On Sat, 11 Mar 2000 22:53:38 -0500 "Michael S. Lorrey"
<retroman@turbont.net> writes:
> So what you are saying is that even if you still own the car, and
> every
> trade was considered even at the time of the trade by the
> participants,
> that you have to pay a tax on the increase value of the property,
> even
> if you haven't sold the property?
It depends. Apparently there is a 'loophole' which allows one to value
inventory at cost, if that is lower than fair market. So if the total
fair market value of the inventory went up, but the total cost didn't,
then there would be no taxable increase in inventory valuation, if you
report it 'at cost'. Part III of the long form Schedule C (it's not on
Sched. C-EZ) is where you report inventory valuation for a sole
proprietorship trading business. So in my earlier example where you
start with a $50 pig and end up with a $1000 car, with no cash changing
hands along the way, you would apparently not have a $950 Sched. C income
if you used the 'at cost' loophole. It is an intriguing question whether
if one were to barter one's way from owning a $50 pig to being a
millionaire, that method would allow one to avoid paying any income tax.
I suspect the catch is that when you convert 'stock in trade' to personal
use, it would have to be accounted for at fair market value.
Whether the trades are considered 'even' by the participants is sort of a
red herring. That doesn't really have anything to do with the income
tax. The income tax does not recognize any 'profit' or 'loss' which is
made at the instant that a transaction occurs based solely on the
supposed relative values of the items traded at the time. Instead, the
income tax is based on the dollar difference between what you actually
pay for something versus what you sell it for. Of course at some point a
dollar value must be assigned to the items you have at the end of each
year for the purpose of that calculation, especially where the
transactions are all barter. That's why you report the fair market value
(or the price you actually paid, whichever is lower) for your inventory
each year.
Thats bogus. Property taxes are
> direct
> taxes and are not legal for the feds to impose.
If you regard the tax on the change in inventory valuation under Sched. C
as a property tax, it is understandable that you might find it annoying.
However I don't see it as a property tax. A property tax is levied at a
set rate on the whole value of certain property, year after year. It is
like a rent. The tax on inventory change under Sched. C is really an
income tax, because it is levied only once on any positive change in
inventory value for a particular year. That positive change in inventory
reflects income, or is a recognized form of income, which is why it is
part of the income tax. And as I mentioned above, you can report the
actual cost of inventory if it is lower than the fair market value. See
the Sched. C instructions.
Perhaps you are thinking of the capital gains aspect of the income tax,
where you don't have to pay any capital gains income tax on the increased
value of appreciated property so long as you have not yet sold it, or
traded it for non-'like kind' property. I described the use of Sched. D
(Capital Gains and Losses) in my last message. A dealer or trader is not
allowed to use Sched. D to report his dealer transactions. He must use
Sched. C, since he is running a business, not investing. Sched. D is for
investors who buy and sell capital assets. The precise difference
between a trader and an investor is not always clear.
Ron Kean
This is really
> annoying
> me. I'll have to do some research on this issue.
>
> Mike Lorrey
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