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Old 02-09-17, 10:20 AM   #1
KonAaron Snake 
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The other side of our hobby...

Most of us sell/buy to support our hobby, and most of us never really remember uncle sam, or local/state taxes when it comes to what we buy/sell. I know I didn't before starting on my road to being a tax accountant/CPA 5 years ago...

Anyway, interesting confluence of interests yesterday; a firm partner's client, who is a cycling hobbyist, is in an escalating "situation" after selling a couple of bikes through ebay. There are a few ways to handle the proceeds...as a small business, a personal loss/gain, collectible, hobby...the right way depends on the circumstances, and the expenses for the bike can be different depending on which way you do it. One of our flippers...like wrk...might handle it differently than someone like Gomango. We're now representing him and I'm working on it because of my knowledge of the hobby.

So the partner comes in, knowing I'm a bike nerd, asking "how can these expenses be right?!?!" after seeing what our client listed (nice tubulars, vintage saddles, etc.) and it was really fun to combine my two worlds and offer knowledge and insight.

Sorry...random thoughts during tax season, but sort of cool to me.

The bikes in play are a 60s Colnago, a california Masi and a 60s Paramount.

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Old 02-09-17, 10:36 AM   #2
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Death and taxes! I always liked the one BF member who stated (and I paraphrase,) "What keeps me awake at night is that, if I were to die suddenly, my wife would sell my bikes for what I told her I paid for them!" There, but for the grace of god, go I........ I'd imagine the tax attorney, probating some of our wills, would experience some of the same issues.
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Old 02-09-17, 10:44 AM   #3
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LOL! Establishing value (basis) for estate movement would be interesting without records!

The thing I love about tax and accounting is how many ways there can be to view the same information...

Here's a riddle (those on my FB already saw this):

A guy walks into the store and steals $100 bill from the register without the owner’s knowledge. He comes back 5 minutes later and buys $70 worth of goods with the $100 bill. The owner gives him back $30 in change. How much money did the owner lose?

A few fellow nerds all came up with very different answers and ways of looking at it!

The answer also changes depending on who's looking at it (investor, owner, IRS, etc.) and why.

My answer:
$100 X (1-x) tax rate, because the loss is deductible.

The sales transaction has nothing to do with the loss.

You could even take it a step further...

He lost ($100 x (1-x) x G))

Where x is tax rate and G is the growth rate (what he'd expect to earn on his money that was lost):

Using CAPM (a method of determining investment growth), his ANNUAL loss, but not for tax or income statement purposes, is:

($100 x (1-x)) x (risk free rate + beta(risk free rate-market rate))

Which is basically a way of saying he lost what he could have gotten had the money been invested as well.
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Old 02-09-17, 11:10 AM   #4
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Apparently none of your fellow nerds are cost accountants. Before applying your deductibility considerations you might consider the $70 "portion" of the loss as a little less. COGS plus directly related G&A expenses. Essentially the owner made back his margin on the $70 purchase, assuming the guy bought something that wasn't the last of something another customer would have purchased (then assuming that other person would have left the store instead of buying a comparable margin item for the same price)
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Old 02-09-17, 11:11 AM   #5
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Chrome - actually several are, and that opinion came up. I disagreed with that approach since I think the sale and theft are unique transactions.

This is exactly what I meant by different ways to look at the same data depending on the perspective/purpose.

Had the guy stolen GOODS...that's the approach I'd take, but he didn't. You have theft/loss AND a sale.

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Old 02-09-17, 11:12 AM   #6
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Taxes are alternative facts.
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Old 02-09-17, 11:24 AM   #7
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So how do you take a loss on $100 you didn't know was stolen?
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Old 02-09-17, 11:33 AM   #8
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So how do you take a loss on $100 you didn't know was stolen?

same way you account for the loss of life of the Bowling Green massacre
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Old 02-09-17, 11:34 AM   #9
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Another 1 star thread...
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Old 02-09-17, 11:42 AM   #10
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Chrome - actually several are, and that opinion came up. I disagreed with that approach since I think the sale and theft are unique transactions.

This is exactly what I meant by different ways to look at the same data.

Had the guy stolen GOODS...that's the approach I'd take, but he didn't. You have theft/loss AND a sale.
I see your logic, and certainly can agree with your approach. If the thief came in to buy the $70 of stuff the day before stealing the $100, I could not see it any differently than you. Even with the story as presented, your argument is valid. Given the register is short $100 I am leaning your way on this one...

My take assumes the thief probably didn't have the $70 to make the purchase without first taking the $100. My argument is more believable if you set it up as a cashier having given $30 too much change to someone and $70 of retail goods being stolen by someone else. In the end $70 of goods (at retail less sales tax portion paid) is gone, as is $30 cash.

Very interesting to see what gets inferred with an incomplete piece of extra information.

IMO cost accountants tend to see things on a net basis (shipments, inventory, losses inferred) whereas financial accountants see a collection of individual transactions.

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Old 02-09-17, 11:46 AM   #11
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if I remember my accounting correctly (pace university debit to the left, credit to the right) The P&L loss is $100, on a pure cash in register basis Loss is also $100

Assuming $500 in register actual cash

No theft: Credit $100 Debit $30 Cash = $570
Theft: debit Theft $100 Credit $100 Debit 30 Cash = $470

even allowing for $50 COGS would put the P&L (simplified) at $520 for no theft and $420 for theft

fun mental exercise and sharing of odd stuff common to C&V ignore any distractors (especially low post)
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Looking for Torpado Superlight 58cm

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Old 02-09-17, 11:51 AM   #12
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Yeah, leave it to us clueless posers to find something interesting about the question.
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Old 02-09-17, 11:55 AM   #13
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Another 1 star thread...
Please feel free to move along.

Word to the wise...no one here is looking for your approval and there will be posts you disagree with. I'd strongly advise you to post threads, or to contribute to threads you consider 5 star, instead of being surly over ones you don't care for.

This account won't last nearly as long as your last one did otherwise

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Old 02-09-17, 11:58 AM   #14
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So how do you take a loss on $100 you didn't know was stolen?
That was also brought up!

Remember, the standards are what you can reasonably support. If your drawer is short $100 at the end of the night, it would be a reasonable assumption that you had a $100 loss.

If this happened all of the time, then it would stop becoming reasonable.
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Old 02-09-17, 12:01 PM   #15
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I see your logic, and certainly can agree with your approach. If the thief came in to buy the $70 of stuff the day before stealing the $100, I could not see it any differently than you. Even with the story as presented, your argument is valid. Given the register is short $100 I am leaning your way on this one...

My take assumes the thief probably didn't have the $70 to make the purchase without first taking the $100. My argument is more believable if you set it up as a cashier having given $30 too much change to someone and $70 of retail goods being stolen by someone else. In the end $70 of goods (at retail less sales tax portion paid) is gone, as is $30 cash.

Very interesting to see what gets inferred with an incomplete piece of extra information.

IMO cost accountants tend to see things on a net basis (shipments, inventory, losses inferred) whereas financial accountants see a collection of individual transactions.
This is why it's so fun!
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Old 02-09-17, 12:04 PM   #16
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if I remember my accounting correctly (pace university debit to the left, credit to the right) The P&L loss is $100, on a pure cash in register basis Loss is also $100

Assuming $500 in register actual cash

No theft: Credit $100 Debit $30 Cash = $570
Theft: debit Theft $100 Credit $100 Debit 30 Cash = $470

even allowing for $50 COGS would put the P&L (simplified) at $520 for no theft and $420 for theft

fun mental exercise and sharing of odd stuff common to C&V ignore any distractors (especially low post)
Right...it depends on who is looking at the loss (and why), which also can determine the accounting approach used.

Anyway...there are a lot of ways the IRS might look at a bike sale...and it's sort of fun for me combining these two areas of my life. I know there are folks here to whom this might even be relevant one day!
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Old 02-09-17, 12:24 PM   #17
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So the partner comes in, knowing I'm a bike nerd, asking "how can these expenses be right?!?!" after seeing what our client listed (nice tubulars, vintage saddles, etc.) and it was really fun to combine my two worlds and offer knowledge and insight.
Relevant for insurance adjusters whose clients drive over us and our bikes, too.
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Old 02-09-17, 12:34 PM   #18
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Relevant for insurance adjusters whose clients drive over us and our bikes, too.
Which is why we need expensive bikes, so we can claim more damages!
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Old 02-09-17, 12:37 PM   #19
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FWIW...selling and the back end is, often, a part of the hobby for "us" (the vintage nerds). I disagree with moving this to Foo. I think this was relevant for many of us...though I gladly defer to the judgement of our mods.
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Old 02-09-17, 01:31 PM   #20
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I disagree with moving this to Foo. I think this was relevant for many of us...
It was the right thing to do. Therefore, I disagree too.
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Old 02-09-17, 01:32 PM   #21
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It was the right thing to do. Therefore, I disagree too.
I support your position, though I will also vote against it.
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Old 02-09-17, 01:37 PM   #22
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HA!

Here in Foo, we are all about rules. And I think the rule which applies here is rule 34.

Also the answer to your riddle above is 42. But only in Foo. YMMV
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Old 02-09-17, 01:39 PM   #23
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HA!

Here in Foo, we are all about rules. And I think the rule which applies here is rule 34.

Also the answer to your riddle above is 42. But only in Foo. YMMV
I appreciate you supplying the answer...but I don't think we really understand the question. That is my Deep Thought.

I mean no insult to the fine denizens of foo, whom I'm sure are decent and hard working layabouts.
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Old 02-09-17, 01:48 PM   #24
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I mean no insult to the fine denizens of foo,
No worries! Geekiness/Nerdism has many forms and they are all quite welcome in foo.

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whom I'm sure are decent and hard working layabouts.
*whispers* (they fling poo)
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Old 02-09-17, 02:03 PM   #25
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...interesting confluence of interests yesterday; a firm partner's client, who is a cycling hobbyist, is in an escalating "situation" after selling a couple of bikes through ebay...
I don't get it. Is he paying taxes on the sale because he likes paying taxes or because ebay reports the sale to the government and he thinks he'll get caught if he doesn't pay? I wouldn't ever consider paying taxes on the proceeds from selling a bike.
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