Crytocurrency and Taxes in the US

Most exchanges keep zero records of transactions on their network? Sounds legit! The future of finance!

To be fair, it's only been the last several months that it has been enough money to really worry about. For years it was just a few geeks eating ramen, snuggling up to their GPUs in the winter and buying the occasional pair of alpaca socks or 50cent album. This sudden metamorphosis in to lambo driving international love rats of mystery kind of snuck up on us.
 
The $600, is like when you win a lottery ticket thing, you dont have to pay tax up to around that amount. So, the $5 bucks you got out of the lottery isnt taxed, until you win over X amount combined. Makes perfect sense there

However, taxing people on transactions between currencies and stuff, seems flakey. Taxes should be due when transferred out into any currency that is not virtual, or when used to purchase goods/services with virtual.


Edit: "That means whenever you buy something with bitcoin, it's two transactions, not one. What you're actually doing is selling a property (bitcoin) for a cash value and then using money from that sale to buy a product."

Not really sure on how that would work, this would be no different then pulling money out of a retirement account, paying the tax on that money and buying something with that money. There isnt any additional tax, other then sales tax on the product/service you are buying.


Capitol gains is usually levied against short term investments. Supposedly that's to encourage stability in markets. It could be that this is all they are trying to do, encourage stability in what is proving to be a highly speculative and volatile market.
 
I'm not saying it's a good law or that it is even enforceable.
In most states, the law requires you to collect sales tax on everything you sell at a garage sale, but nobody does it.

The reason for the law is not to go after people trading pillows, but to tax big time bartering.
I'll trade you this lot (worth $100,000) in exchange for you building me a house on this other lot, or I'll trade you this warehouse full of pillows for your egg distribution business.

U nailed it.

I had a friend way back that had a small reloading bushiness. He got audited and it was like a lot of folks with cyprto. He had
no idea about a lot of the stuff having been trading around with so many for much of his stock. Or in some cases where he had cast bullets himself.With lead
he dig up at the reloading range.

The agent was very reasonable in working with him to come up with a value for the stuff in question. The irs guy went out of his way to be fair.

On the other hand i had a friend who got sucked into its not legal for the government to charge us income tax so i am not paying it. He did a bunch of stuff with silver where
they where striking on coins and where passing them around among themselves. ... Well they got audited and the book thrown at them.
Most of the group served jail time and or probation for years. So don't think that u are too small to bother with. Its your job to prove innocents with IRS not for them to prove
u are guilty .

More then likely they will come up with some formula based off lets say how much power u are using vs how much a average household uses. They will then say u are mining
x amount of dollars and this is what we expect in taxes. Now its your turn to try and disput that.
 
U nailed it.

I had a friend way back that had a small reloading bushiness. He got audited and it was like a lot of folks with cyprto. He had
no idea about a lot of the stuff having been trading around with so many for much of his stock. Or in some cases where he had cast bullets himself.With lead
he dig up at the reloading range.

The agent was very reasonable in working with him to come up with a value for the stuff in question. The irs guy went out of his way to be fair.

On the other hand i had a friend who got sucked into its not legal for the government to charge us income tax so i am not paying it. He did a bunch of stuff with silver where
they where striking on coins and where passing them around among themselves. ... Well they got audited and the book thrown at them.
Most of the group served jail time and or probation for years. So don't think that u are too small to bother with. Its your job to prove innocents with IRS not for them to prove
u are guilty .

More then likely they will come up with some formula based off lets say how much power u are using vs how much a average household uses. They will then say u are mining
x amount of dollars and this is what we expect in taxes. Now its your turn to try and disput that.
That is utterly perverting the law - you have to prove your innocents?! That whole sentiment should be rejected - while the IRS tends towards those lines once it hits the legal stage it is still innocent until proven guilty. As for energy costs etc. is this Nazi Germany where everything should be measured, weighed and everything you do looked at? Papers please.
 
More then likely they will come up with some formula based off lets say how much power u are using vs how much a average household uses. They will then say u are mining x amount of dollars and this is what we expect in taxes. Now its your turn to try and disput that.

That's one of the way they catch people growing pot.
Covering up all the windows and then using grow lights takes a lot more power than the typical household.

Of course some people try to get around this by bypassing the electrical meter, and end up burning down the house & their crop :p
 
I mean, its gained money through investment. I would expect normal capital gains to apply. I dont understand why it would be different.
 
I mean, its gained money through investment. I would expect normal capital gains to apply. I dont understand why it would be different.

nobody understands it

the new ruling implies that you are supposed to keep track of every inter cripto trade and tax yourself on each one instead of, more sensibly, just when you convert out to fiat, but since when has any of it made sense
 
How is that even feasible - Crypto gains and looses constantly - every gain someone is suppose to immediate pay tax? What every minute, hour, day, week? Right! :LOL:

When you buy stock you don't do that until you cash out.

When you buy commodities you don't do that until you cash out.

Sorry, just does not meet any logical sense.

Yes it is complete bullshit but it is the reality we now have to deal with. good news there are a lot of CPA's and Finance lawyers now trying to get this shit storm turned around due to the fact it is almost impossible to track properly but I can't see it happening within this year.

This guy here goes over the new laws in plan English.
 
Wrong, as of the first of the year crypto is now considered property and now you pay tax on it for every gain and transaction you make whether or not you cash it out.
That's not how capital gains works. You only get dinked on it when you cash out, now that can include trades and what not, but if you just have bitcoin hiding away and just riding the wave up you aren't liable for taxes every time it reaches a new high, only when you eventually cash out.

I mean, its gained money through investment. I would expect normal capital gains to apply. I dont understand why it would be different.

Well part of it is that I think Kyle misinterpreted the article.
As far as Uncle Sam is concerned, bitcoin is not currency. It's property. That means whenever you buy something with bitcoin, it's two transactions, not one. What you're actually doing is selling a property (bitcoin) for a cash value and then using money from that sale to buy a product. So every single purchase you make with bitcoin has to be reported on your taxes.
So you get the either long/short term capital gains tax, but because it's a payment of property there's a record of the transaction, so you also are paying sales tax on it. Now way back when Amazon did no taxes, absolutely NO ONE reported the purchases, and no one paid sales tax on it (which is reported on your state taxes not federal). However today Amazon and many major etailers collect sales tax, so it really doesn't matter if it's reported or not, and if you're state does not have a sales tax then you aren't liable for it. All in all it seems like a really stupid story for USA Today. You aren't taxed as both income and capital gains.
 
That's not how capital gains works. You only get dinked on it when you cash out, now that can include trades and what not, but if you just have bitcoin hiding away and just riding the wave up you aren't liable for taxes every time it reaches a new high, only when you eventually cash out.



Well part of it is that I think Kyle misinterpreted the article.

So you get the either long/short term capital gains tax, but because it's a payment of property there's a record of the transaction, so you also are paying sales tax on it. Now way back when Amazon did no taxes, absolutely NO ONE reported the purchases, and no one paid sales tax on it (which is reported on your state taxes not federal). However today Amazon and many major etailers collect sales tax, so it really doesn't matter if it's reported or not, and if you're state does not have a sales tax then you aren't liable for it. All in all it seems like a really stupid story for USA Today. You aren't taxed as both income and capital gains.

Nope, review the new 2018 tax laws regards to crypto or watch the video I posted above that goes over it in plan English. The IRS has change what it views as taxable events in regards to crypto. It sounds loony and it is, but it is the reality of the world we live in now.
 
all it's going to do is push people back underground until they come up with a sane policy

this is going to be a net loser for the government
 
the sane policy would be cap gains when you cash out, everything else is just asking users to go dark with the privacy focused coins and various underground forms of cashing out.

But please...go arrest joe-investor for "money laundering" at %25 because you wanted a %40 tax on doing jack-shit
 
Nope, review the new 2018 tax laws regards to crypto or watch the video I posted above that goes over it in plan English. The IRS has change what it views as taxable events in regards to crypto. It sounds loony and it is, but it is the reality of the world we live in now.
Ok, this doesn't really sound that horrible, my financial investor explained this to me in a similar fashion with my investments, in that when they want to buy other investments they sell certain ones, balancing it with gains and losses to minimize the taxable liability. Now true my example is slightly different in that, it really is being cashed out, only to buy others but that's mostly because I can't just trade stocks for different stocks (and I'm not in the financial position to do a stock swap at a corporate level). So while yeah the 2018 tax code changes, it simply changes in the sense that it's like everything else out there, instead allowing you to by pass the taxes of the sale of one investment for that of another. The only counter example I can think of is moving around pre-tax retirement savings, where as long as you DONT take control of funds for any length of time and that they go directly to another retirement fund they can be transferred tax free.
 
Ok, this doesn't really sound that horrible, my financial investor explained this to me in a similar fashion with my investments, in that when they want to buy other investments they sell certain ones, balancing it with gains and losses to minimize the taxable liability. Now true my example is slightly different in that, it really is being cashed out, only to buy others but that's mostly because I can't just trade stocks for different stocks (and I'm not in the financial position to do a stock swap at a corporate level). So while yeah the 2018 tax code changes, it simply changes in the sense that it's like everything else out there, instead allowing you to by pass the taxes of the sale of one investment for that of another. The only counter example I can think of is moving around pre-tax retirement savings, where as long as you DONT take control of funds for any length of time and that they go directly to another retirement fund they can be transferred tax free.


yeah...but how often do you reallocate?
 
If you work for money you get taxed on it. If you invest that money, you get taxed on the profit. Shouldn't they treat crypto commodities the same?
If you mine, you get taxed on what you mine. If/when you sell, you get taxed on the profit?
 
Ok, this doesn't really sound that horrible, my financial investor explained this to me in a similar fashion with my investments, in that when they want to buy other investments they sell certain ones, balancing it with gains and losses to minimize the taxable liability. Now true my example is slightly different in that, it really is being cashed out, only to buy others but that's mostly because I can't just trade stocks for different stocks (and I'm not in the financial position to do a stock swap at a corporate level). So while yeah the 2018 tax code changes, it simply changes in the sense that it's like everything else out there, instead allowing you to by pass the taxes of the sale of one investment for that of another. The only counter example I can think of is moving around pre-tax retirement savings, where as long as you DONT take control of funds for any length of time and that they go directly to another retirement fund they can be transferred tax free.

But the problem with this is that you can't directly compare crypto with modern stocks/properties practices which the SEC did and did in such a fucking spectacular, retarded way. The biggest issue with the current law is the fact that every transfer is now a taxable event which is complete bullshit. A common practice in crypto is to transfer from one coin to another to lower fees and speed up transfer time and is not done for gain/loss purposes.

For example say a I need to move some BTC from my cold (offline) wallet to my hot (online) wallet. Well BTC time and fees is really high at the moment but I need it quickly and with minimal fees. I would either do BTC to ETH or BTC to LTC because it's quicker and cheaper to move those two coins than moving BTC directly. Even though this move was not for gain/loss but to simply move my money from a brown leather wallet to the my black leather wallet. I now have to track this a taxable transaction which adds a shit ton of work and record keeping that just isn't needed. Image you had a bot trading 1000 plus times a day in crypto and only trading from coin to coin and not coin to USD (which is the common practice for bot trading). You would now have to track each one of those transactions at time of the move/trade, in USD (even though it was a trade between two different coins) and in reality now, that just isn't possible. No bot software, portfolio tracking platform, nor any exchange out there has anything close to the means to report this properly. So that just leaves it to you, a pencil and one fucking huge excel spreadsheet to keep your shit straight.

the truth is, it just comes down to the fact the SEC simply made a rule for something they absolutely didn't understand and are afraid of. So now we the people that are in crypto that are not selling drugs, laundering money or trying to evade taxes are getting screwed. The only hope we have now is a group of CPA's and financial lawyers that have filled a suit against the SEC on these new laws stating how impossible they are.
 
Totally agree.

As a responsible crypto trader, who wants to pay my fair share I am pretty much at a loss of where to even start. I really think all I can do is make a good faith guess at aggregate gains based on some snapshot in time and hope for the best.

As usual, it is the actual good guys that take it in the ass.
 
yeah...but how often do you reallocate?
It's a managed account, I don't do any reallocating myself. But last year I think I had taxable net capital gains on the order of about $1400 or something.

But the problem with this is that you can't directly compare crypto with modern stocks/properties practices which the SEC did and did in such a fucking spectacular, retarded way. The biggest issue with the current law is the fact that every transfer is now a taxable event which is complete bullshit. A common practice in crypto is to transfer from one coin to another to lower fees and speed up transfer time and is not done for gain/loss purposes.
No I totally get it, the whole transferring to other types of crypto to pay less fees in the "crypto community", but like I said it's similar to stocks in that fashion, if I want out of one stock because they announced something that will make it's value you less, and put into another, then come back and buy the new stock at a lower rate. I get taxed at each step as well if there is any net gain, just like if your BTC is worth $5000 more than when you got it, you're liable for $5000 of capital gains, but if you use LTC to go BTC, the LTC won't have gained so you aren't taxed for that and you basically are charged as if you cashed out, and then cashed back in which is kind of exactly what you are doing. Now you can go on and on about how you never did cash out, you simply swapped to a different crypto, but in the eyes of the government that is a cash out. This is why the IRS doesn't like any sort of barter systems, everything has value, just because you traded a Superman #1 for a Batman #1 plus some rare Pokemon cards doesn't make it any less of a value transfer which is taxable.

Imagine you had a bot trading 1000 plus times a day in crypto and only trading from coin to coin and not coin to USD (which is the common practice for bot trading). You would now have to track each one of those transactions at time of the move/trade, in USD (even though it was a trade between two different coins) and in reality now, that just isn't possible. No bot software, portfolio tracking platform, nor any exchange out there has anything close to the means to report this properly. So that just leaves it to you, a pencil and one fucking huge excel spreadsheet to keep your shit straight.
I'm trying to sound snarky here, but "this sounds like a you problem". No bot software can do it, well it sounds like someone needs to make bot software to do it then. There are daytraders with "bots" that do the same thing, and either they need to keep track of everything, or whichever coinbroker you go through that gets hit by the IRS with a warrant for information needs to be the one sending you a 1099-B or whatever form. Just to bring things back to reality, you could sell a product in a store a lot quicker if you didn't need to keep a record of the transaction, the IRS requires there to be a record of the transaction so it was done. If there is software that has to slow down the rate of transactions in order to keep records of said transactions, well then that has to happen.
 
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