Tax implications for crypto

Discussion of all things crypto and blockchain.
jcz1
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Re: Tax implications for crypto

Postby jcz1 » Sun Dec 17, 2017

Long John wrote:
jcz1 wrote:Isn't it true that you can see transactions scroll by on at least one of the exchanges? The IRS can see that too. And guess what? Every transaction involves a seller. :roll:

Yes, orders scroll, at the speed of light sometimes. But there's no buyer or seller information, just the price. At least on the exchanges I've traded on.


My point was the sheer number of transactions means lots of people are selling. The IRS can easily count this, and make some assumptions about the number of expected gains and losses reported.

Of course, it could be the same 802 people from 2015 doing those transactions.

jcz1
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Re: Tax implications for crypto

Postby jcz1 » Sun Dec 17, 2017

Long John wrote:Are any of our BS members known to be a tax professional, whom we could wheedle for free advice? :lol:


What questions were not answered by the post from Nate (from the IRS)?

The one that jumps to mind for me is the intra-crypto trades, which made me think about 1031 like-kind exchanges in the real world.

From an article in August, when the market cap was only $155 billion, and before the IRS victory over Coinbase. It talks about the like-kind exchange, along with reporting in general:

For those who don't pay Uncle Sam, they could be slapped with a 20% negligence penalty or as much as a 40% penalty if the person understated their income by 10% or more, said Green.
...
Then there's the 1031-exchange rule, where the IRS allows someone to defer paying capital gains taxes after selling a property if the person reinvests the proceeds into a "like-kind" property within 180 days. The program has been big in the real estate world. But the rule applies to other areas that the IRS considers as "property," such as gold, which can be exchanged for gold coins without paying capital gains taxes. As a result, some experts speculate the rule might extend to Bitcoins, where Bitcoins could be exchanged for other cryptocurrencies, such as Ethereum, without paying taxes.

But Green isn't so sure. He noted that while gold can be traded for gold coins, it can't be traded for silver coins under the 1031 rule. "With a lack of IRS guidance, using section 1031 for cryptocurrency trades is uncertain, and I suggest wrong," he said.
...
And that leaves Bitcoin owners with a dilemma. Do they interpret the rules themselves and hope for the best? Or pay up and not take the chance of facing potentially monstrous penalties a few years down the line when the IRS catches up to them?

"Pay your taxes - it's not worth it," said Prechter. "It's silly to save some money and risk going to prison."

As cryptocurrencies become more mainstream, experts say it's not a question of "if" the IRS will bring the hammer down on tax evaders in this space, but "when."
...
At the end of the day, gains from Bitcoins and cryptocurrency are income and need to be reported as such, said Green. "Don't be greedy: Pay your capital gains taxes on windfall income and amend tax returns to report capital gains before the IRS catches up with you," he said.

Tinnen concurred. "Regulators are watching, and whenever the IRS and Department of Justice are collaborating, things will happen," said Tinnen. "And today's lay of the land may not be tomorrow's."


https://www.thestreet.com/story/1428510 ... e-irs.html

jcz1
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Re: Tax implications for crypto

Postby jcz1 » Sun Dec 17, 2017

Then there's this from coindesk:

According to Perry Woodin, CEO of Node40, a TurboTax-like platform for cryptocurrency owners:

"People are piling into bitcoin so they can get the free money, but I think very few people are thinking about the tax implications of it. And if they are, they’re probably thinking 'Well, I can get around it'."

But that might not be clear thinking.

https://www.coindesk.com/make-big-money ... -watching/

Remember, the IRS likes to seize assets first and ask questions later. So anyone buying a gold-plated Lamborghini should probably report their gains. :lol:

from the same article, talking about forks and if they cause taxable events:

The first choice is to assign each new coin an arbitrary value to use as its cost basis. This could potentially be done by taking a weighted average of, for example, bitcoin cash's trading value in futures markets just before the August fork, or by assigning it a value proportional to that of a full bitcoin.

Any increase in the price after the cryptocurrency's inception and before the end of the year would then be subject to capital gains tax.

The other possibility is to assign the new coin an arbitrary value of zero and then pay the capital gains tax on the full value whenever the disposition of the coin occurs (when they are exchanged for other crypto assets or for fiat currency).

The latter approach would seem to match up with the IRS' thinking on other types of second-generation assets, explained Markwood, noting the situation could be similar to that of a farmer who owns a cow that gives birth to a calf or a landowner who discovers gold on his property.

Importantly, in both cases, the creation or discovery of the new asset would not necessarily trigger a taxable event. But when the assets are sold off, the full value of the disposition would be deemed taxable income.

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SilverDoge
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Re: Tax implications for crypto

Postby SilverDoge » Sun Dec 17, 2017

jcz1 wrote:With a lack of IRS guidance, using section 1031 for cryptocurrency trades is uncertain, and I suggest wrong," he said.
...
And that leaves Bitcoin owners with a dilemma. Do they interpret the rules themselves and hope for the best? Or pay up and not take the chance of facing potentially monstrous penalties a few years down the line when the IRS catches up to them?

"Pay your taxes - it's not worth it," said Prechter. "It's silly to save some money and risk going to prison.


Fear monger much? So there is admittedly no IRS guidance but this guy advises everyone to track every single small trade within the crypto space, not cashing out to USD or your bank, or risk PRISON - for guidance that doesn't even exist.

I will take the advice of my trusted accountant, not your random CPA on the internet. Illegal aliens can kill US citizens in San Francisco and get no jail time, but my transferring my BTC to ETH in my own wallet via Shapeshift puts me at risk of jail time if I don't report non-existent gains? Seems logical. :roll:

Do you even crypto?
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Re: Tax implications for crypto

Postby Double3 » Sun Dec 17, 2017

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jcz1
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Re: Tax implications for crypto

Postby jcz1 » Sun Dec 17, 2017

SilverDoge wrote:
Fear monger much?


Nope.

Provide information as I find it from reputable sources geared towards answering the OP's question and concerns? Yep.

But since it bothers you, here's more from TheStreet.com story:

Some investors wrongly think cyber currencies, like Bitcoin, are tax-free vehicles since cyber coin owners don't receive 1099-K or 8949 forms. "Anytime people don't get a form, their first inclination is to find some high-flying reason why they may not have to report," said Green.

Others look at the unregulated and somewhat anonymous nature of Bitcoins, and wonder how the IRS would ever know if they failed to report gains. After all, if the FBI and international cybersecurity experts are having a tough time tracking down the cybercriminals behind the huge ransomware attacks, where scammers received millions of dollars in Bitcoins to unlock computers from malicious malware, then how would the IRS ever track down small investors playing with five or 10 bitcoins?

"Keep in mind that technically, Bitcoin is not anonymous - it is pseudonymous," cautioned David Andolfatto, an economist and senior vice president for the Federal Reserve Bank of St. Louis, who has written blog posts and made presentations about the cryptocurrency market. "The blockchain itself - which is the record of how money moves across accounts - is visible, and the IRS and FBI have teams that can do the forensics necessary to track down identities."

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Re: Tax implications for crypto

Postby silverhead » Sun Dec 17, 2017

I guess there is some consolation to have been too poor to buy any "crypto", it is easier to do my taxes.. :clap:
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Re: Tax implications for crypto

Postby SilverDoge » Mon Dec 18, 2017

jcz1 wrote:Provide information as I find it from reputable sources geared towards answering the OP's question and concerns? Yep.

But since it bothers you, here's more from TheStreet.com story:


Definition of Concern Troll: "A person who posts on a blog thread, in the guise of "concern," to disrupt dialogue or undermine morale by pointing out that posters and/or the site may be getting themselves in trouble, usually with an authority or power. They point out problems that don't really exist. The intent is to derail, stifle, control, the dialogue. It is viewed as insincere and condescending."
https://www.urbandictionary.com/define.php?term=concern%20troll


I'm sure your position and research is totally sincere though. It is totally reasonable that every American who swaps between any crypto at any time basically needs to become a CPA or risk jail time or 40% tax penalties.

Perhaps you are in need of a new avatar. May I suggest one:
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jcz1
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Re: Tax implications for crypto

Postby jcz1 » Mon Dec 18, 2017

SilverDoge wrote: It is totally reasonable that every American who swaps between any crypto at any time basically needs to become a CPA or risk jail time or 40% tax penalties.


I never said they did, and the guy quoted didn't either. He just didn't give any advice on how to deal with it so that one could pay taxes as he suggested. That article also mentioned asking the IRS about this, and they responded only by pointing to their advice from 2014, which Nate posted earlier.

I see a reasonable parallel between crypto-swapping and those that do the same with currency trading. Those people swap between Yen and Yuan and others, without going into USD dollars first.

Unfortunately, checking google for "currency trading taxes" doesn't provide a simple solution either. Also, the IRS has said that cryptos are not currency, so even if this was simple, it would probably not make the IRS happy either.

If I find a reputable source suggesting that intra-crypto trades are not taxable, I will post it. Perhaps you could do the same.

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SilverDoge
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Re: Tax implications for crypto

Postby SilverDoge » Mon Dec 18, 2017

jcz1 wrote:
SilverDoge wrote: It is totally reasonable that every American who swaps between any crypto at any time basically needs to become a CPA or risk jail time or 40% tax penalties.


I never said they did, and the guy quoted didn't either. He just didn't give any advice on how to deal with it so that one could pay taxes as he suggested. That article also mentioned asking the IRS about this, and they responded only by pointing to their advice from 2014, which Nate posted earlier.


From your posted article....."For now, the IRS relies primarily on the "honor system" for people to report their gains. For those who don't pay Uncle Sam, they could be slapped with a 20% negligence penalty or as much as a 40% penalty if the person understated their income by 10% or more, said Green."
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jcz1
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Re: Tax implications for crypto

Postby jcz1 » Mon Dec 18, 2017

I never said that people had to become CPAs, and the guy quoted didn't either. :roll:

Wanna make it simple? Trade crypto A for crypto B as an example, turn A into USD, that becomes your cost basis for B. Those USD are either a gain or a loss. Add everything up for the year.

No CPA required.

If you trade a lot, that is a pain, true. Too bad.

Every ebay sale results in a gain or loss for me. It's not fun adding those up either.

Don't wanna do it? Your choice, but you are taking a risk that the IRS catches you.

For those that want to use this method, this might help with determining USD values in the past:

CoinTracking ... With the current and historical prices for all 5065 existing currencies, you will get the complete overview.

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Re: Tax implications for crypto

Postby SilverDoge » Mon Dec 18, 2017

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Re: Tax implications for crypto

Postby quitquit » Mon Dec 18, 2017

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Re: Tax implications for crypto

Postby SilverDoge » Mon Dec 18, 2017

quitquit wrote:https://news.bitcoin.com/trading-bitcoin-for-an-altcoin-wont-shield-you-from-the-irs-anymore/

This is an opinion piece. It does not link to any law or regulation, it is merely an opinion. And until I see it in actual law that me swapping my own personal private property from ETH to LTC is a no-shit taxable event, then I am free to allow my accountant to treat it as he sees fit. And recall that this is all after-tax money! I have already paid income taxes on every single dollar I have put into crypto - that is the real crazy aspect of all this.

It is understandable why guys like Jeff Berwick move to Mexico and feel more free than the US. I sure hope my security is good and none of my crypto is hacked and stolen from me.

If the US does pass these type of laws, Monero is going to moon.
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natsb88
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Re: Tax implications for crypto

Postby natsb88 » Mon Dec 18, 2017

There is a provision in the GOP tax cut bill to replace the word "property" with "real property" in section 1031 of the IRS code, which deals with exchanges of like kind property. This would effectively limit 1031 to only real estate. If this provision is enacted, it would also make every coin-for-coin, gold-for-gold, and silver-for-silver trade a potentially taxable event. This is not the law yet, but it IS (to the best of my knowledge) still included in the reconciled tax cut bill that the house and senate must both pass. If this is something you don't like, contact your representatives ASAP.

https://coinweek.com/coin-clubs/legisla ... exchanges/

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SilverDoge
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Re: Tax implications for crypto

Postby SilverDoge » Thu Dec 21, 2017

natsb88 wrote:There is a provision in the GOP tax cut bill to replace the word "property" with "real property" in section 1031 of the IRS code, which deals with exchanges of like kind property. This would effectively limit 1031 to only real estate. If this provision is enacted, it would also make every coin-for-coin, gold-for-gold, and silver-for-silver trade a potentially taxable event. This is not the law yet, but it IS (to the best of my knowledge) still included in the reconciled tax cut bill that the house and senate must both pass. If this is something you don't like, contact your representatives ASAP.

https://coinweek.com/coin-clubs/legisla ... exchanges/


SilverDoge wrote: It does not link to any law or regulation, it is merely an opinion. And until I see it in actual law that me swapping my own personal private property from ETH to LTC is a no-shit taxable event, then I am free to allow my accountant to treat it as he sees fit. And recall that this is all after-tax money! I have already paid income taxes on every single dollar I have put into crypto - that is the real crazy aspect of all this.


Well it looks like it is going to be official. The republican congress, who supposedly believe in free markets and Laissez-faire economics, are going to pass the law stating that if I trade between any crypto coins in my own wallet is a taxable event. Of course this is beyond idiotic, but we can't let the little guy swap his own property without the government cut on my AFTER tax income. So the rich write themselves tax loopholes, and the small guy gets screwed yet again. Same as it ever was. I wonder if New Zealand screws their citizens over too. Looks like a nice place to live.

https://www.bloomberg.com/news/articles/2017-12-21/tax-free-bitcoin-to-ether-trading-in-u-s-to-end-under-gop-plan
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Re: Tax implications for crypto

Postby xelint » Thu Dec 21, 2017

jcz1 wrote:Those who don't get 1099's, take note of the IRS victory over Coinbase last month. In that case, they got info on anyone who "bought, sold, sent, or received more than $20,000 through their accounts in a single year between 2013 and 2015."

https://www.theverge.com/2017/11/29/167 ... rs-records

Even though the agreement now seems to be 200 transactions AND $20k, are you SURE that the IRS won't go back and get the ones with just the $20k? If they ever do and you didn't report it, they will likely impose penalties.

With the massive rise in USD value this year, I'm sure the IRS is expecting a lot of gains to show up on tax forms.


Looks very similar to the reporting standards on PayPal. Guessing that will be the model they are basing this on as they see crypto's as property and not investments.
Get refunds on things you already purchased when the price changes :wave:

https://earny.app.link/Gm3jMgbK7P

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Re: Tax implications for crypto

Postby jcz1 » Thu Dec 21, 2017

The new tax bill doesn't so much "change" things for trades so much as clarifies it. From the Bloomberg article earlier:

"There’s always been a question under current law as to what types of currencies can be exchanged and qualify," Lemaster said. "The conservative view is that it doesn’t qualify."

Most cryptocurrency investors have ignored that legal fuzziness, and taken the approach that trading a stash of, say, bitcoins for litecoins, qualifies as swapping one form of property for a similar one. “People have probably foot-faulted all over the place,” Lemaster said.


It is still TBD whether the exchanges will send out 1099s for 2017 based solely on intra-crypto trades. If they do, that amount has to be accounted for on the 1040 somehow.

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Re: Tax implications for crypto

Postby natsb88 » Thu Dec 21, 2017

SilverDoge wrote:
natsb88 wrote:There is a provision in the GOP tax cut bill to replace the word "property" with "real property" in section 1031 of the IRS code, which deals with exchanges of like kind property. This would effectively limit 1031 to only real estate. If this provision is enacted, it would also make every coin-for-coin, gold-for-gold, and silver-for-silver trade a potentially taxable event. This is not the law yet, but it IS (to the best of my knowledge) still included in the reconciled tax cut bill that the house and senate must both pass. If this is something you don't like, contact your representatives ASAP.

https://coinweek.com/coin-clubs/legisla ... exchanges/


SilverDoge wrote: It does not link to any law or regulation, it is merely an opinion. And until I see it in actual law that me swapping my own personal private property from ETH to LTC is a no-shit taxable event, then I am free to allow my accountant to treat it as he sees fit. And recall that this is all after-tax money! I have already paid income taxes on every single dollar I have put into crypto - that is the real crazy aspect of all this.


Well it looks like it is going to be official. The republican congress, who supposedly believe in free markets and Laissez-faire economics, are going to pass the law stating that if I trade between any crypto coins in my own wallet is a taxable event. Of course this is beyond idiotic, but we can't let the little guy swap his own property without the government cut on my AFTER tax income. So the rich write themselves tax loopholes, and the small guy gets screwed yet again. Same as it ever was. I wonder if New Zealand screws their citizens over too. Looks like a nice place to live.

https://www.bloomberg.com/news/articles/2017-12-21/tax-free-bitcoin-to-ether-trading-in-u-s-to-end-under-gop-plan

My reps did not respond to my messages regarding the 1031 change. I just posted messages to Rand Paul, Justin Amash, and Thomas Massie's Facebook pages. Massie is pretty good about reading and responding. If you want to help bump my post, here is the link:

https://www.facebook.com/RepThomasMassi ... 22R9%22%7D

I don't think there is any hope for crypto in this regard, but coin/bullion trades might be benign enough (in light of the crypto revolution) to get an exemption tacked on to some other bill.

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Re: Tax implications for crypto

Postby Purple and Gold » Thu Dec 21, 2017

SilverDoge wrote:So the rich write themselves tax loopholes, and the small guy gets screwed yet again.


Now thats what i'm talking about.
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