Lets talk taxes

Probleminfected

Probleminfected

[H]ard|Gawd
Joined
Dec 20, 2013
Messages
1,406
I don't think many people are following proper tax reporting when it comes to turning crypto into USD. I think when the big players i.e. coinbase and others are forced to release the clinents info to the feds, there might be some people owing big or possible facing criminal charges.

What are your thoughts?
 
Good topic! I'm trying to decide how to handle this currently. Was considering opening a thread myself on it.

From what I've heard, Coinbase has issued 1099's in the past. I've just started in the last couple months, so I haven't gotten into having to file taxes yet with the extra income. I'm running 35 cards though, so I'm quite a bit over the "just don't report it" threshold.

I *believe* Coinbase handles the math at the end of the year for you, showing how much your payouts were worth at the time each time, and then how much they were worth when being sold, to show the difference between the mined value and capital gains thereafter.

I'm on the fence about keeping this private or incorporating as an LLC. Either way, the earnings end up getting reported on my own 1040, but it seems incorporating will make it far easier to deduct hardware expenses, and maybe some of the electricity.
 
Yeah, I'm going to talk to my tax man pretty soon.

I won't be going the business license route, that just adds way too much headache.
 
I did report what I cashed out back in 2014 (I think around $25K) as capital gains. Because I was in the lowest tax bracket at the time (was a poor graduate student), I was lucky to be in the 0% bracket there, so getting my cost basis down perfectly wasn't that important. In hindsight, I really should have taken advantage of that 0% bracket and cashed it at all out. I could have bought back a lot more later that year, and really been set for this rise.

This time around, I'm going to be cashing out, and I'm in the 20% long term capital gains tax bracket. I have no clue what my cost basis is, as I've traded in and out of alts over the years, and lost records due to exchanges being hacked, so I think I will have no choice but to report a cost basis of $0 on the full sale price. I'm not even sure it's worth dealing with any sort of cost basis.

My family members are pretty much in the same tax bracket as me, so I gifting them Bitcoin doesn't really benefit us, nor do I have kids to gift Bitcoin to tax free.

I will definitely be having a talk with a tax man in the next few months. Unless I use all of the money to buy back Bitcoin within 6 months of sale, which I may do if it drops below a certain target price for me. Of course that will just defer everything, and make it more complicated down the line.

The nice is thing that once I go through this process once, the option of taking on more of a trader role through GDAX will become available for me as a recognized secondary source of income. I would have a wallet that has my long-term stash to be taxed on long-term capital gains, and my short-term stash which I could trade over the course of days, weeks, and months, and be responsible for short-term capital gains. I want to make sure I have this clean slate and Uncle Sam approved pile of cash before I get involved with any of that.
 
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yeah.... lol...

i only made 2k last year and like 1k this year so, no, i will not be reporting to the gubment

25k.. yeah probably would.. ''other income'' or ''capital gains''..

more of a hobby for me.
 
Looks like IRS is talking to Congress next week about Crypto. Wondering if we'll see a big dip in prices and/or really bad news.
 
So I had a conversation with some people and after some back and forth I think there's enough parallels with existing tax practices to easily (subjective!) file taxes.

All income made from mining is treated as you made that money providing a service. So when you get a deposit in whatever crypto currency, you take that dates value in USD and that is your payment. This also becomes your cost basis for that currency which will be used to calculate capital gains or income (if you own that currency longer than a year you can claim capital gains, if it's less, than it's more income...on top of what you were paid while offering a service). Make sure to track all your costs (GPU purchase price, electricity, etc) and subtract those from your "service income".

i.e.
I mined and got paid once per week and made $10 a week.
I did this for 2 years, then stopped mining and sold all my currency
The value of my crypto currency doubled and I sold it all after I was done mining.
I spent $100 a year on electricity and bought a $200 GPU

I would file taxes for the first year and claim $520-$100-$200=$220 in income. I would pay income taxes on $220.

The next year, I claim $520-100 in service income, then I have to pay income tax on the coins mined this year (because I sold them I only owned those coins less than a year). The coins doubled in value, so I pay income tax on $520. I pay capital gains on the other half of coins (another $520).

So the second year I pay $420+520=$940 worth of income tax
and $520 of capital gains. If I sold my video card too I would have to pay income taxes on all the profits (since I depreciated it all over the first year).
 
If you buy x coins at $1000 and sell at $2000, with trading between different altcoins in between, am I supposed to be taxed on each transaction or just the $1000 profit I made?
 
lilbabycat said:
If you buy x coins at $1000 and sell at $2000, with trading between different altcoins in between, am I supposed to be taxed on each transaction or just the $1000 profit I made?
Click to expand...

This is something I'm not clear on either.

But because Bitcoin is considering property, it should fall under the "1031 like-kind exchanges". So you do not pay for each transaction made. However, say you start out buying 10 Bitcoins at $1000 each, and you trade into altcoins and gain +10BTC. When you sell the 20 BTC at $2000, I believe you would do the following:

1) Pay capital gains on 10x BTC with $1000 cost basis, $2000 sale.
2) Pay capital gains on 10x BTC at $0 cost basis, $2000 sale.

If it gets confusing as to when you owned the BTC, you might need to create a new wallet, throw all 20 BTC into it, and hold that for a year for proof of ownership to claim long term capital gains as opposed to short, which are much higher.

Someone please correct me if this is wrong.
 
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