would pay for dental work -- both taxable. But let's say we come to an agreement where I'd work on the roofers kid's teeth while he did my roof. Nothing taxable there if it's kept a secret. Nope, IRS doesn't like that.

[seismic]

The IRS doesn't care as long as you use reasonable market values for common items.

Example: a used Fender American Deluxe P Bass, in excellent condition, has a range of value on the U.S. retail market. If one trades that bass for an amp of approximate equal value, there is no tax liability.

Cars, firearms, and similar items of value have books of valuation that list values for the products they cover and at varying conditions. The IRS uses these books for common consumer items.

Rare or one of a kind items such as the Bass of Doom, a Matisse painting, and similar items are much harder to value and they require independent appraisal.

I am talking about property, not services.

The IRS does conduct criminal investigations and undercover operations on the groups you are referring to. If you are doing this as a business or as a significant part of your income or lifestyle, expect the IRS to scrutinize you. If you trade one bass you no longer use for another piece of equipment as a one time or infrequent deal, they do not care.

[seismic]

Originally Posted by bassrique

Recent tax law [healthcare bill] may state that a 1099 form must be sent to the payee and IRS if the transaction is more than $600.

I could be wrong though. Hopefully someone will come by later and correct me. [I only remember this because I hate 1099 forms, and the threshold used to be $5000 IIRC.]

If you are getting paid for gigs, yes. There is a minimum threshold amount and that will kick in January 2011.

[bassrique]

Originally Posted by seismic

The IRS doesn't care as long as you use reasonable market values for common items.

Example: a used Fender American Deluxe P Bass, in excellent condition, has a range of value on the U.S. retail market. If one trades that bass for an amp of approximate equal value, there is no tax liability.

Cars, firearms, and similar items of value have books of valuation that list values for the products they cover and at varying conditions. The IRS uses these books for common consumer items.

Rare or one of a kind items such as the Bass of Doom, a Matisse painting, and similar items are much harder to value and they require independent appraisal.

If one trades that bass for an amp of approximate equal value, there is no tax liability.

In the example i gave with the roofer and dentist, we'll call that a 10k transaction on both ends, totaling 20k [paid by credit card, check, debit card]. That's taxable even though it's an equal trade, right? If you circumvent that process, IRS can come after you --- believe me. [Although a bass for an amp isn't a large enough transaction to raise many agent eyebrows, unless such was done over and over.]

[seismic]

I am not talking about services, just property that has a common inherent valuation.

If you are a hobbyist, a student of music, or not getting paid as a musician; then my example stands.

If you are being paid as a professional [full or part time], derive a significant amount of income from barter transactions, or are a doing enough deals that the IRS considers it a business; then you should report your income.

I used to collect rare firearms and had to deal with the IRS and the Bureau of Alcohol, Tobacco, Firearms, and Explosives [then part of the Treasury Dept.]. Anything more than an occasional trade to "better" one's collection would require Federal licensing as a firearms dealer and reporting any and all transactions to the IRS as business income. Selling firearms too often within a year [there was no defined number either] also could cause tax and regulatory headaches and they are all felony crimes!

Again, I was doing it as a recognized hobby, not as a part of a bartering group. That is the big difference that the IRS does consider.

[burk48237]

While technically I suppose the IRS could come after you for a "capital gain" if you sold a bass for more then you paid for it, I doubt they would if it was an occasional situation. Most consumer items lose value, and you have to remember there is the cost of the sale (add, shipping, shipping materials, pay pal or transaction fees and maintaining the instrument). Plus, you have to consider inflation. If I bought a Fender Jazz in 1975 for $200 (used) and sold it this year for $2500 did I really make any money? I doubt it. Most consumer items are worse in that they lose money.

Now this new HC law is a different situation, it is designed specifically to prevent any "trades" of income value. My understanding is under the new bill, if you are a professional bass player (claiming business costs) and buy a used bass from someone you have to 1099 them for the cost of the instrument and they have to declare it as income. This applies to every transaction over $600. That is a nightmare for anyone with a small business.

[bassrique]

Originally Posted by seismic

I am not talking about services, just property that has a common inherent valuation.

If you are a hobbyist, a student of music, or not getting paid as a musician; then my example stands.

If you are being paid as a professional [full or part time], derive a significant amount of income from barter transactions, or are a doing enough deals that the IRS considers it a business; then you should report your income.

I used to collect rare firearms and had to deal with the IRS and the Bureau of Alcohol, Tobacco, Firearms, and Explosives [then part of the Treasury Dept.]. Anything more than an occasional trade to "better" one's collection would require Federal licensing as a firearms dealer and reporting any and all transactions to the IRS as business income. Selling firearms too often within a year [there was no defined number either] also could cause tax and regulatory headaches and they are all felony crimes!

Again, I was doing it as a recognized hobby, not as a part of a bartering group. That is the big difference that the IRS does consider.

I see what you are saying, and i am too tired to think about it.

EDIT: Can you sense any paranoia from my IRS posts?

Originally Posted by burk48237

While technically I suppose the IRS could come after you for a "capital gain" if you sold a bass for more then you paid for it, I doubt they would if it was an occasional situation. Most consumer items lose value, and you have to remember there is the cost of the sale (add, shipping, shipping materials, pay pal or transaction fees and maintaining the instrument). Plus, you have to consider inflation. If I bought a Fender Jazz in 1975 for $200 (used) and sold it this year for $2500 did I really make any money? I doubt it. Most consumer items are worse in that they lose money.

Now this new HC law is a different situation, it is designed specifically to prevent any "trades" of income value. My understanding is under the new bill, if you are a professional bass player (claiming business costs) and buy a used bass from someone you have to 1099 them for the cost of the instrument and they have to declare it as income. This applies to every transaction over $600. That is a nightmare for anyone with a small business.

That 1099/$600 law may have a short shelf life. From what I understand, both sides of the aisle see the folly in it and will "fix" it. I hope it will happen this year. There is so much uncertainty freaking out small business people. I'll have to leave it at that, for politics is a no-go here.