Absolutely this. I made some money in the first bitcoin bubble and paid taxes on it, but there certainly wasn't a "Bitcoin trading" option. I think my accountant set it up more or less as a misc capital gain.
I'm trying to do this legit, and I have some gains this year, but the attorney I consulted assured me that a) I wouldn't have to pay early estimated taxes, and b) I should likewise make the 8949 inconvenient to use (in my case, by mailing them a printout).
IRS: Everybody calculate your own Bitcoin capital gains on the honor system; we trust you.
Coinbase: Yeah suckers, calculate that stuff yourself.
IRS: Hey wait, nobody is reporting Bitcoin gains. Let's sue Coinbase to hoover up every scrap of data they have and spend a lot of money on social media/blockchain analysis.
Coinbase: We're fighting this overbroad lawsuit to the death!
It sure seems like there's an obvious solution to this issue and both sides know what it is, but they're choosing lawsuits instead.
I get what you're saying, but Coinbase can't possibly generate 1099 as you could buy Ethereum, send it to another exchange, do a variety of transactions, etc. They could only speak to coin you buy, don't transfer out, and then sell all on their exchange.
And carbon tax. Just count tons of coal at the mine and charge a fee per ton. Same at oil and gas wells. There aren't that many major sources, it'd be easy.
> Property tax, its the only thing you can't hide and its not a friction on the economy.
How is property tax not a friction? Total I pay about $5,500+ annually, and it increases every year. That's money I could have spent or invested elsewhere, is it not?
How about an automatic cut of every transaction that goes straight to the government? Fully automated - no reporting, no beauracracy. Like paying fees to miners.
No way to do that without eliminating privacy and banning decentralized cryptocurrencies that don't have this reporting function. People would be left with somethig like eCoin.
Exactly. For bitcoin taxes we basically rely on people honestly self-reporting, which (a) isn't very effective and (b) means they have to do lots of tedious record keeping and FIFO calculations. Maybe that's not a very good tax.
I'm not saying we shouldn't tax crypto at all, but some countries don't and they seem to do all right. Maybe there's a middle ground.
not necessarily, the IRS declared cryptoassets to be "property", which is inadvertently subject to like-kind tax treatment unless a specific exception is made, which has not been made.
"cryptographic hash inputs" which are colloquially called cryptocurrencies are functionally similar, and are subject to like-kind until a specific exception is made.
the IRS inadvertantly made altcoins the biggest potential tax shelter in history.
You typically aren't allowed to tax-free swap one asset for a different asset, even if the assets are of the same type. You can't tax-free swap Facebook stock for Amazon stock, for example, or a gold coin for silver coins of equivalent market value. There are a very few exceptions, such as in real estate where you can do what's called a "like kind" 1031 exchange, or with corporate mergers and acquisitions where you can do a tax-free re-organization, but all of these exceptions require specific contemporaneous paperwork to be filed.
This isn't much of a problem because BTC and ETH are close to all-time highs, but in theory you can see how somebody could exchange BTC for ETH, ETH plummets, and they end up owing more in taxes than they are worth. A similar scenario occurred after the dot-com crash in 2001.
Of course that's not true. All you must do is find a counterparty willing to take Facebook stock as payment for Amazon stock. (I am not aware of any exchange listing such a contract, but it's certainly possible over the counter.) And if you do, you will have to pay taxes on the gain and will have a new cost basis in your Amazon stock.
With a few exceptions (like-kind exchanges come to mind), you owe the capital gains tax when you dispose of the property. That you continue to take on market risk afterwards does not enter into it.
This could be a 1031 like-kind exchange [0] and non-taxable if you weren't in "constructive receipt" of USD (sold BTC for USD, then later bought ETH with the USD).
I believe for this to be a 1031 you would need a qualified intermediary to handle the USD portion. Once you touch the funds, you've broken the exchange.
if you had purchased the BTC at $20, you now owe taxes on $980 of realized gain. Once you've paid that, your new (tax) basis in ETH is $1000, so you can do whatever you want with it (including exchange it to USD) if the value doesn't change.
If I buy BTC with USD, then later convert those BTC to ETH, how do I calculate my profit? Is it based on the difference between my initial purchase of USD and the USD-equivalent value of those ETH? That doesn’t seem to make sense.
When I buy GOOGL for $400/share, then trade it for APPL at a 1:5 ratio, if APPL on the day of the trade goes for $100/share, then my cost basis for GOOGL is $500/share.
Otherwise, there would be an obvious tax loophole where instead of paying taxes on my gains in GOOGL, I'd trade it for another stock, then instantly sell the new stock (Which made no gains between me acquiring it, and selling it.)
Just because I'm investing into magic internet money doesn't mean I shouldn't pay taxes on gains.
> so basically if you trade BTC for ETH for BTC for USD you have to pay taxes 3 times on the same money?
No, on the BTC -> ETH transaction, your capital gain is the difference between the dollar-equivalent cost of the ETH at the time of the trade and the dollar-equivalent cost of the BTC at purchase.
On the ETH to BTC transaction, it's the same thing, with “ETH” and “BTC” reversed (for the “new” BTC).
On the BTC to USD transaction, it's the actual quantity of dollars minus the dollar-equivalent cost of the BTC at the previous transaction.
In each transaction, you pay taxes on the net gain from the prior transaction. You don't pay taxes on the same income more than once.
I am one of the 893 who reported a transaction in 2014. I mined ~6MM dogecoins and sold them when they were near their peak. I wonder if reporting the transaction makes it more or less likely for my records to be audited...
After all, it's not as if Schedule D [0] or Form 8949 [1] has a standardized way to report it.
There's no official ticker symbol, so you just write in a description.
I paid capital gains taxes on trading in 2015, and I wrote in something like "gain on sale of digital currency".
I can't believe I'm one of just 802 people to have paid taxes on these transactions.
[0] https://www.irs.gov/pub/irs-pdf/f1040sd.pdf (pdf)
[1] https://www.irs.gov/pub/irs-pdf/f8949.pdf (pdf)