“The Taxation of Collectibles” by Lewis et al. Essay

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Introduction

The taxation of collectibles is a significant process; however, many individuals may be unaware of all of its aspects. This paper provides a summary of the article by Lewis et al., which discusses the taxation of collectibles. The report addresses the issues presented in the work, noting the most significant ones. It also provides an opinion of one of the claims the authors make.

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Summary

As mentioned above, the article selected for this review is the one by Lewis et al. The primary aim of the work is to help tax practitioners to understand the meaning of collectibles for tax purposes, offer practical strategies individuals can use to minimize their tax burdens, and explain how gains from collectibles can be taxed (Lewis et al.). The authors note that it is crucial to deliver this knowledge to the audience because the tax definition of collectibles is often misunderstood, and the processes associated with them may be more complex than they appear.

The first part of the paper features a historical perspective on collectibles and other forms of capital assets. Lewis et al. note that since the end of the 20th century, collectibles have been separated, and the maximum rate assessable on collectible gains was set at 28%. Such an action resulted in several challenges because many people believed that only wealthy people owned collectibles, and the gains from them did not ensure economic growth.

The authors report that the current tax system involves three categories of capital gains. The first one includes the ones subject to a rate of 0%/15%/20%, which depends on an individual’s taxable income without these gains (Lewis et al.). The second one unrecaptured Sec. 1250 gain, and the third one is collectibles.

Lewis et al. also provide a clear definition of collectibles, which is significant for those interested in the topic but having a limited understanding of it. The authors report that the list of collectibles includes alcoholic beverages, works of art, metals and gems, stamps or coins, rugs, antique, musical instruments, and historical objects (Lewis et al.). Notably, the article discusses some of the common misconceptions individuals may have about these items. For instance, the authors report that a product is often not considered a collectible for tax purposes unless it is identified Sec. 408(m) or Prop. Regs. Sec. 1.408-10(b) (Lewis et al.). However, such an approach is wrong and may lead to adverse consequences.

The article addresses other significant aspects associated with the taxation of collectibles. For instance, the authors address the netting process needed to determine gain subject to 28% maximum rate (Lewis et al.). They note that during the process, taxpayers should separate their capital gains and losses into several sections. They should distinguish between short-term capital gains and long-term ones. Once a net capital loss fits into the 0%/15%/20% category, it should be offset first against net gains in the 28% category (Lewis et al.).

The authors discuss other significant topics, including losses realized on the disposition of collectible assets, marginal tax rate surprises, and marginal tax rate with the alternative minimum tax (AMT). Moreover, the paper addresses the question of the marginal tax rate with qualified business income (QBI) deduction, outlining the circumstances in which taxpayers can claim it in full. Notably, the article provides examples of cases for business owners, noting the differences in possible scenarios. Finally, the work features the topic of planning opportunities, including donating collectibles, selling capital loss properties, reinvesting gain proceeds, and estate planning. It is possible to say that the work is a crucial and useful guide for enhancing the understanding of the taxation of collectibles.

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Opinion

The last paragraph of the article states that collectibles should be part of tax planning (Lewis et al.). The authors note that many practitioners are likely to be unfamiliar with the aspects of the taxation of gains and losses from the perspective of the disposition of collectibles.

As a result, inaccurate tax projections and inappropriate tax planning may occur (Lewis et al.). It is possible to say that the authors’ perspective is feasible because if collectibles were a part of tax planning, it would be easier for individuals and their advisers to manage the possible unrealized gains collectibles have. Moreover, they would have a better opportunity to include collectibles in their investment portfolios, which would result in higher revenues. Thus, it is crucial to implement the management of collectibles into taxation plans, as they may hold a significant value for their owners.

Conclusion

The report shows that the taxation of collectibles is a significant and complex process. Many items can be considered collectibles, and it is crucial for individuals to know how to perform their taxation. The article provides valuable information about the categories of capital gains and the steps individuals should follow in the process. It is possible to conclude that the taxation of collectibles should be a part of tax planning, as, otherwise, many individuals cannot benefit from it due to the lack of awareness of its aspects.

Work Cited

Lewis, Troy K., et al. “” TheTaxAdviser.com. 2019. Web.

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IvyPanda. (2021, June 29). "The Taxation of Collectibles" by Lewis et al. https://ivypanda.com/essays/the-taxation-of-collectibles-by-lewis-et-al/

Work Cited

""The Taxation of Collectibles" by Lewis et al." IvyPanda, 29 June 2021, ivypanda.com/essays/the-taxation-of-collectibles-by-lewis-et-al/.

References

IvyPanda. (2021) '"The Taxation of Collectibles" by Lewis et al'. 29 June.

References

IvyPanda. 2021. ""The Taxation of Collectibles" by Lewis et al." June 29, 2021. https://ivypanda.com/essays/the-taxation-of-collectibles-by-lewis-et-al/.

1. IvyPanda. ""The Taxation of Collectibles" by Lewis et al." June 29, 2021. https://ivypanda.com/essays/the-taxation-of-collectibles-by-lewis-et-al/.


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IvyPanda. ""The Taxation of Collectibles" by Lewis et al." June 29, 2021. https://ivypanda.com/essays/the-taxation-of-collectibles-by-lewis-et-al/.

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