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I'm getting ready to try to sell my street rod, and I'm not sure what I'm supposed to do with the money, from the IRS's point of view.
First off, I know cash is best, but what other forms of payment should I require? Certified check?
Secondly, any other transaction other than cash will require a bank. I expect they will ask some questions or even give me some tax forms when I show up with a 30K+ check.
What's the best way to handle this? Any tips or suggestions?
Any transaction over $10 K will get held, and scrutinized.
If you run it through the bank, then it's income. You'll have to do a tax schedule, write off your cost vs. Sale amount and the net will be taxable income.
This comment will probably raise some eyebrows but here goes anyhow:
"I would do everything possible to pay as little or no tax, if I could !"
Sorry but "THEY" get enuff tax from us as it is !
meller
Hey Andy,
As a fellow '37 owner, I'm sorry to see you're letting it go. I've watched your "build video" several times and you did a nice job with the car! Plus, you went the extra mile and put a Ford engine in a Ford!:3dSMILE: Hope the new owner really enjoys it!
Does this mean you're going to build another? :)
Best,
Randy
I'm with Meller. You already paid taxes on the original car, the parts that went into it plus the license and registration fees. You may also have a property tax in your state that needs to be paid yearly. Then there is the fact that you probably will not get back the amount that it cost to build. I have never paid taxes on a 'cash' sale of a car - though the buyer will so take care when you make up a Bill of Sale and not 'fudge' the final figure too much for the buyer - that could come back and bite both of you. Yeah, I know, never ever would you do that:LOL::LOL:
Get cash and when you go to the bank only deposit small amounts at a time. It may take longer that way but you don't raise eyebrows doing it slowly.
Any cash deposit of over $10,000 is reported. Checks are not cash. Transactions between private individuals do not require the seller to collect sales tax in most states. Buyer may be responsible for tax, most states do not tax private sales.
IF you sell car for a profit, the profit may be subject to some state tax. IRS doesnt ask about a single car sale profit....who ever makes a profit on a private car sale?
if you buy one of mine you buy it through the banks. i will not accept your check nor will i do a cash transaction .
What are you saying here shine enlighten me, how does it work ? You saying cashers check?
$30K through your account will show in an audit, whether you use small transactions or lump sum.
Get cash, and buy physical silver.
When I picked up my roller we did an Electronic Funds Transfer, where my bank electronically debited the money from my account and seamlessly deposited it in the seller's account at his Arkansas bank via the bank routing numbers. All done in the blink of an eye, no questions asked, and no delays. The guy gets the title & keys when your banker tells you the funds have hit your account, and the transaction is secure.
Here in KC we had a team going around buying cars from individuals about twenty years back using counterfeit cashier's checks. They would go to the guy, seal the deal, tell him they were going to get a cashier's check and come back in an hour to pay him and get the car & title. Problem is they had the embossing machine in the trunk of their car, and the checks were worthless.
i'll take no paper . when i sell one my bank has the title signed and ready. my banker drafts off your bank and guarantees your banker the title. i have seen too many folks burnt. and i'm not about to carry 40k around in my pocket at a show.
I like the electronic idea, shine so you hand the bank your title. The purchaser goes to your bank and pays them, the bank hands over the title. So you are standing in the back ground so to speak, the bank does this without a fee.
Interesting these two ways of doing a big dollar deal, thanks to both of you. The processes sound safe and leaves the money verification to the bank............nice!
I KNOW shine's attitude of government / small business.
I suppose the taxes are a small price for peace of mind.
If you're selling a vehicle that you've owned and used as personal transportation then to me there is nothing to report that would result in a tax liability. With an electronic transfer there is no "reporting" of amounts received, and if you're not a dealer then it's not business income. If I sell my welder and all the accessories for $1000 that is not "income". If I built a really nice welding cart, had it painted and pinstriped by some know striper and sold the setup for $5000 it's still not income if I'm not a licensed business selling equipment. Maybe I'm wrong, but I don't think an individual ever mentions proceeds from the sale of any real or intangible property other than a house on their taxes, and there's no expectation that they would.
At least here in NY vehicles are taxed when you register them, so the tax on the transaction would go to the purchaser. If you run it thru the bank, it will get put on a 10 day hold, but they will put it thru without question. At that point all they know is you have $30k from somewhere, could even be another account. Most of all, goverment has nothing to do with individual bank accounts. That's part of the privacy act.
As for paying the tax, a small price to pay.. avg tax 8% of 30k is $2,400. So that's worse than Ebay fee's. You could report it on your income tax as income, and the goverment will gladly take your money. But that decision is up to you
Any transaction, into or out of a bank, of 10K or more is reported to the goverment. Standard banking rules. You don't have to do a thing, the bank does it all. That's how they catch tax evaders and drug dealers etc. etc... If your bank account has the 30K in it by the end of December, then you will be assessed taxes for having the money and collecting interest on it.
I "think" if your over a certain age you'd be exempt from those taxes though... check with your local tax professional.
I'd put an amount that large in the bank but, in a safety deposit box. Interest rates are in the toilet, they'll tax you for having it so any charges for the box would probably equal what it would cost you anyways.. imho.. 8-)
“……If you're selling a vehicle that you've owned and used as personal transportation then to me there is nothing to report that would result in a tax liability………If I sell my welder and all the accessories for $1000 that is not "income". If I built a really nice welding cart, had it painted and pinstriped by some know striper and sold the setup for $5000 it's still not income if I'm not a licensed business selling equipment………”
Roger I think you will find that the way the IRS looks at it is simply if you are making a profit on it regardless of what it is it is income regardless of if you are a business or not.
In the case of most private sells of automobiles the seller has more invested in the vehicle that he will receive when he sells it, so in effect he is taking a loss and no income is made to report. If however you find a great deal on car, buy it and eventually sell it for twice what you paid for it, legally you are supposed to report the profit as income on your federal tax return. The same hold true for any other property, including your welder example, whether you’re a business or not. The only difference is that if you are a business you are allowed to show the transaction as a deduction if you end up losing money on the sale.
That is for the federal side of the taxes. As far as the state taxing the private sell of vehicles, that varies from state to state and is usually on the buyer to pay.
Not quite, as someone who has in the past bought and sold as many as 15 cars to get the correct parts to finish the restoration of one car, I can tell you that the seller, as long as it is not is main source of income, less likely to have to worry about the consequences of taxes (sorry, no long term capital gains taxes apply to cars, only short time (as in under a year). The buyer pays for the car, then the buyer pays his/her state taxes when he/she goes to title (make sure to fill in the buyers name on the back of the title when it leaves your possession) and register it. Again, we are talking about you as the hobbyist selling one of your toys, not you as a professional automotive business selling a car. if you are in that business, then the way taxes are calculated depend on how your business is set up (llc, sole proprietor, S Corp, etc) and how in tune your accountant is with the procedures for each. Finally, some of you live in a state where even though the buyer pays taxes, you are taxed on the sale as well. At that point only your true capital gain will come in to play. Gas, oil, maintenance, entry in to car shows, along with travel expenses will come in to play to lessen the impact of any capital gains. Same goes with costs for the parts, paint, shop supplies, and a host of other misc items that all add up. Again your accountant will be your guide in regards to this, as you can write off quite a bit as a hobbyist......Quote:
Originally Posted by firebird77clone
Bill S.
The electronic funds transfer sounds like the safest way, though why would the bank need to hold the title? Is that just something the seller would do as a comfort to the buyer?
As for the taxes, I am as confused as ever...
Bank to bank wire transfer is the safest way to pay for a car. I have a stand alone account set up for this very thing. I keep the bank minimum in it to limit my liability and only use the account for outgoing and incoming transfers.Quote:
Originally Posted by bulldogcountry1
The bank at no time holds the title to the vehicle, they are not legally allowed to get involved with anything but the transfer of the funds.
Bill S.
There is an instrument where the buyer uses an envelope "check" from his bank, known as a "Bank Draft". The issuing bank (the one with the funds) debits the buyer's account, fills in the amount on the draft, and gives it to the buyer who mails/gives it to the seller. The seller takes the Bank Draft, executes the title, which he inserts into the envelope section of the draft, takes it to his bank and after they are satisfied that the title is accurate and properly executed the draft envelope is sealed (title inside), the seller is paid the amount of the draft, and the envelope goes back to the buyer's bank. I don't think Bank Drafts are used as much today, but they were very common with independent car dealers thirty years ago, where they scanned the Sunday paper looking for "deals", called to set up buys, and then drove around picking up cars and leaving a string of Bank Drafts in their wake. Often they would drive to the first deal, leave that car and drive the newly purchased car to the second deal, leave that one with the second, and so on until they were done (prevents "seller's remorse" - that car is gone!) Then they'd send a car load of drivers out later, or on Monday to round up all the abandoned cars. The sellers would take their draft to their bank Monday morning with his title to get the cash.
Bill, although it sounded as if you were disagreeing with me, ( if you run it through the bank it's income ), you actually made my point better than I did.
If you run your sale through the bank, you will have to prove it's not profit. Break out your tax code.
Not really, I'll simplify as the bank only wants to make sure it is not money from illicit transactions. Your accountant will set it on a line item for "hobby"(not sure of the right tech term this early AM) and there will be no income related charges when you file your annual taxes.Quote:
Originally Posted by firebird77clone
Bill S.
On a Federal level, so far anyway, if it's not posted to a W-2 or a 1099 (maybe some other reporting forms I'm not aware of), or as part of a licensed business transaction, the IRS isn't going to pick it up as income unless you choose to raise a flag about it. While the $10k number is a flag, as stated above, the banks will also report smaller transactions if there's a pattern of "frequent" deposits...........primarily looking for drug transactions, money laundering, that sort of thing. That doesn't automatically mean that the IRS will nail you for undisclosed income, but you could invite scrutiny from them as well as the FBI, DEA, Homeland Security, and who knows how many other busy body agencies.
My main interest ( ugly pun there ) is that this would mostly come onto play in case of an audit. Could it trigger an audit? Possibly, idk.
If I sold one of my welders, or other pieces of equipment,it would be 100% profit because of several reasons----it might of been given to me as a sponsership, or I have taken depreciation on it over the years and may be totally depreciated which would make the sale 100% profit on the item.
On a car---if it has been titled to me personally(Not Clayton Racing) , and has not had any business travel expenses associated with it, won't be deemed taxable--
IF, I have had the vehicle untitled in myname or kept the title open from another source, it will be considered taxable---whether as sales tax(amount of sale), income(IRS) (profit or loss)------------soooooo, I could lose thousands on a vehicle but have to pay sales tax on dollar amount of sale no matter what the cost or profit/loss numbers were--------------