
Investors in Bitcoin and other cryptocurrencies face hefty tax bills - Cbasedlifeform
https://www.theguardian.com/technology/2018/mar/18/cryptocurrency-bitcoin-irs-tax
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WheelsAtLarge
You only have to pay taxes if you realize a gain for the year. Or you traded
the same asset over and over within a 30 day period, called a wash sale. In a
wash sale, you can't deduct the losses.

So unless they were really reckless they will only pay on the gains they made.
No, I won't shed a tear because they have to pay taxes on gains.

Now to the techies that ended up with a large tax bill after the dot com
collapse, they got the bill because they exercise their options to buy shares
in their respective companies. Those were gains because they got to buy the
stock at a highly discounted price. But later the shares lost all their value,
but they still had the recorded gains to deal with. In many cases, they really
got shafted because they got the stock but at no time were they able to sell
any of the stock that they got and was recorded as a gain. So the gains were
all paper gains. I suspect that the IRS had to make some concessions in that
situation. But that's only a guess on my part.

Another part of their pain was that many borrowed money to buy the stock. When
the share price collapsed, they had the taxes plus the cost of the loan and
worthless stock they could not use to cover either. Ouch!

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Taniwha
Yes, if you realise a capital gain you owe taxes ... That's the way taxes
work, the can probably write their losses off in subsequent years provided
they last the year without bankruptcy an have some future gain to write it off
against.

This is not a new thing here on HN lots of people screwed themselves almost
the exact same way during the 90s dotcom boom when they bought their shares
(and realised a gain) then just when the IRS came knocking the sitcom bust
happened and their shares were worthless .....

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Simon_says
It's not really comparable to how monstrous the tax situation with ISOs are.
If you exercise options to buy the stock, you have a tax liability, even
though you get no cash from the transaction. It's economically inefficient in
the sense that it ties employees to companies that they'd otherwise not
continue to work for. This has no analogy to the crypto market.

~~~
Taniwha
It's basically the same mechanism that causes the tax liability though, I
wasn't arguing for the size of the issue

In the stock option case you only get a tax liability if you buy something
that's worth more than you paid for it - if you have options, either buy them
the day they are granted (and take the risk that you wont stay, or the company
will die, etc) and lock in the lower long term capital gains tax, or wait
until the day you sell the stock and do an exercise/sell transaction which
will likely be taxed at source and end up on your W2, at your full marginal
rate.

The thing you should not do is the middle thing - buy your stock between these
two dates then you'll pick up a tax liability on the capital gains to that
point.

Talk to someone who understands ISOs and taxes - when you are first granted
your stocks and whenever you plan on changing their state

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magnetic
tl;dr - profits from crypto investments seem to be taxed like other types of
capital gains and inexperienced investors get burned because they don't know
how taxes on investments/capital gains work (or were secretly hoping things
would be different with crypto).

