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IRS reminds taxpayers to report virtual currency transactions (irs.gov)
233 points by AltcoinReport on March 25, 2018 | hide | past | favorite | 254 comments



Another point everyone should remember because I’ve seen the attitude a lot recently.

If the reporting requirements seem to be literally impossible to comply with, this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you should conclude “I have to pay the maximum taxes possible under the worst case scenario because I don’t have the records to prove my version of events”.

It has nothing to do with crypto, lose basis in your stock and you assume no basis (obviously you make best guess and hope To not get audited, but once audited, you take no basis).


I work as a tax auditor and this is completely false.

Taxpayers only need to pay the MINIMUM amount of tax required by law, not the maximum. If you are audited then we will tell you why you owe additional tax. No, you will not go to jail for paying less tax but upon audit you will be required to pay the deficiency or provide additional explanations/documents etc. Then you can introduce any counter arguments like you didn't know such a law exists, the tax code is ambiguous etc. Making these types of claims will help to provide case law to clarify it for others as well as for auditors.

I agree that the taxation of crypto related transaction is quite ambiguous when you start getting into the theoretical nature of how the transaction is conducted.


I have two questions:

1) If one had used bitcoin as a currency (bought pizza, bubblegum, etc.), are these new "treatments" of cryptocurrency implying one has to report each of these purchases and the tax implication there in?

2) Lets say you are a miner and mine a bitcoin a month (I know not realistic but helps simplify question). Now, lets say you buy pizza with bitcoins from your wallet every month. What is the cost basis to use? The price is pretty volatile .. so what the heck are you supposed to do?


Not an accountant and not your accountant but as someone who ran a small business:

If you run a small business which grosses $X,000 per month, you will a) find that that is not that rare and b) benefit from keeping appropriate records of your expenses, including electricity and depreciation of expensive equipment, such that you can claim them on the tax return for your business each year.

You might choose to swap assets of the business directly for pizza but this is, in general, not a good decision relative to swapping them for money and money for pizza.

Your cost basis in intellectual property is typically the marginal cost to produce it. You can run the question of how exactly to bookkeep it past your accountant, but the profit of a mining businesses with $8k gross revenue and $2k of expenses per month should be $6k.

If you believe your mining business to have insurmountable challenges in bookkeeping at the scale you’re operating it at then maaaaaybe you should hire professional help or exit the business.


If you're making enough money to make it reasonable to pay the fees, I have found that a tax accountant has been incredibly helpful, even if you have things pretty much under control. If you have everything well documented, having someone look over it will not be very expensive and could save you a lot. Of course, YMMV.

Apart from patio11's good advice I would add that it may be important (depending on your tax laws) to record the value of the asset (i.e. BTC or whatever) when you received it and the value when you sold it. The difference may be capital gains/losses and might be taxed differently. You also need to understand if the accounting is LIFO (the last BTC you received are sold first), FIFO (the first BTC you received are sold first) or cost averaged. Some countries require that you declare which system you are using before you do any transactions, so some caution is warranted. I don't know how the tax system works in your country so this is not advice. See paragraph 1 :-)

P.S. I've never bought nor sold crypto currencies, but my small consulting business is primarily overseas work, so I have to do a lot of FOREX.


Thx for your comment. I must admit I just learned about FIFO/LIFO for stocks. Seems in the US, the regime is FIFO on stocks unless you declare otherwise .. but you have the option to change it (as I understood from a few hours of reading online). Forex is still mystifying me because one can also spend forex for goods. I assume you have expenses overseas too ... do you just average out the value of the forex account or account for individual transactions. I think I read somewhere that forex and equities are treated differently in some ways.

Wish there was a dummies book on this. I do have an accountant btw but want to learn myself.


Yeah, when we go to the UK we have to keep all of the receipts. Then you basically "sell" the currency for whatever it is trading at then. We use the price at the end of the trading day and I think we use London prices (but I would have to check with my accountant). I assume for crypto currencies you would have to specify the exchange you are quoting against and not change it, but I'm not sure.


Of course you need to report them. If you used AMZN stock to buy bubble gum or shoes, you'd have to report it too. Just because it is named crypto "currency" doesn't actually make it a currency...


You can’t possibly buy bubblegum using stock. Having the properties of a currency makes them currencies!


I'll sell you all the bubblegum you can chew for some stock. I don't even care _what_ stock.


Have you seen any stock certificates, on paper, recently? I can’t name a broker that doesn’t use completely digital books. Either way, that’s meaningless. We could barter wood instead, but that doesn’t make it a currency (until it does!).


The government needs to fix the problem that it's so difficult to know what you're required to pay without just paying the maximum guess (and then pay more ahead of time to avoid penalties). I've reported an instance of 2 conflicting statements in 2 separate IRS forms to the IRS, and rather than clarifying what was required they referred me to a tax advisor, who also didn't know the answer to the question. So we took the more liberal guess, and filed. And then had to rework it anyway because the law for how much tax I was required to pay in 2017 changed in 2018 anyway. The principles that we consider "rule of law" don't seem to apply to tax law.


This is a direct consequence of productizing things that should be rights. i.e. justice, education, accounting, health care, infrastructure. Making justice a product rather than a right means if you can afford a better lawyer, you get better justice. If you can afford a better accountant and tax layers, you can pay less tax. If you can make yourself not black or brown, or not show up in court and just have lawyers fight for you, you get better justice.

Republicans absolutely, unequivocally, believe in class. Better people have more money. Period. They can buy better products with that money - otherwise there's no point in being wealthier than others. Democrats are kinda sorta sometimes maybe occasionally OK with this but then abruptly not OK when the political winds change a bit. The party of ambiguous ethics are the Democrats. The aristocrats' party is the Republicans.

Directly asked, both party types lie. But if you look at a few dozen policy positions an individual policians has, with emphasis on the less conventional (the ones with ready talking points) ones, it's really easy to triangulate their positions and contradictions - for a political scientist.


It's not the government's fault you lost track of your records.


I'm not even talking about that - parent comment talks about requirements that are literally impossible to comply with, and I talk about laws that are put into place after a tax year ends and apply retroactively, and official documents that contradict one another and the inability to get an official explanation from the government prior to the filing deadline. How is any of that even remotely "losing track of my records"?

edit: Let me be even more detailed. I had to have my accountant rework my taxes 3 times. Once because of a retroactive law change after the end of the tax year. Once because of the inconsistency I discovered in official documents. And once because ETrade's documents and my employer's conflicted. Both of the latter were prepared by professionals. That's pretty typical of my filings. If it's so complex that all of that is fairly routine, that IS the government's problem. I have no problem keeping track of my own records; in fact my own record keeping and fastidiousness led to the discovery of all 3 of those problems.


> in fact my own record keeping and fastidiousness led to the discovery of all 3 of those problems.

Does that mean it might be safer to be less fastidious so that no-one can uncover records that never existed?


The records exist in all these cases. I operate under the assumption that the IRS is better at noticing these discrepancies than I am and that the cost of reworking it with my accountant is less than the cost of getting audited by an agency that gets off on this.


Not maximum possible. This isn't that difficult to compute. Not so long ago, 1099-B only showed the sale price of stocks (funds, etc) and you had to go back and compute basis yourself from the confirmations, even if the asset purchase was 50 years ago. It's no different for a house sale.

Having a CPA doesn't help at all whatsoever to compensate for bad record keeping.

There are other ways to do this that would be simpler, e.g. tax equals 1-2% of the asset value per year, rather than taxing the income. This isn't fundamentally different from property tax computation.


> tax equals 1-2% of the asset value per year, rather than taxing the income

So penalize everyone in down years when their stocks lose money, plus wipe out a ton of potential growth in 401k accounts? At least, that's what it sounds like to me.


Lack of imagination. First, the biggest complaint sould be that it's regressive. Second, no one would accept 1-2% tax on retirement assets, even though this would actually benefit them over a long haul: grow tax free for 40 years, and then pay a n% asset tax, where n=asset pool (your retirement account) age?

Almost everyone does better with Roth versions of IRAs and 401(k)'s anyway. Pay the tax up front, no tax at the back end, and thus basis and record keeping isn't even relevant.

There's a bunch of ways to simplify this while also making it fair if it weren't for the greedy rich people who want regressive taxes, i.e. flat tax.


+1

There are also tools like www.cointracker.io out there to simplify the complexity of these crypto taxation rules


Also https://bitcoin.tax, does everything for you pretty much.


Worked well for me. I imagine when most people import their trades they will be very surprised by what they owe. I had no idea (but it makes sense) that when I gave some bitcoin gifts it followed the FIFO rules despite the fact that I had just purchased some to gift.


Oh, that looks useful. Thanks!


> If the reporting requirements seem to be literally impossible to comply with, this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you should conclude “I have to pay the maximum taxes possible under the worst case scenario because I don’t have the records to prove my version of events”.

Shouldn't that be "pay the minimum amount that (1) you can reasonably argue you believe is what you owe, and (2) is close enough to the maximum possible under the worst case scenario that you will not be subject to underpayment penalties if you are audited and they determine you owe the maximum"?


Why do people put up with that extortion?


A tax CPA I used in the past advised me with (hundreds of) short term equity trades to just present the before and after figures, since that represented the true income. They explained that in their experience, that was satisfactory to the IRS.

It is unrealistic to expect people making frequent trades to carefully document every trade (unless perhaps that is their profession). It's even worse for cryptocurrencies, since the value of the outcome of a trade is entirely relative to some other more established asset (such as US Dollars).

If you trade USD for BTC, then some time later trade BTC for XRP, then liquidate that for something more obscure (like cV), determining the value is really difficult. You would have to lookup the currency pair rates for each pair in a given trade, as well as some chain of currencies which can be associated directly with USD. Not only would that be highly inaccurate, but it could easily be argued very differently depending on which exchange(s) you used (since at any given moment, the difference of rates on different exchanges can be very significant).

I think as far as the IRS is concerned, unless you're obviously getting rich, if you can just show you made reasonable effort to assess and report what you earned, they'll be satisfied. But if they think you're trying to fool them, they make take personal offense and put far more resources into nailing you than you think it's worth in lost tax revenue.


Why is it unreasonable? Your brokerage should be tracking your entry and exit for each trade and sending you a comprehensive 1099-B come tax time.

If your cryptocurrency brokerage isn't doing that for you, move your money elsewhere. If you can't find a brokerage that does that for you, maybe you should start wondering what other important controls are missing from your brokerage. Just saying.


He's talking crypto, not stocks. A brokerage company operating outside of the US has zero reason to supply you with any specific US tax docs.


A US person (for tax purposes) should not be dealing with a brokerage company operating outside of the US. The US government has decided that the only reason someone would do that is to evade taxes (although money laundering is a nice cover story) and punishes such behaviour with accordingly with additional paperwork and bureaucratic headaches.

A brokerage company operating outside of the US should still be sending you relevant local tax forms. If they are operating in a tax haven, well, maybe don't do business with companies operating in tax havens if you want your US taxes to be easy.


The FBI stole my Litecoins from BTC-E ... I didn't even claim that loss because it was very small.


If OP is trading abroad, I hope s/he is also keeping up with his FACTA and FBAR obligations.


Ugh, not a cryptocurrency trader, but I recently learned that by having U.S. citizenship from birth, and though I never lived there, I'm responsible for FBARs and tax-filing in the states. $4000 or so later and I'm compliant now. What a stressful pain that was.


You might also have to pay tax then, if your income exceeds a certain threshold. Good times.


No surprise that in both Great Britain and the US, the income tax was first instituted during a time of war.

Only during a war, with the demands it places on the public conscience to make sacrifices, would the population acquiesce to an institution so contrary to natural rights and so pernicious to liberty.


Most new taxes come about at times when the locality creating them is under financial stress. Wars are financially stressful. Thus you'd expect that any given new modality of taxation would be created, with some relatively high probability, in proximity to a war.


Financial stress is not exactly the condition correlating with the creation of new taxes.

A tax does not relieve financial stress in any general way. If it did, we would constantly raise taxes.

What a tax does is enforce a collective use of financial resources. The demand for such enforced collectivism increases when a threat emerges that can only be adequately dealt with using such collective action.

A foreign nation, engaged in organized violence, aka war, against a nation, is the most extreme example of a situation where enforcing collective action provides a benefit to the majority, and thus that's when people are most likely to sacrifice their liberty and accept a new tax.


Which countries don't have income tax?


Small countries, mostly tax havens. Investment income is not classified as income in most jurisdictions.. so doesn't really matter.


I think every major economy has an income tax. There's quite a bit of syncronization between political systems, because political and cultural trends tend to transcend borders.

There are quite a few countries which do not have global income reporting requirements. Singapore is probably the most notable example.

Some European countries absolve non-domicile residents of the requirement to report global income in exchange for a flat annual fee, like 100,000 EUR.

So it is possible to live a life without being forced to surrender your natural rights like your wealth and your privacy, but it's expensive.


There's got to be a better term than "reverse virtue signaling" to describe how the use of specific terminology (outside of a legal setting) like "pernicious", "females", or "virtue signaling" instantly means that someone can be safely dismissed.


Does "pernicious" have some kind of political connotation now?


Seriously, this is ridiculous.


The word "pernicious" is very rare outside of a medical context, but the top Google result for "pernicious to liberty" is an anti-income tax screed.


>>the top Google result for "pernicious to liberty" is an anti-income tax screed.

That's hardly surprising. You chose a search term that was very likely going to get hits with anti-tax types.

If you simply searched "pernicious" you would find it being used in many, ideologically diverse, contexts.

Your real problem is with the position espoused (that the income tax is anti-liberty). The use of the term "pernicious" is incidental to that.

EDIT:

The top results I'm getting for "pernicious to liberty" aren't even dominated by tax-related articles:

https://www.google.com/search?q="pernicious+to+liberty"


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Considering that your comment at issue didn't actually contain a gratuitous use of "female", you perhaps shouldn't focus too much of your argument on that bit and instead defend yourself only in regards to what you're actually being accused of.

You've repeatedly used the term "natural right" without defining what you mean by that, and without explaining why income taxes are a particularly egregious infringement on those rights. All you've done vaguely state that income taxes infringe on a category of rights that by their very name can only be infringed unjustly.

"Pernicious" is not a word that anyone uses conversationally today. It's archaic. (According to Google Ngram, usage of "pernicious" peaked around the time of the American Revolution.) A phrase like "pernicious to liberty" is the kind of thing you write when you want to give the impression that you're quoting a famous scholar from a few centuries ago. It does nothing to explain how income taxes are exceptionally harmful to liberty compared to other means of funding a government. This is not to say that you cannot use the word "pernicious", but your use of it is remarkable. In reality, you're borrowing language from what seems to be a contemporary anti-tax crackpot.

All you did was use uncommon language to repeatedly assert that income taxes are bad. You said nothing to actually support that assertion or provide any more detail. There was nothing superficial or peripheral about your word choice; it was clearly the most carefully thought out aspect of your comment. There's no content in your comment to have a meaningful discussion about except the rhetorical tactics and allusions.

And to cap it off, your first response to criticism was an incorrect usage of the term ad hominem.


>>You've repeatedly used the term "natural right" without defining what you mean by that, and without explaining why income taxes are a particularly egregious infringement on those rights.

I would be happy to debate my use of the term natural rights, but you're moving the goalposts.

Let's reach a resolution on the previously discussed point before moving to another.

The previous point was that dismissing a person, and their argument, merely for their comment containing one of a set of blacklisted words, like "pernicious" or "female", is absurd.

It's obviously anti-intellectual and trying to defend this kind of conduct shows bad faith.

>>This is not to say that you cannot use the word "pernicious", but your use of it is remarkable.

Again, moving the goalposts. Your argument is not the same thing as the one you defended earlier.


> Again, moving the goalposts.

I'm only moving the goalposts in that I will not necessarily dismiss you and your comment at the first offense. But when your comment has multiple red flags and little substance, the scales don't tip in your favor. There is absolutely no goalpost-moving involved in expecting your comment to have sufficient substance to balance out the rhetoric.

In a discussion about details of tax policy, I consider it a red flag when someone starts ranting about "natural rights"; they're clearly trying to drag things off-topic, and probably not in a particularly enlightening direction. When the comment goes downhill from there, I'm quite justified in rendering a judgement. There's nothing anti-intellectual about this. It's just a logical reaction to your inability to stay on-topic and level-headed for two whole sentences.

It would be anti-intellectual or at least inadvisably closed-minded to filter out your comments with a blind grep-like process for merely mentioning certain words. But the Bayesian process of reading until I understand what you're trying to say is the only sane way to interact with an Internet that contains an effectively limitless supply of crackpot ideas.


>>I'm only moving the goalposts in that I will not necessarily dismiss you and your comment at the first offense.

Discussions of a social and economic nature are already hard enough to navigate constructively as it is.

I don't feel like dealing with shifts of goalposts on top of it. It just gets far too tedious.

So with all due respect, given your admission that you are changing the subject, I'm going to end our discussion. Not even because what you're doing is necessarily unreasonable. It's just too time-consuming for me to deal with.


It’s just experience in dealing with people online. I apply the same filter to “cuck,” “Overton window” and “Hegelian dialectic” for example. Offline it’s much easier to ascertain intentions and attitudes, and there aren’t millions of people all screaming at once. Online you have to filter, and alt-right buzzwords are excellent components of a healthy filter.


Since when is "overton window" exclusively a right-wing concept? It's been commonly discussed for a very long time. It seems like a bad idea to shut out any conversation that mentions that.


It's a very anti-intellectual approach to dialog. It explicitly ignores the logic of the argument being made. It disqualifies any language containing words that are allegedly associated with some ideological perspective from even being considered.

It creates an ideological echo chamber, as it is completely intolerant to any view that even hints at falling outside of it.

If you do utilize such heuristics, at least don't brag about it, as if it's something reasonable.


I encourage you to spend time in actual academic fora, where language choice absolutely will get you disqualified from a conversation. Nobody is obligated to listen to anybody.


Those in the academic fora do not discount an argument for containing the word "pernicious" or "female". The kind of behaviour that does that is ideologically intolerant to the point of being anti-social.


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You can ignore people all you like. But to post a comment telling people you're ignoring the comment because it contained blacklisted words like "female" or "pernicious" is absolutely toxic to a constructive environment for dialog.

You're not simply ignoring a party at that point. You're promoting a pretty extreme form of ideological intolerance, where merely using a particular word is enough to make a snap judgement about a person's entire argument.

>>Fortunately though, as your argument(s) seems to be largely logic-free, it turns out to be very helpful.

Trying to insult me like this is not mature at all.


> A brokerage company operating outside of the US has zero reason to supply you with any specific US tax docs.

So then don't use those brokerages if you are a USD customer?


Customer service is a selling point.


Sure. But America is not the world


Good luck getting a comprehensive 1099-B from ShapeShift.


Maybe don't use them then?


What brokerage? I don't need any brokerage to trade one crypto for another. Find someone who wants X, I send them X and they send me Y in return. X and Y may not be fiat currencies, and the value in USD at the time may be spread by 10% on various markets at the moment. Does the IRS want me to value those transactions as per GDAX at that moment, or Upbit?

Crypto takes out the need for middlemen like brokers. You can use them, but you don't have to either. Even with them, unless you're trading for USD at the time it's a standing question of what the USD value was at the moment. This isn't like, "use the price in the WSJ that morning".


You don't need a brokerage to sell stocks either (assuming you actually hold the stock certificates) but you're still responsible for reporting to the IRS your capital gains

It's magical thinking on the part of people selling digital assets that somehow the tax codes of any country don't apply to them


You might not need a brokerage. But you do need to pay tax on those exchanges. Your responsibility to figure out the corresponding exchange rates at the time of your transaction.


Yes, so when you choose to not use a brokerage you're responsible for keeping track of your own transactions.


> Even with them, unless you're trading for USD at the time it's a standing question of what the USD value was at the moment. This isn't like, "use the price in the WSJ that morning".

If you don't know the USD value of what you are trading then you are a pretty poor trader...


Or have high speed trading bots constantly selling alt currencies against each other.


This is most definitely not how 99.99999% of trading volume is executed.


It's not possible for them to know in many cases so you really do need to keep track on your own. This is a problem for stock brokerages too when you've funded your account by transferring assets from another brokerage.


Your previous brokerage will still send you a transcript of everything at account closure, which provides a baseline for comparison with your new account.

OP's argument that "it's too hard" is not adequate justification for not obeying tax laws.


Neither me the OP said that but to suggest that a brokerage or crypto exchange is being unprofessional by not being able to provide a 1099 in all cases is to ignore reality.


I don't agree that it's unreasonable to expect your broker etc. to provide the data, but I also agree that in general tax authorities (I have no direct experience with the IRS, but have experienced the same both in the UK and Norway) tends to look with relatively benign eyes on it if you report something that looks like you've made a reasonable effort and are unlikely to be intentionally under-reporting.

E.g. I had a really chaotic year once, and instead of getting in a state of panic, I figured out the money I'd put in and what I got out, and documented that, wrote a letter explaining why I was unable to document the trades, explained that the final number I came up with would cover my full profit, promised to assist to the extent of my ability if they needed more details, and presented my taxable income on the basis of that, and they just sent me my tax statement without ever asking for more info - after all I'd openly reported income they'd otherwise not have known about without going looking (the brokerage account was in another country).

As long as it doesn't look like you're trying to be overly clever in strategically omitting information, in general presumably they'll have bigger fish to try (namely the people who look like they are being overly clever in leaving out information because they're actually hiding something major) than someone who looks like they're trying their best...


Mine said "use before and after figures for us to prepare the return, but download and save detailed transaction history for the cost basis in case you get audited- they will want it". I assume I can compute the exact cost basis later and it should match the difference of before and after figures.


Not unreasonable, it is the LAW. I doubt the IRS has the resources to try to acquire the kind of records they can get from traditional trading houses but if they ever could, a lot of people will be in a lot of trouble.


Isn't it the case that all bitcoin transactions are in some kind of . . . what do you call it . . . ledger? And don't we know roughly the price of bitcoin in USD at all times? It seems like it would be pretty easy to import all this info into a spreadsheet or even just a little Python script to calculate everything correctly according to wash rules and what have you.


No, if you trade using an exchange, the transaction does not get put on the global ledger. The accounts at an exchange are kept on the exchange's own books. Trades into and out of the exchange are registered on the global ledger, but they will show up coming to/from the exchange's large working wallets, and will not be traceable to an individual user's account without inside information.


No wonder there are companies out there whose value add message is solely to provide tax compliance for crypto trading.

This sounds like a nightmare since you don't have exact timestamp data for anything really.


This isn't tax advice, but it's common accounting practice to use a daily average value for trades where you only know the date and not the exact time of the trade. There's plenty of guidance from the IRS since many crypto trade situations have corresponding traditional concepts.


That's what I did, just provided the before and after. If I get audited, it shouldn't matter, since I already paid all the tax so they have the money. Worst case I'll just have to spend time getting all the records in order. From here on out I am keeping better records however and trying to minimize how many trades I make.


Reminded me of this kid that said he bought some bitcoins and then sold to buy some alt coins.

>At the advice of my friends, I took most of my savings and bought 8 bitcoins back in early 2017 for about $7200. You can imagine how I felt when it went up. Around December 2017, I got caught up in the altcoins frenzy and sold most of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn't know this back then but it looks like I owe income taxes on those trades,

Thread: https://www.reddit.com/r/personalfinance/comments/84huks/i_j...


I still find it weird that he has to pay taxes in dollars on something that he doesn't know the value of in dollars since he hasn't converted his cryptocurrency assets to fiat yet.


He exhanged a storage of value from one party to another on a set date. There was an agreed upon value at the time (bitcoin to USD and then USD to altcoin).

You can’t convert your real estate into stock without paying taxes anymore than you can one crypto coin to another.


Most crypto trades do not involve USD because they are directly between one coin and another. Since each coin had a value in BTC, and BTC has a value in fiat, each altcoin has a value in fiat. That's why the new tax rules work (kind of).


Most people expect cryptocurrencies to behave like, well, currency. Isn’t it the case that with Forex trading you simply pay tax on total gains & losses, not every trade you made?


I don't know how US taxes work, but I have to pay tax when I do that. For example, I'm in Japan and if I buy CDN and then use it to buy GBP making a capital gain, I have to report it and pay taxes on it that year. Of course, if I sell the GBP and take a capital loss, I get to report that as well. There is actually a provision for allowing a "foreign reserve", so if you are doing a lot of business in one currency and don't want to convert to yen, you can "park" it without having to pay tax. Or at least that's my understanding of it. I have an accountant that takes care of details like that for good reason.


It's no weirder than having to pay tax on selling MSFT for AMZN. Once you sell an asset, you pay the tax on any gains. doesn't matter how the transaction took place "physically". Just because this crypto space thing is The Future of Money and uses The Internet, doesn't somehow exempt it from real world tax law.

Seems like people should have found better exchanges that would have helped facilitate tax reporting...


In the MSFT/AMZN transaction, doesn't the value pass through USD on the way? If I use ShapeShift to convert BTC to LTC, USD isn't involved.

Not saying it affects the situation, but it is still a different type of transaction in the way that a lot of laypeople would think of it.


Usually, yes, but it doesn't change your tax liability if you happen to find someone willing to directly trade MSFT for AMZN. The tax exemption for like-kind exchanges only applies in limited circumstances like with real estate.


In that case yes, but not with converting JPY to EUR say, or selling and buying shares of a European company which trades in EUR not USD. Only some assets have cross markets.


Vanguard allows me to exchange one mutual fund for another mutual fund (without having to explicitly sell and re-buy). Do you think that's something that shouldn't be taxable? Where's the difference to the cryptocurrency example above?


Depends on the technical contract but per IRS rules are that when you trade one asset for another, you are virtually selling the asset and buying another. They did it to keep accounting simple.


No, he has to pay taxes on the BTC he DID convert to fiat. He does get to write off the losses of the alt-coins but since he hasn't yet realized those losses (and since they're in a different fiscal year), he's pretty well fucked.

EDIT: even if he didn't convert to fiat, the exchange of BTC for an alt-coin is a taxable event. That makes sense because otherwise you could, in theory, convert to a dollar-pegged crypto like Tether and defer taxes indefinitely.


If avoiding taxes in this situation was allowed, much of the economy would move to barter.


Didn't he convert to fiat and then used that fiat to buy alt-coins.


I assume not? That's not very common, you can't even buy most alt-coins with fiat. It's usually bitcoin for alt-coin.


Still doesn't change the fact that you have to pay tax on gains when you sell an asset. Doesn't matter if you sold it for USD or bartered it for alt-coins, washing machines, or shiny rocks.


That was a very useful and interesting thread. I suggest everyone should read a few top comments there.


If you are walking down the beach and find a $20 bill on the ground, you are required to report it as income.

The only way that I know of that you can legally enrich yourself without paying taxes is via a direct gift and that’s because the giver pays tax instead of you.


Worth mentioning that there exists a $5MM lifetime max that any individual can gift before paying taxes.

A common misconception is that you have to pay tax on every gift you make, but as long as you’re under that $5MM all you have to do is report it.


And if your gifts are less than $15,000 per year, you don’t even have to report it. So the vast majority of gifts are not supposed to be taxed or reported.


This is how my wife and I are saving for our son's future. We gift him money (you can each gift up to the limit without reporting it or decreasing the lifetime gift limit) and then we invest the money on his behalf via a UTMA account with Vanguard.

He'll owe taxes upon withdrawal in the future, 17 years from now at the earliest, but he'll also have full freedom to use the money any way he sees fit. So school, starting a business, buying a house or letting the investment ride until retirement.


You might want to look into putting some of that money into a 529 plan; that allows the kid to pay for college without paying taxes on the gains.

It's a risk if the kid doesn't end up going to college; you end up paying, I think, regular taxes on the earnings plus like 10% penalty.

Still, 17 years of tax free growth would be a pretty good reward if the kid does go to school.


Or blackjack and hookers...


It's possible. I hope that he'll use the money in ways his mom and I would consider to be more constructive, but once he is old enough he gets control of the account and we have no say in it. Fingers crossed.


Note that it is $15k ($14k last I checked, but it may have risen) per gifter-giftee pair.

So I can give my son $14k, my wife can give my son $14k, and we can both given my daughter a combined $28k all without even registering against the $5 million lifetime exclusion or paying any gift taxes. And couples can do that every single year for decades, which adds up to millions even without touching the exclusion.


> $15,000 per year

Importantly, per person receiving. In principle you have a virtually infinite tax-free gift giving exception available if you distribute your assets to enough people.


Per person receiving and person giving pair. So, a married couple can give their child $30K/yr and could give the child’s significant other another $30K/yr.


Not that it would probably ever apply to me, but I'm curious if that's per "individual gift giver - giver receiver" pair? Or is it the case that it's solely per individual gift _giver_? As in, would receiving a $500 gift from Bill Gates (who presumably has met the $5MM lifetime threshold) be fully taxable? Just random Sunday curiousness. :)


For what GP is talking about, it's per giver. It's a combined gift/estate tax, with the goal of preventing someone from giving to escape their eventual estate tax burden.

But that isn't really relevant for the average person - gifts below the annual exclusion amount (something like $14k) are exempt from reporting/recording/tallying at your death. And this does apply per each pair of people per year, so in your scenario BG would have nothing to report.


Would have to be per giver, otherwise it would be trivial to avoid (want Dave to get another $1m, either give $2m and have the taxes taken, or give $1.1m to Joe Bloggs, who gives $1m to Dave and keeps the rest.


Individual gift giver. So lifetime max per person! Not too shabby.


Lifetime max $5,000,000. Yearly max changes but hovers around $15k per person (wife and husband diffrent people!) and doesn’t touch yearly max.


Further complicating the situation, there is a roughly $30k (don’t bother looking it up) exception per year that allows couples to gift under that amount to individuals without affecting my lifetime $5m exclusion.

So if we have 5 children and 10 grandchildren we are giving away $450,000 a year to our family and still get another $5M when we die gift tax free.


That doubled with the tax reform. It's roughly 10.x million per person now.


Wow no way, thanks for the update.


Expires 2025 iirc


There is a 0% capital gains tax bracket, for example.

Additionally, below a certain (low) level of wage income deductions and credits can negate nominal income tax owed, for an effective zero or even negative (with credits) tax rate.


Yes, but there are still reporting requirements, and you have to report and pay what may be owed.


The comment under reply was talking about payment requirements, not filing requirements:

> The only way that I know of that you can legally enrich yourself without paying taxes…


One other way is selling a home -- in certain circumstances, one can get $250k (single filer) or $500k (married filer) gains from the home sale tax-free. https://www.irs.gov/taxtopics/tc701


Buy a home in the Bay Area four years ago and sell it today. You might even exceed the exclusion.


> The only way that I know of that you can legally enrich yourself without paying taxes is via a direct gift and that’s because the giver pays tax instead of you

How about tax-free bonds?


Isn't it likely the person who lost the $20 bill already paid tax on it?


There's no rule that says only one person pays income tax. For example:

1) You make $20 from employment, and pay $5 income tax. 2) I sell you a sandwich for $15.

I still owe income tax for the money I made selling you a sandwich, even though you already paid tax.


as well as employer, who paid tax on that $20 to the person who lost it

as well as person who found it, who paid tax on that $20, who paid employer for service, who paid person who lost it

this could be non stop recursion :)


Even if it's the $20 bill you lost the day before?


In the crypto context, you add a $20 loss and a $20 cap gain, which nets 0 and equals 0 tax.


The problem, if one want to trade crypto currencies, is that you have to record every transaction. Then one has to figure out if the coins you have traded have been held for over a year and thus treated at the long term capital gains tax rate as opposed to the short term rate. Then, I believe with the new tax bill, one has to, going forward, sell the oldest coins first (if they are going to be treated like stocks). This makes complying very hard; impossible if you did not start at the beginning being very careful with your records. Basically trading a lot, especially algorithmic trading, is not something illegal, just impossible to do legally, in practice. Same with stocks. Professionals (of course) have some kind of special rules where they only have to keep track of net gains (or losses) and not every trade.

A good analogy would be if, when gambling at a casino, one had to keep track of every bet and report it and the outcome. Then, if one kept chips for over a year, you would also have to keep track of how old the chips you were betting were. Cashing out chips you held for longer than a year would have a lower tax rate. New rules now would say you have to bet with your oldest chips first. Now report all this activity to the IRS with your taxes each year. Vegas and other casinos would not exist with such rules and so much pressure would be against laws treating Vegas style gambling the same way.


> if one want to trade crypto currencies, is that you have to record every transaction

This is true for all capital assets. With cryptocurrencies, the data are all public. There may be room for a service which, given a set of wallets, produces a sample tax transcript.


You still need the fiat exchange value at the time of buying/selling the cryptocurrencies (unless you only assume "token for token" trades), which is not stored on the blockchain.


Fwiw IRS has a table for the FX exchange rate you can use for tax purposes for a given year (maybe date too?). We used this data for international subsidiary tax compliance for US tax reporting. I wonder if the IRS will actually able to provide such benchmark data for at least the common coins.


Aren’t those data trivial to procure for the common cryptocurrencies? For uncommon ones, just ask the user to find the price on dates X, Y and Z.


A given day could have multiple instances of open/close price n for any number of trading intervals though couldn't it?


The IRS is usually fine with reasonable approximations. Tax lawyers and preparers are familiar with this problem; their input could inform a compliant system.

Disclaimer: I am neither a lawyer nor a tax expert. This is not legal nor tax advice. Talk to a CPA about your tax situation.


Ahh okay. Thanks for the correction.


Trading done within a single exchange might only take place within that exchange's records, only interacting with the blockchain when a withdrawal or deposit is made with the exchange from the outside.


that sounds like a fun little project; way less privacy concerns than your usual tax application, as all the data is public. just a "find the data for a 1099-B for the following wallets"

it actually seems like it would be pretty easy to do if the user stayed within bitcoin and did all the transactions themselves.

Seems like it would be harder/impossible if they used a broker with a common wallet, which is I thought how most of the brokerages worked.


minor correction - not all blockchains built around public view of all transactions.


IRS doesn't treat chips as stock-like things, they are treated as cash. Can you imagine if crypto currencies were treated like foreign currency instead? You wouldn't be complaining about bookkeeping at least...


At a casino your "bets in flight" could be considered securities... If the roulette wheel spins for a year while your bets are down, maybe you could claim long term capital gains on your winnings because you held the position long enough...


To claim the "bets in flight" are securities, someone would have to argue that you are making money from the efforts of others (see Howey Test[1]), rather than chance...

[1] https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.


They chose to kill the use of cryptocurrency as currency outright. It was a swift, but calculated decision.


Yes, but do you really want your cryptocurrency gains to be taxed as ordinary income?


I personally don't care since I attempted HFT, my holding times were 10-30us.


Is there a time threshold?


1 year for long term gains


It's not that diffiult really - most exchanges allow exporting historic transactions, and there are tools popping up that help to organise it all for the tax purposes.


I use Coinbase and yes, it was that difficult. I didn't receive a 1099 from them, so I had to use their "Cost Basis for Taxes" report.

That might've worked, except it doesn't delineate short and long-term gains, and even worse it counts every transfer to GDAX as a sale. That meant hours of pouring through GDAX's even more bare-bones reports to figure out which coins were sold, which were kept, which were transferred back to Coinbase or to other wallets, which coins were held for longer than a year...

That process, across several different cryptocurrencies and thousands of transactions, took 8 hours of work. At the end of it all you're left with the sinking worry that you overlooked something and are overpaying or underpaying.


Oooof! Consider checking out tools like www.cointracker.io that help do this for you automatically!


Fyi FIFO sales did not pass.


Thanks for the info. I tried not to pay much attention to the tax news before it passed so my head would not be filled with ideas of "what might be in it" that get converted to "is in it" after it passed. I guess one (probably more) got through.


I thought you didn't need to unless you sold. If you simply buy or receive, that also needs to be reported? I have some of those stellar/lumens from when they awarded them for free for signing up back in 2016, but have never sold or transferred them.


Keep in mind:

- Trading cryptocurrencies produces capital gains or losses, with the latter being able to offset gains and reduce tax.

- Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses.

- Receiving payments in crypto in exchange for products or services or as salary is treated as ordinary income at the fair market value of the coin at the time of receipt.

- Spending crypto is a tax event and may generate capital gains or losses, which can be short-term or long-term. For example, say you bought one coin for $100. If that coin was then worth $200 and you bought a $200 gift card, there is a $100 taxable gain. Depending on the holding period, it could be a short- or long-term capital gain subject to different rates.

- Converting a cryptocurrency to U.S. dollars or another currency at a gain is a taxable event, as it is treated as being sold, thus generating capital gains.

- Air drops are considered ordinary income on the day of the air drop. That value will become the basis of the coin. When it's sold, exchanged, etc., there will be a capital gain.

- Mining coins is considered ordinary income equal to the fair market value of the coin the day it was successfully mined.

- Initial coin offerings do not fall under the IRS's tax-free treatment for raising capital. Thus, they produce ordinary income to individuals and businesses alike.

https://www.cnbc.com/2018/01/30/cryptocurrency-and-taxes-wha...


I have wondered about the mining rule, that coins are treated as income at the time they are mined. If I have a chicken and it lays an egg, is that a taxable event? If I have a 3D printer machine and it produces a widget, is that taxable also? From my understanding those are not taxable events even though the egg and widget have known market values at the time produced; only when you sell the egg or widget do have ordinary income tax. Even though cryptocurrency is property like the egg or widget, it is not treated the same way when mined. If I understand correctly, mined crypto is double taxed: once when mined and again when you sell/exchange it.


One thing I haven't been able to figure out is how to treat cryptocurrency gained via a fork. Any idea?


If I keep reinvesting am i fine as long as I am not taking out profits?


Every trade produces a taxable event, so no.



They are. If you liquidate your position in one stock to buy shares of another stock, that's also a taxable event.


Maybe I just wasn't trading enough with stocks to notice. I remembered always closing short potions to initiate long positions and not paying taxes until closing the long. Clearly, I've been confused this whole time.


> Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses.

Which is absurdly difficult for the average person to account for. If I buy 60000 XRP for 4 BTC, what is my cost basis? Do I have to keep track of how much those bitcoins were worth on a different exchange with Fiat pairings at the moment I traded on a pure crypto exchange? What if I don't have that data? How is that calculation supposed to account for actual liquidation costs if I liquidate to pay my taxes?


> If I buy 60000 XRP for 4 BTC, what is my cost basis?

For the BTC? The USD value at the time you bought them.

> Do I have to keep track of how much those bitcoins were worth when I traded?

Yes

> What if I don't have that data?

You can get the transaction date via the block chain or your exchanges reporting and then lookup the USD value at the time.

> How is that calculation supposed to account for actual liquidation costs if I liquidate to pay my taxes?

Liquidating to pay taxes is another taxable event. That’s the same as if you did this with equities.


> You can get the transaction date via the block chain or your exchanges reporting and then lookup the USD value at the time.

What if the exchange I traded on doesn't have a USD Fiat pairing? Can I use any price from any exchange that day? Can I report $0.06/BTC for an xrp sale on 4/16, the date of the major coinbase flash crash? Does it have to be the exact price at the exact time? Can I choose the USD value of the KRW/BTC market on Bithumb?


It kind of sounds like you're trying to think of tax law as some sort of CTF programming game where you're supposed to find the exploit. That's definitely not what tax law is.

You should report your taxes as honestly as possible, using reasonable prices for things.


> Can I use any price from any exchange that day?

You should use the fair market value.


So any price from any exchange at any time during the day? You haven't clarified a thing by telling me to use the fair market value, because there is no standardized way to determine fair market value. These aren't stable mature markets, a blink of the eye and the market may be transacting at +/-10%. Determining fair market value is the primary problem with cryptocurrency taxation. If you're lucky enough to be trading in USD paired currencies, great...you can use actual transaction values. But the vast majority of crypto trades aren't with any fiat pair.


The fact that these things are extremely volatile is not the IRS's problem. You are the one responsible for recording the details of your trade.


I did record the details of my trade. What I didn't record was the concurrent status and details of some completely unrelated market on a completely unrelated exchange that establishes some sort of mythical fair market value denominated in USD that so far has no canonical way of being calculated anyway. Nobody can answer the question in any precise way, the IRS guidance on the issue is barebones and not informative at all, and my CPA can't figure it out either. The best we can do is take a best guess that makes it look like I'm not stiffing the IRS.

I want to pay my taxes. I believe crypto should be taxed. But when you get into the situation where well meaning people have to take guesses at what is appropriate, and differences between seemingly simple rules of thumb can result in 20+% disparities in taxes owed, you're gonna have a bad time no matter how diligent you are.


For tax purposes, the complexity is roughly the same as if you traded stock shares of (say) a closely-held private Belgian company for stock shares of (say) a closely-held private Luxembourgish company.

Neither is easy to value, but the rules for doing so are well-defined.

The only thing that's new about this is that the average person can more easily get themselves into a difficult tax situation than before these tokens existed. That's in turn because of the SEC accredited investor rules and other countries' equivalents, which make these tough securities rarely accessible to ordinary folks without financial & tax sophistication. The accredited investor definitions have a lot of flaws, but not the idea behind having such a barrier.

And, indeed, the SEC and foreign equivalents are starting to pay more and more attention to cryptocurrency... The rules are still the rules, as much as people don't like it.


You have to keep track of the fair market value, in USD, at the time of exchange. When you liquidate to pay your taxes that would be another taxable event so you may need to liquidate more to make up for that.


This was the complication that the coinheads chose to ignore. Cryptocoins, like their bullion cousins are awful mediums of exchange for precisely this reason.


If you don't keep track of cost basis then for tax purposes your cost basis is assumed to be $0 and the burden is on you to prove the correct basis.


What kind of crappy trading are you doing if you aren’t constantly aware of the fiat value of your holdings? Who are these people doing non usd trades who don’t know the fiat value of the trade?

Can’t be a very good trader, that is for true...


If you trade XRP/BTC pair the USD value is largely irrelevant


Literally in the first sentence:

> report their cryptocurrency earnings


I would say keep the Lumens till you sell them. But report it as long term investment? I would wait till the Lumen guys build their platform for trading cryptocurrencies it will likely be seamless enough to where you wont even need to shift from Lumens to BTC to CoinBase or whatever people were doing to cash out their lumens.


Nope. If you mine cryptos or receive them as income they’re reported as income. You also have to report gains if you spend them or trade them for another crypto currency.


The signup promotion in 2016 was for 5000 or 6000 lumens. Historically it looks like in 2016, 6000 lumens would have been worth five or ten bucks. So I guess that should be reported as income back then although it approaches being a rounding error.

At some point, stellar converted lumens to stellar. Anyone know if that would be considered a taxable event? Did that change my basis?


Not a tax pro, but I would treat any involuntary conversion similar to a corporate action where you got new shares for old shares, the new shares inherited the basis of the old shares, and would generally not be a taxable event. This is assuming it’s analogous to a tax-free spinoff event in the equities world.


You only get to treat a corporate action as a non-taxable event if the event meets certain requirements and follows certain forms. As cryptocoins aren't actually shares in a corporation, I don't think you're going to get a non-taxable conversion.


There is a general doctrine of substance over form. If the substance of the transaction is that "coin A became renamed to coin B with no other changes", that is likely to eventually be judged by the tax court to be a non-taxable event. An individual tax filer can take a position that has a reasonable justification without penalty.

You're citing existing precedents/case law that has been decided. The cryptocurrency cases have not yet been adjudicated by the tax court, so as an individual filer, I would be comfortable taking any reasonably justifiable position and defending it in audit if needed.


I don't think the general doctrine applies in this case, given that the law is written to require specific form for no apparent reason, and there is precedent that otherwise meeting the requirement but not following the prescribed form does not result in the desired outcome.

I would put more weight on the possibility of considering it a 1031 like-kind exchange, than a tax free merger/reorganization . Although I don't have a lot of exposure to the 1031 rules to know if there's a clear objection there.


This is bad for everyone.

Holy crap do we need reform.


What reforms do you propose?

It seems perfectly reasonable to me that income is income regardless of whether it is dollars or magic beans and that gains on investments are taxed largely without regard for the form of the investment.


I'd expect that converting from 1 cryptocurrency to another doesn't count as a gain until it's turned back into a country issued currency. They're basically the same unusable[1] asset under a different umbrella.

[1]: if we're pragmatic about it, cryptocoins can't be used for much on their own


This is no different than selling one Vanguard fund and buying a different one. There is a notional to/from USD implied in the conversion, even though Vanguard lets me do it in a single transaction.


I thought there was something about selling/buying an asset of the same class within a certain period not triggering a tax event or something? The thing that tax-loss harvesting is based off.


You might be thinking of one of two things:

1. Wash sale rules (where buying a substantially identical security within 30 days before or after a sale-for-a-loss disallows the loss)

2. Section 1031 exchanges


Reform on what? You sell an asset you pay the tax on your gains. This construct has existed forever. The fact that you didn't sell the asset for fiat and instead bartered it for something else is immaterial in the eyes of almost any tax code in the world.

The only reform I see needed is that exchanges could help facilitate reporting these transactions.


This all seems pretty reasonable IMHO. Relevant section:

* A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

* Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC.

* Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes.

* Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third Party Network Transactions.

But I think this last one is probably the most interesting to us HODLers

* The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.


There are people who have lost the key to wallets. For most of them, that is the same as not owning the cryptocurrency, but a small number might get lucky and remember where they put it, or remember enough of it to eventually recover it, at some point in the future. I haven't looked in detail, but do the rules address this scenario?


Lost assets are commonly reported on this form, which you should file if you knowingly hold coins and then lose access to them:

https://www.irs.gov/pub/irs-pdf/i4684.pdf

If you recover the property in the future after filing it as lost, pay a tax professional to advise you.


You report transactions. So if you lost your keys there should be no transactions


Yes. If you don’t have the key, you can’t sell. Selling is when you would realize your gain (or loss), and then do tax stuff.


You only realize income on sales. So if it's lost and you can't sell it, there is no taxable income.


They still haven't issued guidance on how to treat forks like BTC/BCH, have they?


I consider them the same coins, simply sold twice, to two communities that disagree on where the coins have been sent. Since my cost basis is $0 (mined pre-2013 as a student living with my parents, and didn't bother to report the pittance of an income that would have been), I don't think the IRS will mind.


Reporting a cost basis of $0 has you paying the maximum amount of taxes. As a general rule, the IRS doesn't care if you decide to say that you owe the maximum possible amount of taxes - it generally focuses on possible underpayment, not overpayment.


It’s still ambiguous but the most straightforward way is to treat it as miscellaneous income, which is how I reported it.


Do you owe taxes on unclaimed coin forks? I'd wager no but considering how complex taxation in general has turned out to be with cryptocurrencies...


If Apple's stock were to split and then "moon" would you claim the difference in portfolio value as misc income? That sounds nonsensical to me. The IRS guidance states it can be treated as a capital asset. You're still HODLing right? Right?


I did the research a few months ago and don’t remember the details, so sorry if this is vague.

There are certain criteria that are required for something to be treated as a split and IIRC coin forks were really iffy in this case. The usual case in a stock split is that you get either more of the same security or something of similar likeness (a non voting class of shares in the case of the google split), which is arguable in the case of crypto.

You could argue it’s a split to save money and if you had a huge amount in BTC at the time of the split it’d be worthwhile. My tax savings were going to end up being trivial so I went with what was “safe”.

Edit: noticed your comment about Apple stock “moon”-big. If we’re reporting the fork as income then it’d be income at the value at the time of the fork. So if you had one BTC then the BCH income would be $277 or so and that would become the cost basis going forward. I didn’t have a lot of BTC so the actual tax cost was very low. If you’re holding thousands of BTC at the time then the story would be different and you’d be incentivized to argue a different tax treatment.

Apologies for the wordiness here!!


I would assume it would be treated like a company spin-off.

https://www.investopedia.com/ask/answers/052115/why-are-some...


That assumption is reasonable but unfortunately wrong. The laws around spinoffs are specifically written to apply only to securities (stock in a company) and cryptocurrencies are not securities.


I don't know who's downvoting this, but this is exactly what my high-paid CPAs told me. I'm hoping the IRS gives guidance, and I'm extra-hoping that they give sane guidance, but the law simply doesn't appear to allow for treating coin splits like stock splits.


this is the frustrating thing to me. IRS shouldnt be allowed to stay ambiguous on basic accounting issues (listen to https://letstalkbitcoin.com/blog/post/the-bitcoin-game-53-ad...) if they also want to tax it. particularly if the tax year has already passed, how does it make sense for the IRS to retroactively define tax guidance.

if you dont bother to define the rules of the game then you're just pretty much barefacedly just abusing your legal power to tax whatever you want to tax for the sake of taxing.


There's nothing retroactive about this. Just a gentle reminder of the rules that already exist.


Built an app to solve this issue:

http://zenledger.io

Companies like blockseer.com are being used by regulatory folks to find people skirting the rules.


Do I get to report my misplaced cryptocurrency wallet password as a loss?


So, reading through this discussion, I'm seeing a lot of "IRS tax law is confusing, complicated, and even contradictory on cryptocurrencies", and a lot of other people saying, in effect "well tough, it's the law, deal with it".

What I'm getting out of it all is, people who did not make money on cryptocurrencies this past year are getting some satisfaction from the difficulties of those that did.


Can someone explain how a "property payment" is reported and taxed:

"A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property." https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report...


Treat it as if you sold the crypto for USD (and pay capital gains). So if you bought a crypto for $10, the price appreciated to $110, and then you bough something worth $110, then you have to pay taxes on $100 of income. It’s the same place you repot capital gains for equity (I don’t remember the form number)


What if I bought 1BTC at $10, then I bought 1BTC at $200, then I bought something with 1BTC when BTC dropped to $100/1BTC? Which BTC was used for the purchase- the one I bought at $10 or the one at $200?

It sort of kills the use of cryptocurrency as "currency" in the US. Imagine if in the end of the year we had to report every dollar transaction (e.g. buying a coffee and a bagel), trace how you earned that dollar and calculate capital gains/loss.


If I bought 1 ton of gravel at $10, then bought one ton of gravel at $200, then swapped one ton when it was $100 for a meal out. Which ton was used for the purchase, the one I bought at $10 or the one at $200?


I’m unclear if you were asking this tongue-in-cheek, or if you really were interested and simply used an arbitrary asset for your example, but in case it was the later, here’s my understanding:

Do you account typically report FIFO or LIFO?

You can register a capital loss of $100 if you account last-in-first-out, but will be on the hook when you sell your $10 gravel on the future at any price higher than $10.

You’d register a capital gain of $90 over cost if you account first-in-first-out.

AFAIK, in either case you have to account for all of your transactions the same way, for the year in question. It’s not pick and chose to gain the best benefit.

Tax rate in either case would be calculated based on how long you held your gravel.


Arbitrary asset, my assumption was that bitcoin is no different to any other asset. Now you mention it, I do remember LIFO, FIFO and AvCo from when my mother was doing accountancy courses when I was a wee lad in the 90s.


Whichever one you report to the IRS.


It does make it hard, yes, but that’s what the IRS expects.

Edit: easiest thing to do as a workaround, imo, would be to build tax reporting into wallet software.


PS. I just edited- I think it's hard to calculate even in principle?


First off, yes it’s a pain in the ass in practice and a real headwind for using crypto as a currency. At the same time most people are treating crypto as a property investment in practice, so it’s hard to dispute the IRS’s approach here.

As for solving the problem with software, it’s already “solved” by your broker. In the investing world when you sell you choose which lots you want to sell. You typically tell your broker what sort of strategy you want to use (LIFO vs FIFO) and they handle it for you. So I’d expect a software solution to work the same way - you would configure the software to LIFO/FIFO/other.


It’s similar to stocks, when you buy the same stock at different times. Most people simply go “First In, First Out”, although you can use average cost basis or simply select the lot you wish to have sold.


> It sort of kills the use of cryptocurrency as "currency" in the US.

Because nobody was using cryptocurrency as a currency in the first place--it is far to volatile to behave as a functioning currency. It is all being used for speculation.


This is precisely the same situation that you would have using other currencies.


In the U.S. if you were to spend $100 on euros in January, buying say €80, then spend another $100 in March, buying €70, then you sell €75 in June for $130, you presumably have to show that on your tax form?


"Income from virtual currency transactions", not "virtual currency transactions".


The make it easy and simple to report them. Expecting regular people that can't afford expensive accountants to report potentially thousands of transactions a year is kind of crazy.

But America likes its tax system to be super complicated and complex.


If someone pays me for a service in bitcoins (e.g. GPU rental), what dollar amount do I report for income? The dollar value of the bitcoin at the time I was paid? The dollar value on 12/31/2017 at 23:59?


You owe income tax on the value at the time you earned the income...

If you later sold it for more, you owe tax on the gains.


yes.

then when you sell the btc for usd, you pay the capital gains tax (probably 15%, it depends) on the difference from the price it was accepted at, and the price it was sold at


"No", respond taxpayers.

How do they intend to record this?


Coinbase and other crypto exchanges report to the IRS for one. There’s also forensic accounting where large unexplained cash flows (i.e. buying a house for money far above your income level) establish probable cause, which allows them to go fishing.


It's actually trivial to dodge US taxes. The most basic and effective way to accomplish that is to establish fiscal residency in a friendly european country. It becomes /really/ easy when you have dual citizenship.

Same applies for crypto gains, if you avoid using US based crypto-exchanges you are probably OK for the foreseeable future.

I have found that many americans overestimate the reach, competence, and sheer willpower of the IRS.

You would be surprised at what /doesn't/ happen if you stop filing taxes.


> You would be surprised at what /doesn't/ happen if you stop filing taxes.

You are right: the sun would still rise everything morning, life would continue pretty much unchanged, no one would break down the door to haul you away for not filing your return. This is not Hollywood. But a little envelope could show up in a year, two years -- or twenty years. If you do not file there is no time limit on collection of taxes, interest and penalties. https://www.irs.gov/irm/part5/irm_05-001-019 Maybe you are living in a van now and getting cash on the nail and can't care less. But... what if you clean up in ten years and want to live better? Even a zero return is better than no return.

And if you do not live in a van but have an actual income with a paper trail, the IRS might just file a Substitution for Return on your behalf and then, if you do not respond, they will, with the full force of the law, come after what they think you owe them, putting a federal tax lien on your real property, garnishing your wages and so on.

Once you or they filed a return, there's a ten year time limit on collecting the money, but, again, that doesn't apply if you do not file.

What really doesn't happen is criminal tax evasion charges. That's truly rare and reserved for the heavy hitters.


I probably am overestimating their reach. I would imagine the willpower scales proportionally with the amount of lost revenue minus the cost of pursuing. I’m sure a lot of people in crypto think they’re cleverly covering their tracks when they’re not, and it really comes down to whether or not the IRS notices. Personally I don’t want to roll the dice.


It's not that they particularly have a way to record this though if you happen to convert your earnings through a US based exchange, ostensibly they could track you.

It's that if they do catch you you are signing up for lots of fines and or imprisonment by not previously declaring.


How does the non-compliant taxpayer intend to justify the origin of the money when BTC hits $1mn or whatever and he buys a lamborghini and a penthouse?


I would imagine using the same mechanisms they use to track down unrecorded income from other sources.


> "No", respond taxpayers.

"K, enjoy prison. And the fines. And interest."

> How do they intend to record this?

Coinbase shares data with the IRS. I imagine Kraken will also, as they are US-based. Maybe you've used a foreign exchange that isn't obliged to share this data with the USG, though if you've received large fiat sums to your bank account you may have raised some AML flags already...


Lots of people cheat on their taxes.

This isn’t different than any other form of undeclared income.


Through enforcement. Although the Congress has been de-funding IRS enforcement for some time, States, especially states being impacted by tax policy changes are making investments in increased auditing.


Normie trading platforms are required by law to report to the IRS. That's how.


good read on 1031 Like-Kind exchange for those who are thinking about it.

https://www.mdmfinancialservices.com/cryptocurrency-and-like...


If I invest but didn't cash out, then do I have to report? And if yes, then report what?


As usual, you report income. If you bought something and did not sell it, you didn't receive any income. Replace "something" with any kind of asset.


why don't we just... link directly to the memo... https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report...



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This kind of talk seems childish.

Declare your income, or don’t.


What isn't sane around "report your income"?


[flagged]


My recollection is all you said was "The IRS needs to come up with some sane rules surrounding this issue." There was nothing wrong with saying it, never mind the spin of replies to it.

I am stating that because removing the comment combined with your follow up comment looks weird and suspicious in a way the first comment did not to me. I would hate to see you subjected to the Streisand Effect here in a way that could have tax and legal consequences.

Best.


Thanks. To be clear I intend to pay my taxes fully. I also fully expect to have 6 month long mail-only communication with 2-4 weeks between insane letters, as is standard when dealing with the IRS as a small business owner.


Good man.


“biggest killer of small business in the US.”

Owners who think they’re being clever, when they’re just violating the law?


One of my neighbors was talking like this. Turned out he was stealing employee payroll taxes and sales taxes to get current with his trade creditors.


This immediate suspicion when speaking out is why I removed the comment. I am not stealing anything and I don't have any employees.




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