Hot Rods I.R.S./Bank question

Hope this isn't too far off-topic. Mods feel free to delete if it is. A friend of mine is buying a Hot-Rod from another friend of mine. I know both parties well, so the transaction is on the up and up. If the buyer pays let's say $30K for the car and takes that amount out of his account and the seller deposits it in his, is either bank required to notify the IRS or any other governmental agency regarding either transaction or is this one of those "urban myths"? I've always been told that banks are required to notify someone if a transaction exceeds $10K. I guess it's an attempt to thwart money laundering by drug dealers or something even more sinister. If this is in fact the rules, does it apply to bank transfers as well as cash moves? Thanks.

 

it is federal law the the bank report any deposit of more than 5000 dollars. It has something to do with the Homeland security act. Its just to try and find terrorists and drug dealers which i'm sure your friends don't have to worry about. they will also put a hold on the funds as well, i thinks its 5 or 10 days.

 

I've always heard the over 10001$ but it's not really a big deal. It's not like the IRS is gunna show up like storm troopers.


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A person can "GIFT" up to $14,000 per year to anyone and not have to document the transaction to any state, local, or government agency. That sort of means a person could do 2 transactions on December 31st and January 1st but banks may still flag that sort of thing..

 

When the sellers account shows a large deposit the IRS will expect that income taxes be paid. Did you know that if you buy a $14000 car and sell it years later for $100, the IRS says the $100 is income and you are supposed to pay income tax even though you lost money on it?

 

How about when the buyer withdraws let`s say $30K from his bank account doe that cause any problems?

 

Cash deposit or withdrawals of $10k or more throw up a red flag at banks. There is an extra form to fill out and I think a fee or tax. Check or online are ok. They may have to report them, but I would ask a bank. I do know that depositing $9999 3 times in short order will also raise a red flag that means the IRS can seize your money. I would ask a bank your question, not the one you are going to use, in case there are loopholes that are needed to be used.

 

Talk to the bank first. Last car I sold I got 2 cashiers checks to fly under radar, and deposited into 2 different banks.
A friend bought a high end car for cash and sold it a couple years later. sold for same price as paid for it. buyer gave a cahier check $60k+,friend deposited in bank account. Few months later IRS was up his ass wanting income taxes on it for full amount. No proof of where his original money came from. He's self employed and damn near lost it all over the deal.

 

i read in my local paper today that the police caught a guy passing through town from California with over $200,000 of Meth.....does the IRS go after those guys too?

 

Thanks for all the input everyone.

 

Do you trust the government? I don't.
Seller could try dealing in cash and deposit it a little at a time over the tax year. For buyer, if questioned about large withdrawal, tell them you lost it gambling.

 

Wire transfer is easier and safer....unless you want to carry around 30k.....

 

Stupid is as.......

 

1st DO NOT trust any info you get here. Go to a real licensed CPA.
2nd DO NOT screw with the IRS. Pay the damn taxes.

I move around large amounts of money between banks all the time. Checks and cash. Zero problems. Anything over $10k the bank does do extra IRS paperwork but it does not affect you at all if you are an individual. Own a business and make a lot of sub $10K cash deposits things are different. Google "structuring deposits".

So I buy a car. I get a Cashier's Check for $30K. Go to a notary with the seller. The notary copies my and the seller's DL's and the check. Puts everything in the bill of sale. The seller then deposits the check in his bank account. My bank and the seller's bank does all the IRS reporting paperwork behind the scenes. Zero problems. Now the seller SHOULD claim that $30K as income. Which is why you need a CPA to reduce that 30K as much as possible. If you do not claim it you are raising a red flag for an IRS audit. Does not mean it will happen. But you did not pay taxes on $30K of income not $300.

 

i do not understand how when selling a car for $30,000 that all of it is income. if it cost me $29,000 to build it only $1000 is income in my mind...or if it cost me $31,000 to build i lost $1000

as someone said , talk to your bank and tax guy

 

In a nutshell, the Internal Revenue Service (IRS) views all personal vehicles as capital assets. If you sell it for less than the original purchase price, it’s considered a capital loss. This means you do not have to report it on your tax return.
However, if you sell it for a profit (higher than the original purchase price), or what is called a capital gain, you must report the windfall on your income tax return and pay taxes on it.
Determine the original purchase price. If you don’t recall, check the Bill of Sale or purchase contract.

1. Subtract all taxes associated with the purchase. Depending on your state this may include sales tax, use tax, and/or wheel tax.
2. Add any vehicle improvement costs to the adjusted purchase price. This does not include regular maintenance costs, only improvements. An improvement is deemed as anything that’s long term, such as new paint or new stereo speakers.
3. Subtract what you sold the car for from the adjusted purchase price. So if you bought the car for $14,000 and sold it for $8,000, you would have a capitol loss of $6,000. You would not have to report this to the IRS. However, if you bought it for $14,000 and sold it for $15,000, earning a $1,000 capital gain, you would report this on your tax return, using Schedule D on Form 1040 that’s appropriately titled “Capital Gains and Losses.” The form will instruct on you needed information.

Unfortunately if you Lost money on it, The tax code specifically prohibits you from taking a loss on personal property (which includes cars)

Now this is just my opinion from having been audited on a car sale, so take the advice with the value for which you paid for it

 

Heed this advice. This thread is chock full of wrong-headed amateur advice on how to commit tax fraud and land yourself in jail.

I'm a tax lawyer. Here's some practical advice about tax avoidance: If you try too hard to hide transactions to avoid paying income taxes, and you get caught, the cost of penalties and your attorney's fees in the end will make you wish you had simply documented your capital gain and paid the tax.

Jesus, capital gain is the lowest tax rate in our system. It is absolutely not worth the risk of trying to avoid it. Just document your basis, claim the gain and pay the tax. It's the cost of living in society. Don't be greedy and anti-social and then hope the society will feel sorry for you when you get caught.

 

Free advice is usually worth exactly what you pay for it

 

So its more on the seller not the buyer?

 

Yep, Capital Gains tax on something you have had for over 1 year is only currently 15% I believe, so on a gain of $1,000 it's a hundred and fifty bucks - much cheaper than a lawyer

 

Hotroddon has some good advice. The IRS views personal vehicles as capital assets. To keep it simple you could deduct purchase price, and "vehicle improvement costs", and that's the profit for which you are liable to pay capital gains tax. Simple is good.

Can complicated be better:

Good news: every auto or tool related receipt, your HAMB Alliance membership, your car magazine subscriptions, all of the used parts with hand written bills of sale, Home Depot, Pep Boys, they are all "business expenses" that you can "deduct" from the "profit or loss from a business"

To do that you may have to add an SE1040 (small business/sole proprietor) to your taxes, but I'll bet everyone here spends enough to make that worth it. I have my own woodworking business, I use programs that walk me through it, (like turbotax etc), but you could consult a cpa.

If my wife decided to start selling the stuff she knitted, she could legitimately do this and claim deductions to decrease her $ profit.

Bad news; if my wife decided to sell the stuff she knits, she would legally have to pay taxes on it.


My sister works a strait job and sells stuff on Etsy, does it this way.

If your business takes a loss for more than 3 years in a row, the IRS may then classify it as a "hobby" and no longer allow you to claim deductions from it. (Hey, they know us pretty well?)

I'm a complete subversive, and I dislike "The Man" as much as anyone, but you know there are only 2 sure things in life.....

 

No. If you try to structure bank transactions to hide them, from the IRS or from from the banking regulators, you're asking for a world of hurt. Denny Hastert was, in a sense, a "buyer", and tried to structure his bank transactions to hide them from banking regulators because he was (rightly) embarrassed about the fact that he was "buying" silence from students he had sexually abused years ago, before he got rich and famous. He was being blackmailed.

Now, the former Speaker of the House is sitting in federal prison for doing exactly the thing more than one poster has suggested doing in this very thread. Let's just say, it's VERY BAD advice: http://www.nytimes.com/2016/04/28/us/dennis-hastert-sentencing.html

 

very eye opening topic - if you look through the classified car ads here there are a lot of rides For Sale over $10K - wonder how how many novice buyers/sellers have ever thought about tax implications

 

Cowboy Ted is right. Follow his advice to the letter.

 

Also a withdrawal. its no big deal they tell you and if you aren't wearing funny hat or a big black beard you are probably OK.

He knows stuff that other people don't.

 

Hmmm, I don't think you could deduct all those things that you have listed when determining value for personal capital gains on a single vehicle sale, and I think you'd have a hard time declaring a business with the sale of a personal car - again, check with a CPA but I doubt this one.

In MOST cases, she would only have to declare IF she sold over a certain amount, I think $400 is the threshold where the IRS starts to care. And even then it still could be considered Hobby Income, which does allow for deductions but only up to the income amount, you cannot deduct losses on a hobby. Again, consult a CPA

 

It is the same shit in Canada. Put the cars aside if you want to withdraw over $5.K out of your account you have to justify the reason to the teller. My answer is I am going to attend the local Casino. If we want to deposit a large amount of cash they want to know how you obtained it. This could be to one of your neighbors who is the teller. Its all B.S.

 

Sorry, but the above is just plain wrong advice....

The bottom line is that banks are required to report large CASH (greenbacks) deposits and withdrawals unless you have proven to the bank (through knowledge and experience) that you run a legit cash business, perhaps a pizzeria. The reporting is not an IRS issue, it is a homeland security and criminal law issue.

As far as checks, you can withdraw or deposit checks of any size without reporting, however you are still obligated to report income on your taxes, as always.

I recently bought a car and had the seller (who insisted on cash) meet me at my bank. I drew a check for him and he cashed it at the teller. No reporting, everybody happy

 

The IRS is a good reason not to do a wire transfer or to accept a bank check (there are no more Certified Checks) they are now called bank checks and yes payment can be stopped on them. Another reason not to accept them on a transaction. The 10K withdrawal or deposit is the magic number when the IRS is notified. US $100 bills is the best best way when buying and selling.

Gary

 

WOW! Never meant to open such a huge can of worms but, it looks like a topic well worth discussing. Don't want to see anyone go to jail over the buying or selling of a car.