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If I sell a piece of art for $120,000 in Connecticut, and I…

If I sell a piece...
If I sell a piece of art for $120,000 in Connecticut, and I am paid that money onto my Delaware c-corps bank account in New York, and I make only $20,000 out of the $120,000 sale, how much tax will I have to pay?

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Answered in 8 minutes by:
7/2/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,140
Experience: Taxes, Immigration, Labor Relations
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LEV :

Hi and welcome to Just Answer!
To determine your exact tax liability - you need to prepare your tax return.
However you may estimate your possible tax liability based on some assumptions.
The first step to estimate your gain. If you purchased this piece of art for $100,000 - that is your basis.
Your gain would be $120,000 (selling price) - $100,000 (basis) = $20,000 - you will add that amount to your other taxable income.
If this piece of art was owned less than a year - the gain will be taxed as an ordinary income - based on your total income, filing status, deductions, etc. The tax rate will between 10% and 35% - Please take a look at tax rate schedule on the last page in this publication - http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

LEV :

I assumed that you own the piece of art - and you are the seller.
If the piece of art is owned by the C-corporation - that will be income of the corporation - and the corporation will pay income tax on the gain.
If the piece of art is owned by you - you are responsible for the gain - not the corporation.
Assuming you are a resident of Connecticut - there will be additional state income taxes - tax rates are between 3% and 6.7% depending on your total income.

Customer:

I do not own the piece of art

Customer:

and I am not a resident of connecticut

Customer:

I was born in Miami and lived in New York but live currently in Europe

LEV :

Then - we need clarification - you wrote - "If I sell a piece of art" - how you could sell something that you do not own?

Customer:

I have sold a piece of art of another collector in Europe for 120,000 of which I am making 20,000, but the client has paid me in advance the entire sum, to pay for the piece in question.

Customer:

Possibly this could be put as a brokerage of art

Customer:

?

LEV :

In this case - you (or your corporation) will be responsible of income you received - so your commissions are $20,000 - and that will be your business income.
Another collector in Europe will be responsible for his/her own income.
So - you need to determine - who received commissions - you as an individual or the corporation?

Customer:

The corporation

LEV :

Corporate tax rate is 15% fro total business income below $50,000.
So if that is only income of the corporate - it will be liable for 15% in federal income tax liability.

Customer:

But how can I explain this? What will be the tax I have to pay on my Delaware corp that received the entire sum in its accounts in New York, to a client in Connecticut?

LEV :

Because the sale transaction is in Connecticut - the corporation will be liable for Connecticut state taxes as well.

Customer:

So how much will the total tax consist of on this sale of $120,000, in which I gain $20,000, considering all taxes I have to pay?

LEV :

There is no need to explain anything - as long as you have contracts with the seller about commissions - that will be your supporting document. You will include $20,000 into your income.

LEV :

If the corporate sells the asset - the corporate will report that income - not you - you will not pay any taxes unless you take a distribution from the corporation.
The corporation pays to the IRS 15% * $20,000 = $3000.

LEV :

As the sale transaction is in Connecticut - the corporation is required to charge sales tax from the buyer - and remit that amount to the state.
Connecticut's sales tax on the retail sale is 6.35%.
So when the corporation will invoice the buyer - it will add Connecticut sales tax $120,000 * 6.35% = $7620.

Customer:

I'm sorry I am speaking with someone on the other line

LEV :

That is OK - just let me know if you need any help.

Lev
Lev, Tax Advisor
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Satisfied Customers: 33,140
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