Maybe a dumb question, but how does or doesn’t this apply if you have played virtually any modern multiplayer video game in which you receive digital assets from loot boxes, or from buying cosmetics?
“Digital asset” seems like a VERY broad term just looking for perjury.
Not that the entire concept of how one files taxes in the US isn’t one big perjury trap already, it just seems less and less subtle about it with each iteration.
> Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".
> Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".
Neither of those things are at all obvious. They are very much a "representation of value", and for all I know Epic might record them in a cryptographically secured distributed ledger (indeed that seems like a pretty good idea for resilience).
I don't think the full text is at all unclear. It effects cryptocurrencies. Pretty simple. Loot boxes won't apply. Why? They are not based on technology derived from Bitcoin.
No one is saying that loot boxes and what-have-you aren't problematic. But it is only mildly relevant.
> Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency. The IRS uses the term “virtual currency” in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.
Video game currencies are (generally, if your game lets you convert the in-game currency to USD you might actually want to report it) NOT:
How is a gift card that lets me buy virtual costumes not a "a store of value and a medium of exchange?" It's literally a medium that is accepted as payment for clothing, dance moves, music etc in the store. Kids are doing chores in exchange for vbucks. They can take that gift card and sell it to a friend for USD.
On that note, where does it say it needs to be convertible back into USD? It's only "unconvertable" once its redeemed.
Plus, you can always sell your account, despite it being against TOS.
Obviously the IRS doesnt care one way or another if the value of the vbucks is pegged or inflates, as there would be no capital gains.
> Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.
This implies that things that aren't virtual currencies can still be a "representation of value".
> Video game currencies are (generally, if your game lets you convert the in-game currency to USD you might actually want to report it) NOT:
> 1. A store/representation of value
How are they not? Certainly under the plain face meanings of those words they are. There's a reason we call them "currencies".
Interestingly enough, V-Bucks were _specifically_ included in the original wording you quoted [1]. The IRS said it was in error, but a spokesman was fairly evasive [2]:
> Desmond demurred when asked to confirm that gamers wouldn’t need to mark
> ‘yes’ to the new 1040 question, but said addressing gaming currencies in
> the virtual currency context isn’t a major focus for the agency right now.
>
> “I am not even looking into that. So I’m not saying one way or another.
> I think I’d be getting ahead of myself if I said anything,” Desmond said.
> “Read the website. We posted a correction yesterday and I kind of leave it
> at that.”
The likely reason that they don't care is that these are mostly a scam that consumers aren't making money off of, but capital gains on property are taxable no matter the underlying asset, so if game currencies became a major source of tax evasion it wouldn't take long for the IRS to pay attention.
See my other comment here [1]. The IRS removed that part to avoid freaking people out and because they don't actually care about the trivial amount of money being made on game currencies, not because it was an incorrect interpretation of the law. If you make $100K arbitraging V-Bucks you have always needed to pay tax on that, same as any other capital gain.
This has nothing to do with whether or not you pay tax. You pay tax on income even if it is not related to digital currencies.
If you somehow made $100k off V-Bucks then you need to report that income, but you should say "No" to the question about digital currencies.
(Disclaimer: I can't believe I have to say this, but if you are making significant money off of video game currencies you should talk to a professional rather than listening to an anonymous HN poster as your sole tax advice)
That question in form isn't about currencies, word used is "asset". People here are understanding that fundamentally they need pay taxes from any income, but that "Digital Assets" question seems overly broad and seems cover even non-income situations ("gift or otherwise dispose" for example).
Additionally, I think that your definition of "digital currencies" is little bit strict. IRS isn't going to look definitions, that exclude taxable income.
User semiquaver already posted snippet from "Bloomberg Tax", showing potential interest for gaming currencies.
Sure… I read that. The instructions do a great job of explaining a few cases of what is definitely a digital asset, and they explain what you and I both know are obviously included.
The instructions “include” a few obvious things. They don’t “exclude” anything like V-bucks.
So what constitutes a “representation of value”?
I can buy and sell V-Bucks cards, can I not?
It may sound like I’m being a bit obtuse, but there is nothing here that tells me whether my ultra rare skin that I received that I could sell my account for $100 on eBay applies or not.
Many things are obviously a digital asset, but determining what isn’t is far trickier, especially once you move away from perhaps the easiest example of digital currency in Fortnite.
Saying “obviously they’re targeting Bitcoin and the Charlie Bit My Finger NFT” tells me what I already know I should declare. Nothing tells me what I shouldn’t… almost like they can decide that whenever they want during an audit.
I guess most reasonable answer is that you should include anything that would transfer a significant amount of money to the IRS. Starbucks points and FFXIV gold may be theoretically included, but the liquidity for those is so small that the IRS just doesn't care and would never enforce it. They don't want that $100. What they're trying to do here is get a cut of the billions of dollars that come from crypto.
I know that's probably obvious to you, but I don't think there's much more to it. It's just another way to make money.
> there is nothing here that tells me whether my ultra rare skin that I received
> that I could sell my account for $100 on eBay applies or not.
You're looking at this entirely the wrong way. There's no new law here: the reason you don't see the guidance you are looking for is that from a tax perspective there is not any difference between bitcoin and a rare game skin. They are both personal property and if a US citizen sells them at a gain they are liable for capital gains tax. [1]
> Almost everything you own and use for personal or investment purposes is a
> capital asset. Examples include a home, personal-use items like household
> furnishings, and stocks or bonds held as investments. When you sell a capital
> asset, the difference between the adjusted basis in the asset and the amount
> you realized from the sale is a capital gain or a capital loss.
The question is on form 1040 for two reasons:
1) As a heads up to people that may not have realized that crypto gains are taxable.
2) To force you to lie if you want to conceal gains, so you can't claim ignorance later.
A $100 gain on a skin that you sell on ebay (less your cost basis, however that might be computed) has _always_ been a taxable event and the failure to declare it is minor tax evasion of the type that literally everyone is guilty of. But the IRS doesn't particularly care about small beer like that. The crypto question is there because for some people there's serious money involved.
(IANAL, but if you have any question at all about this a CPA or tax attorney is well worth the cost)
I think the more subtle question is about assets you got via a prize. For example if you win a real-world lottery, you have to pay taxes on the winnings. If you win a crypto lottery, you have to pay taxes on the winnings (at the time of winning, not at the time of cash out!). If you "win" a loot-crate lottery, do you have to pay taxes on your winnings? And afact the answer is no, because the loot crate thing isn't an asset, it's treated more like a consumable good. On the other hand, I can see the argument that in fact it's an illiquid asset (like pre-IPO stock) and so you need to pay taxes on the income immediately.
On the off chance you later sell your account, you should pay taxes on that income and it mostly comes out in a wash, unless the value of the lootbox item has changed significantly (because no one plays fortnite anymore)
The IRS guidelines specifically exclude assets you purchased.
And more generally the guidelines the require you to provide the capital gains or loses, I don't think there's a secondary market for such in game items to be redeemed for dollars or equivalents.
(Now there is something funny here about MTGO and the set redemption mechanic, so you could argue that MTGO cards are digital assets, but MTGA cards aren't).
> Any game that allows trading has a potential to create a secondary market.
Even games without trading (or the ability to do lootboxes with real money) have the potential to create a secondary market, since you can always sell accounts. My OSRS party hat has some real world market value. I don't need to count it as income on my taxes.
I sold some collectibles on Steam to a guy for euros, pretty sure that the only reason it wasn't a taxable was because it was a one-off and under the reporting minimum.
I would figure that the conversion to cash would be the taxable event. After all their value is largely indeterminate (and at that point 0) while the collectible is being given out.
IIRC this created problems for Blizzard when they did the real money auction house on Diablo III, and was part of why that was ended.
I agree for assets like those, the point is that for many other assets (art, Bitcoin, cash, stock), receipt of the asset for less than market value is also taxable.
But those usually have more developed secondary markets where prices can be widely known (and also nontrivial value). I can at least see the argument.
> Obviously, V-Bucks are not a "representation of value"
Second point, sure, but this one? I would disagree vehemently that its obvious.
I've always thoughts "points" from credit cards, gift cards in shops, or virtual currencies in a game world that you can exchange directly for fiat/crypto, represent value. Its just that value is now no longer liquid and locked into some services ecosystem to make it psychologically easier for people to spend money.
In my mind, (normative statement incoming) V-bucks and similar digital practices should not be legal. They should be required to have a tradable interface, and it should be possible to put them on a marketplace.
> I've always thoughts "points" from credit cards, gift cards in shops, or virtual currencies in a game world that you can exchange directly for fiat/crypto, represent value. It's just that value is now no longer liquid and locked into some services ecosystem to make it psychologically easier for people to spend money.
AFAIK redeemed V-Bucks cannot be transferred, and thus cannot be exchanged for real money.
A V-Bucks gift card has financial value, and (if the account is allowed to be transferred) you could say the account then has financial value. IANAA, but I would expect gains from sale of either to be taxable.
I don't think a casual gamer would know if that is or isn't the case. I guess the same could be said about casual Robinhood users though; the onus is on the person to know what they're getting into.
I think the op may be asking the more general question of why it is defined like this. What makes a "digital representations of value that are recorded on a cryptographically secured distributed ledger" so fundamentally different from an MMO currency that it becomes taxable? The fact that it's distributed? Why should that matter? What even is the definition of distributed? And isn't an encrypted database cryptographically secured?
These are important questions that I think aren't super well defined currently. Cryptocurrencies are changing so fast that it's hard for the law to keep up. It will eventually.
Seems like a great field of legal scholarship right now!
If you ask a congress critter, I'm sure they'd love to be able to tax v-bucks too if they were to be told of them. It at least has the ability to become things of lore like requiring a stamp-like fee for emails
MMOs have to go to extensive lengths to prevent and punish trading in game currency in the real world because it would burden them with a long list of regulations. Your WoW gold or whatever it is is not money because it only works in game and despite black markets for it, it is not allowed to be used in free exchange with other currencies.
Honestly everybody actually knows the difference, if you don’t hire a lawyer and go to court and add to caselaw to be sure.
Why not? A database is similar technology. The similarity is a matter of degree.
I would say that dollars recorded electronically are also a digital asset. The vast majority of the population should answer YES rather than risking perjury.
I wouldn’t worry too much about it. Just assume all your transactions are taxable, as usual. Unless there is an exemption.
What I am worried about is that the government can take a two-step approach to ban ANY inconvenient mechanism from being used by the public:
1) Force the developers to declare their mechanism as an X (money transmitter, or exchange, or communication platform)
2) Then regulate X by forcing all developers of X to require their users to provide Y.
So this way they can for example ban encryption. In Monaco and Dubai, it is technically illegal to use end to end encrypted messengers except the ones with backdoors (eg BOTIM).
If you think you can stay in some offshore jurisdiction, just remember that FATCA is global and pressures all countries to comply eventually.
The only reason the public has any freedoms at all is because the makers of browsers and operating systems have not been pressured yet into banning every website that doesn’t register with the government. However, with HTTP3 we are going to see that, encryption certificates will be treated just as “official BIOS bootloaders” of OSes 10 years ago. See “the war on general purpose computing” by Cory Doctorow. It’s coming.
Because they first have to form a whitelist (licensing scheme) before they can put pressure. If no drone manufacturers need to register, for instance, then they can produce drones that can fly anywhere. But once they get all of them to register, then whatever unregistered drone manufacturers still make drones can be excluded from the wider ecosystem.
Thus, for example, they can't just tell browser makers to "ban websites we don't like". But if they make everyone register an https certificate, and every browser maker to register their browser, and every operating system maker to register their operating system, and every computer manufacturer to register their computer, then they can make it hard for a computer manufacturer to obtain parts for their computer, or a license to install the operating system, or vice versa, by leaning on the other registered entities.
My last two comments are a statement of black letter income tax law quoting its source in the U.S.C. (not giving them advice about anything really) and some 4th amendment snark followed by advice to someone to talk to a lawyer about their interpretation of constitutional law.
Do you not see how that is different from telling someone without qualification that something is legal/illegal?
I disagree, citing obvious sources for information should be a reminder that you can often actually find whatever information you’re looking for if you just to search for it.
That may be so but the degree of authority is inappropriate, as is the assumption that OP had not read that document, which leaves a lot of ambiguity.
The problem with tax rules is that they are open to interpretation and if the taxman interprets them differently then you have a real problem. The better answer would have been to ask a tax lawyer if the op is genuinely concerned about this (which they may well be, for instance because they have a substantial amount of value stored that way).
> Digital assets are not real currency (also known as “fiat”) because they are not the coin and paper money of the United States or a foreign country and are not digitally issued by a government’s central bank.
I don't know why you think that. The Fed's term for commercial balances is "Commercial Bank Money," and it is absolutely issued by the central bank. The fact that it's tracked on digital ledgers rather than paper ledgers and cotton bills does not change that.
Most assets in circulation that we use as money are not fiat!
The central bank issues money to banks. The treasury may mint coins or print paper money (the greenback). Those are legal tender (which btw the Supreme Court of the United States struck down the Legal Tender Act as unconstitutional, but President Grant stuffed the court with two justices and they reversed this ruling in their very next session).
If your federal government issues a CBDC or mails checks to you drawn on the treasury, that is fiat.
If your local bank employe an underwriter to review your business and approve a LOAN to you, they just create a balance within the bank. The existence of the FDIC and Federal Reserve does NOT make this money fiat.
Anyway, your credit card balance is NOT legal tender. No one has to accept it as payment of a debt. The only reason it is accepted is that merchants are willing to contract with Mastercard and your issuing bank. But they don’t have to. Many merchants decline the payments.
Same with Venmo and all those other systems. Sorry but it’s NOT fiat.
You may deposit fiat into a bank, and it will give you a balance. Their terms probably state that they can lend out your money and not have an obligation convert it all back to actual fiat currency (eg cash and coins). The bank may use the Automated Clearing House system (ACH) run by the Federal Reserve to send money to, say, Venmo or PayPal or another bank. Those companies then give you a balance. But that isn’t fiat, either.
Bitcoin is just a decentralized PayPal. And the internal credits are a floating exchange rate instead of maintaining a peg. You buy some amount of a digital asset — whether denominated in dollars or bitcoins — and it is stored on a ledger. That’s all. Whether the ledger is inside PayPal or on a public blockchain is irrelevant.
If you received a payment inside Venmo, you received some amount of a digital asset. You would owe income taxes same as if you received an in-kind payment in spaghetti!
Whether or not it's legal tender, or fiat, or "greenbacks" has nothing to do with whether it's currency for the purpose of taxation, which is the sole object of interest in this conversation.
The IRS considers the funds you have on deposit with a bank (in the form of Commercial Bank Money) to be currency for the purpose of taxation. They also consider the funds your have on "deposit" (in the form of Nonbank Money) with non-bank financial services to be currency for the purpose of taxation.
Finally, they consider your digital assets, defined above, to be property for the purpose of taxation.
Edit: to be maximally precise, digital assets are considered non-currency property.
Whether it's currency or non-currency property, the question is whether you received digital assets.
If you received a digital balance in a bank account, you've received digital assets. They are not issued by a central bank nor are they fiat. So by your definition you gave, they are in fact digital assets, and you have to check the checkmark! That's my point.
You can try to argue that digital bank balances in a database are not digital assets, but I wouldn't risk it.
If a non-exhaustive list leaves something off, that doesn't automatically mean it isn't reflected in the more general category. By definition, it's not exhaustive, so if you get the pattern wrong, too bad. Or maybe there is no "right" answer and they make it up as they go along.
Here is a non-exhaustive list of Tasty Foods: Fruits, Vegetables, Meat. If you had a Tasty Food, you have to report it. You had fish. Should you report it?
Digital assets purchased in video games typically have a value of $0 as nearly all major video games implement a one-way “currency to item” pipeline and strictly prohibit “item to currency” in return (specifically, for example: Hearthstone, Diablo, Eve Online, FarmVille, and so on).
One could argue that exchanging in-game currency for game time is a taxable benefit of, say, $15/mo to the player; which then falls below the US 1099 reporting threshold of $600/year due to its irrelevance for taxation purposes.
If you can construct a case that an item purchased in a game can then be sold for value, and that you can then receive benefits of $600 USD or more within a single calendar year in return for your purchased item, then you have identified a possible taxation loophole that should be corrected; please do share!
They appear to specifically have guidance indicating that this refers to cryptocurrency and NFTs. However, I would also point out, stuff you buy in a video game is never actually an asset: It's just an entry in that company's database that your account has an item. You never really control it in the way you theoretically control a crypto asset.
That argument doesn't make much sense. You don't control your bank balance, which are just IOUs, either. It's just an entry in some centralized company's database.
That’s not how bank account balances work. My balance is an entry in a database, sure, but it’s not “just” an entry.
If a video game company decides my points are now worth half as much, or that they’ve expired, that’s their prerogative — and if I don’t like it that’s too bad. If a bank tried to do that, they’d get hit with a ton of lawsuits that they’d definitely lose.
That's only true in good economic times and non-war periods and places. What you're saying is true in America right now, but not in many other countries [0], and it's also not true across time. Even in America, eventually a time will come where you can't get your money out of a bank account exactly because it's just an entry in a centralized database and because it will be in the best interest of people in power to prevent you from doing so. This, and similar restrictions, have happened several times throughout history.
The point I'm trying to make is that it's not fundamentally as different from an in-game currency as you think it is. The cycles just happen much less frequently over longer periods of time (companies go bankrupt and change faster than wars happens) so you may never see it in your lifetime if you're lucky.
I don't know why people think the IRS is looking to establish perjury cases against taxpayers. That's really not what they're doing (or how perjury is qualified statutorily for the tax code[1]): they'd much rather get your back taxes from you than actually go through a trial process.
In other words: the standard for perjury on your tax forms is very high, much higher than the unintentional mistakes that the IRS is aware millions of people make each year.
Looks like this isn't a new requirement, just a UX change given the increasing popularity of Crypto -- using Form 8949 for Crypto transactions has been the guidance since 2014 ( Notice 2014-21, 2014-16 I.R.B. 938 ).
Sure, why not, e.g. buy ISK in EVE for price 1X, then sell them same year for price 1.1X. Declare profits and pay taxes. It's just that the scope of token insanity is so much larger than any MMO can imagine, and price swings are so much bigger. MMO currencies and trades going on there are not even a rounding error, they probably won't even fit in the float variable precision when calculating money in the digital assets in the world.
Not “liquid” just, free to exchange for money. If you made a bunch of money buying and selling NFTs but the ones you have left nobody wants to buy, you still have to pay your taxes.
Seems like plain language unless you count the terms the crypto world uses. And I think it would be far more confusing if the IRS decided to use different terms from everyone else.
For those who don't see the cryptocurrency question, it's section "Digital Assets": "At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.)"
In previous years, the question was worded "virtual currency". This year, it is worded as "digital asset". Looks like the question was broadened to include non-coin assets like NFTs.
"Digital assets are broadly defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.
"Digital assets include (but are not limited to):
- Convertible virtual currency and cryptocurrency
- Stablecoins
- Non-fungible tokens (NFTs)"
I would have thought that "digital assets" existed before there was any "cryptographically secured distributed ledger or any similar technology."
For example, a record label might own the original recordings of a 1995 song as a set of files. Legally, they own the copyright in the recording, but the copyright alone isn't enough because the copyright loses its market value if the associated files get destroyed. In other words, the files are 1) digital and 2) assets, because if someone bought the recording, they would reasonably expect to get both the copyright and the files.
They're clearly using it as a term of art. All parties involved more than capable of understanding that "Digital assets" as defined (explicitly!) by the IRS do not necessarily encompass everything that might be plausibly described by the noun-adjective pair "digital asset."
You're not wrong, but I really don't think the blame for this particular term of art can be hoisted on the IRS. As far as government definitions go, this one isn't too bad for what they have to work with[1].
If you purchased crypto via Robinhood but not used a self-custody wallet, it is questionable as to whether you own a digital asset. You actually own some sort of financial instrument issued by Robinhood and no control over any underlying asset.
You pay taxes for your interest payments from the bank on your bank account.
In this case it looks like crypto is being taxed as a security, which makes sense. Just because it's ON THE INTERNET doesn't mean the government doesn't get its cut.
Did you receive the security? That's income, you owe the IRS money. Did you sell the security and realize a profit? That's also income, you owe the IRS money.
At a macro level it's not hard to understand unless you want to be a special snowflake and pretend this thing you're doing is NEW and DIFFERENT and somehow not income, in which case maybe the IRS doesn't get its cut.
Chances are you're just deluding yourself or are relying on the IRS not coming after you.
you may have intended to respond to someone else, since this doesn't seem to pertain to my assertion that this definition of 'digital assets' seems to include dollars in a bank account
How would you have "received" it if you didn't manually claim it?
There are currently 1000s of free NFTs (almost all completely valueless) I could claim on random projects, if I don't manually claim them they are not a digital asset I have received. GP had to claim their reddit NFT to receive and then "own" it in their reddit vault (which is a non-custodial wallet too actually, stored on Arbitrum's blockchain).
I think it's quite likely that the government will come after the ability to defer capital gains. Avoiding taxable events is a heavily exploited 'loophole' by the very rich. In an effort to harmonize capital gains and income there will be some sort of mark-to-market wealth tax / property tax. So you may end up having to pay property tax on your NFT if you want to keep it. At least if it's valuable you can sell it to cover the tax incurred. The government doesn't have to value the property at sale price (see Chicago housing) so you could, however unlikely, end up owing more on taxes than you could sell it for - if this were to happen the government considers that more your problem than their problem.
I think that is unlikely because its not really about the state’s revenues, its about money circulating in the economy
they simply penalize people that try to hoard dollars and not circulate, via tax and inflation
so it doesnt matter to the government that rich people borrow against appreciated assets, if they spend the borrowing then vendors sell stuff and also pay tax on that. if they pay interest the bank gets that, usually. if they donate the loan proceeds or the assets thats fine too. if they invest it thats fine as well.
obviously almost no individual politician perceives it this way, and a law may be passed through their house, but the aggregate outcome is that risk and money circulating is incentivized by not being taxed, accumulation of just cash to hoard is disincentivized by heavy taxes.
My prediction is that politics will change out of necessity due to insufficient tax revenues and an increased wealth inequality will popularize tax harmonization. Rich people having more money will be of little comfort to the masses of working poor.
tax the rich always becomes raise income taxes on the upper middle class
which is palatable because the masses of working poor only relate to taxes on transactions categorized as income instead of everything else that rich people actually use
Don’t disagree, it’ll probably backfire, but political expedience means they’ll still try it. Plus I include the middle class in the working poor, once the middle class are no longer able to sufficiently save for retirement I consider them poor. Most middle class don’t know how poor they are yet and when they find out they’re going to be mad.
Interestingly, this does not seem to apply to you if you just HODL and never sell. Also, it's not exactly clear if "fake bitcoin" that some companies offer - where you buy "something" that tracks, say, BTC but there's no real BTC behind it, you can not take custody of any BTC and the only thing you can do is to exchange it back for dollars - qualify as "digital assets". They are certainly not recorded on chain, for example.
This has been on for a few years, but is better worded now. I remember reporting “bitcoin” gains in 2012 when there was no guidance from the IRS so I was sure I was going to get audited. I did not.
I can see the anti-crypto types in glee over the tedium of having to record every Reddit community points transaction a user receives.
"The oppressor no longer uses his own force directly upon his victim. No, our conscience has become too sensitive for that. There is still the tyrant and his victim, but between them is an intermediary which is The State—the Law itself. What could be better designed to silence our scruples and—more important—to overcome all resistance? Thus do all of us, by various claims and under one pretext or another, appeal to The State" - Frédéric Bastiat
Capital losses can exceed capital gains up to $3k per year with some ability to carry over losses into subsequent years. There are also some particulars about the order of deducting long/short term losses against long/short term gains IIRC.
Capital losses directly offset capital gains, but if you have excess losses, you can deduct a relatively small amount of them from general income: a few thousand dollars. And if you have more than that limit you can carry them over to later tax years.
I have no idea why you thought this: "fishing expeditions" are called "discovery" in US law, and they are both absolutely legal and a standard element of pre-trial preparation.
(This has absolutely nothing to do with the IRS's statutory authority to tax your assets, and consequently their authority to ask you about them.)
> But it has no fiscal value because it does not plainly ask for a taxable amount.
I think you're assuming this is some kind of "gotcha" question to provoke perjury because it doesn't ask for the value of the digital assets. That's because, as the instructions make clear, you need to fill out another form (Form 8949) if you check "yes" to this checkbox.
I think you're misunderstanding the limited protections of the fourth amendment with you voluntarily answering questions.
Feel free to seek the advice of an attorney on taking the 5th on a tax form, but I suspect that will cause the IRS to do the necessary investigative work to obtain a warrant for your now extremely interesting tax return!
I'm prepared to be surprised, but I don't think you can even "plead the 5th" with respect to your tax forms: the IRS has thought of that, and will happily supply you with a form needed to report illegal income without actually specifying the source of your illegal income[1].
The answer is much simpler: being asked if you own or owned digital assets during a particular tax year doesn't amount to compelled admission of a crime, because owning digital assets isn't illegal. The only illegal thing would be dodging one's taxes.
> Feel free to seek the advice of an attorney on taking the 5th on a tax form
> Feel free to seek the advice of an attorney
> seek the advice of an attorney
> an attorney
Are you an attorney?
> being asked XXXX doesn't amount to compelled admission of a crime, because XXXX isn't illegal
This is bad legal advice! Talk to a lawyer (before you talk to the IRS or any government investigatory agency), especially if it is your plan or intent to lie to the government or challenge their interpretation of a law and how it governs your behavior (the premise of OP).
Better advice: Seek tax or legal advice on HN. From anyone.
I was under the impression you could only plead the 5th in criminal proceedings. I don’t think you can use it when being interviewed by a grand jury, for example.
If that’s correct then I don’t see how you would be able to plead the 5th on a standard government form.
You can indeed plead the 5th to a grand jury, if your testimony might conceivably be used to prosecute you.
Similarly for a government form: the government can't slide you a piece of paper and compel you to bear witness against yourself outside of a courtroom. But that isn't remotely close to what's happening here, because none of the information the IRS asks taxpayers for can be used to prosecute them (because it isn't illegal to own digital assets).
Well, the definition of income in the USA includes [1]:
> income means all income from whatever source derived
Then it only proceeds to except certain things. So the better question, from the perspective of tax laws are: "are there any laws in this space that takes away the IRS's very clear authority to treat crypto earnings/losses like any other income"
For the purposes of taxation, cryptocurrencies are considered securities. You have to pay capital gains taxes on them (or, as appropriate, deduct your losses).
Are actual traditional currency holdings still taxed in the US on unrealized gains and losses each year? The rules in question would seem to clarify that crytos are not mere currencies.
digital assets are not taxed on unrealized gains and losses, unless by realize you wish that meant “to dollars in my bank account”, asset to asset trades are taxed on their notional dollar amounts
and nobody is conflating the currency aspect of crypto, that misnomer is so last decade. if someone starts a conversation with that word, I’m not going to correct them until a reply like yours tries to read too deep into it
https://www.irs.gov/pub/irs-prior/f1040--2020.pdf https://www.irs.gov/pub/irs-prior/f1040--2021.pdf