Crytocurrency and Taxes in the US

FrgMstr

FrgMstr

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USA today tells us that cryptocurrency investments and purchases are possibly open to be taxed twice depending on how long you have owned the crypto and what exactly you did with it. You might be open to both taxes for capital gains and taxes on income. Bet your bottom Bitcoin that the IRS is already serving summons on crypto exchanges.


Moving forward though, there may be some relief. A bipartisan bill, "The Cryptocurrency Tax Fairness Act," was presented to Congress in September. It's seeking to create a tax exemption for crypto transactions under $600.
 
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.
 
Dekar12 said:
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.
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no its the same it works for gold or stock you get taxed on any gains and then you taxed when cash out its unearned income enjoy your 50%+ tax rate that should kill it off in the US pretty well
 
Sure, trade all you want - it's the gains that get taxed. You should be taxed on cryptocurrency when you purchase things with it.
 
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I can see some awakening happening. Crypto can do things that cash or credit cannot, you can have contracts (agreements) between two or more people, no third party, self contained in the transaction, a form of bartering. For example: I will use a potential future transaction:
  • I have digital rights to 10 movies which is linked to my Ethereum account, I use my view or private key to be able to watch those movies (download or stream) anytime I want
  • The movie is protected from being pirated and the license is tracked to buying recipient
  • Incorporated into the 10 movies, each has a right to trade up to 5 times - the license can allow you to use that as like bartering or cash (incentive for you to buy or obtain the movies in the first place)
  • All reasonable prosessions, especially digital in nature could be monetize in this fashion
  • After I watch and no longer need the movies or desire to keep them, I can use them like money or to barter for something I want or need which you may have - they still have value for someone else yet they are limited to the number of possessions protecting the copyright
  • I then trade or make an agreement with you - could even be something physical you are going to mail to me
  • I transfer my movie asset or movie rights to your Ethereum account which only you can now watch the movie with your private key and my key will no longer work to view them, the movies will now have one less transaction or transferred allowed, all documented on the blockchain
    • This will incur a small transfer charge of Ethereum to keep the network up and to pay the proof of stake holders or miners
  • You send me whatever we agreed upon and if not I have documented proof of our agreement if going to court if desirable to help prove a case
So how would you tax above? No dollar value was ever established and probably no real way to determine this.

Items could be locked or protected as a side note, just like the movies above. Your TV, computers, cars etc. could be locked to your key and it would unbreakable from the firmware side (maybe not otherwise but then that could lead to other complications). Your possession that can be linked onto the blockchain will and can have buying power, real value. How in the hell do you tax that - you already paid taxes on all of your belongings?
 
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noko said:
I can see some awakening happening. Crypto can do things that cash or credit cannot, you can have contracts (agreements) between two or more people, no third party, self contained in the transaction, a form of bartering.
Click to expand...

You do realize that you are supposed to pay taxes on bartered goods.
Generally difficult for the government to track/tax you if you fix someone's sink and they pay you with eggs :D

People usually don't pay taxes when they barter, just like they don't pay taxes when they mail order something from out of state.

The problem with Crypto currency is that it bypasses most the normal channels the government uses to track money. Didn't mater when it was $10 per bit coin, but now it's a target because there is so much $$ involved.

If you mine some physical gold, it will be tracked when you sell it. If you mine Bitcoin, you can spend it directly or trade if for a gift card, no tracking.
If they exempt transactions under $600, they I'd just spend it on $500 gift cards to launder the Bitcoin income.
 
Whats worse is if you make a million dollars in bitcoin, then it gets stolen. You still have to pay taxes on it. I think its going to take another few years to sort all this out. I've moved coins between exchanges so many times, I have no idea how to track it. Don't think the irs does either.
 
It looks like the IRS does not care until you cash it out, for the moment.

I just wish it would all die. I want a damn video card upgrade!!!!! and not to have top pay 10 times what it is really should be selling for!
 
Elios said:
no its the same it works for gold or stock you get taxed on any gains and then you taxed when cash out its unearned income enjoy your 50%+ tax rate that should kill it off in the US pretty well
Click to expand...
Or taxed on cash dividends as income and capital gains when sold (15% btw). but... you know misinformation is solid.
 
nutzo said:
You do realize that you are supposed to pay taxes on bartered goods.
Generally difficult for the government to track/tax you if you fix someone's sink and they pay you with eggs :D

People usually don't pay taxes when they barter, just like they don't pay taxes when they mail order something from out of state.

The problem with Crypto currency is that it bypasses most the normal channels the government uses to track money. Didn't mater when it was $10 per bit coin, but now it's a target because there is so much $$ involved.

If you mine some physical gold, it will be tracked when you sell it. If you mine Bitcoin, you can spend it directly or trade if for a gift card, no tracking.
If they exempt transactions under $600, they I'd just spend it on $500 gift cards to launder the Bitcoin income.
Click to expand...
Barter taxes:
lol, "sure, it was worth 1$ - here is your 6 cents uncle Tom - I paid my taxes". :D "But wait, that is worth thousands!" "Really? Not to me or the person trading, oh wait, it was on sale".

Government should get out of the way of ownership - you are trading items worth the same no matter if you have it or the other person. Once $ comes into the picture that is to me can become Government matters and accounting to run the government and general trade. Reason maybe why the Government does not worry about bartering is that it is utterly ridiculous to think it should be taxed. My opinion is all.
 
Galvin said:
Whats worse is if you make a million dollars in bitcoin, then it gets stolen. You still have to pay taxes on it. I think its going to take another few years to sort all this out. I've moved coins between exchanges so many times, I have no idea how to track it. Don't think the irs does either.
Click to expand...
If you make a million... but you haven't made a million until a transfer of funds occurs. So long as it is a capital gain who cares it would be like any other investment @ 15%. Little fear mongering going on here and I'm a GIANT crypto skeptic. Not sure how "as high as" 20% capital gains taxes + accounting fees reaches 60% according to he article. I'm in finance with an accounting degree and if I can make 40% fee off bitcoin transfers... well I know a great accountant ;).
 
I am going to declare my mining profit as taxable income and include business deductions for computer, electricity, and space use in my home. I am also going to declare capital gains on my accounts in Coinbase. So, yes I will be paying twice. It's a bit of math and Coinbase should release tax forms to make this easier but they don't seem to bother with it.
 
quiktake said:
I am going to declare my mining profit as taxable income and include business deductions for computer, electricity, and space use in my home. I am also going to declare capital gains on my accounts in Coinbase. So, yes I will be paying twice. It's a bit of math and Coinbase should release tax forms to make this easier but they don't seem to bother with it.
Click to expand...
You have a business licence? How would that work if you don't, if you know?
 
noko said:
Barter taxes:
lol, "sure, it was worth 1$ - here is your 6 cents uncle Tom - I paid my taxes". :D "But wait, that is worth thousands!" "Really? Not to me or the person trading, oh wait, it was on sale".

Government should get out of the way of ownership - you are trading items worth the same no matter if you have it or the other person. Once $ comes into the picture that is to me can become Government matters and accounting to run the government and general trade. Reason maybe why the Government does not worry about bartering is that it is utterly ridiculous to think it should be taxed. My opinion is all.
Click to expand...


If you join a formal bartering group, they usually give credits for what you provide, and let you trade these credits in with other barters. This makes it easy to track and tax.

The government argument is that me trading eggs for you fixing the plumbing in my sink is no difference than if I sold you the eggs, and then handed you the money to fix my sink.
The taxes are not based on the difference in value, but the combined value of both transactions.
Most people wouldn't argue that I should pay my taxes if I was selling eggs, or if you where a plumber, you should pay taxes on your income.

However, if you stick to local small private bartering, it's like buying stuff from out of state off ebay. It's very unlikely they would ever find you to collect their taxes. :p
 
I was waiting for this.

I have some friends in crypto that are living in fantasy land thinking the government ain't going to get their hands on that money.

They can and they will.
 
quiktake said:
I am going to declare my mining profit as taxable income and include business deductions for computer, electricity, and space use in my home. I am also going to declare capital gains on my accounts in Coinbase. So, yes I will be paying twice. It's a bit of math and Coinbase should release tax forms to make this easier but they don't seem to bother with it.
Click to expand...


Coinbase totally has a report generator, spits out a .csv file

tools/reports
 
nutzo said:
If you join a formal bartering group, they usually give credits for what you provide, and let you trade these credits in with other barters. This makes it easy to track and tax.

The government argument is that me trading eggs for you fixing the plumbing in my sink is no difference than if I sold you the eggs, and then handed you the money to fix my sink.
The taxes are not based on the difference in value, but the combined value of both transactions.
Most people wouldn't argue that I should pay my taxes if I was selling eggs, or if you where a plumber, you should pay taxes on your income.

However, if you stick to local small private bartering, it's like buying stuff from out of state off ebay. It's very unlikely they would ever find you to collect their taxes. :p
Click to expand...
How do you pay your taxes in eggs if that is your income? I guess you can declare 1 cent for the eggs and the work done was voluntary or just a hobby. When I trade let say a pillow for a pillow - even swap - I lost a pillow and gained a pillow for a net zero difference. There is no income, we may both end up with a pillow we prefer but the value of both pillows did not change. Income taxes have been very controversial anyways since the amendment was never rectified by the states, income tax is basically not even a legal law by the constitution. Anyways no one said IRS is lawful or even logical in rulings.
 
noko said:
Income taxes have been very controversial anyways since the amendment was never rectified by the states, income tax is basically not even a legal law by the constitution. Anyways no one said IRS is lawful or even logical in rulings.
Click to expand...

All true but at the end of the day that won't stop the IRS from taking your house and everything you own to leave you sleeping in box.
 
noko said:
I can see some awakening happening. Crypto can do things that cash or credit cannot, you can have contracts (agreements) between two or more people, no third party, self contained in the transaction, a form of bartering. For example: I will use a potential future transaction:
  • I have digital rights to 10 movies which is linked to my Ethereum account, I use my view or private key to be able to watch those movies (download or stream) anytime I want
  • ...
Click to expand...
No thanks, I'll just continue to buy DVD/BD and rip it. If I don't like it I could delete the rip and sell the media if I wanted. Don't see where having all this tracking going on through the internet would benefit me, other than everyone knowing what I watch (well ok Amazon does anyway ;) ).
As for $ value the IRS can have standards (like when donating items to charity). E.g. a used movie is worth $5 and a dozen eggs is worth $2. If they want to go after you. Truth is they probably care little about the small transactions, unless you do it big time or the government hates you for some other reason and taxes are the only thing they can come after you for.
 
My issue is what exactly do we have to show when we declare capital gains? Do we have to show “every” transaction/trade and where it came from? Or do we just say I made 10k in crypto this year?
 
next-Jin said:
My issue is what exactly do we have to show when we declare capital gains? Do we have to show “every” transaction/trade and where it came from? Or do we just say I made 10k in crypto this year?
Click to expand...

The expectation is likely of recreating something similar to a 1099, showing the date of purchase (or mined I guess) and the date sold/disposed, showing some level of proof that it was actually $10k.

That being said with crypto it's so easy to move it around on off-exchange wallets to manipulate the transaction dates, it wouldn't be hard to fudge that so long as you started off with that in mind.
 
yeah, be sure to tally up those tens of thousands of trades across 6 exchanges and 30 odd currencies...what EVER man

eventually they will have to have some sort of crypto amnesty program where people can make some sort of reasonable stab at it and move on from there
 
Lol, remember when this was all about decentralization and being able to keep the government out of this? Remember when people actually believed that was somehow possible? Remember when cryptocurrencies were the bankster’s worst nightmare because supposedly it threatened them but now they’re involved in trading in it as well? Remind me why it makes sense that Bitcoins are worth $11,000 USD again?
 
jojo69 said:
yeah, be sure to tally up those tens of thousands of trades across 6 exchanges and 30 odd currencies...what EVER man

eventually they will have to have some sort of crypto amnesty program where people can make some sort of reasonable stab at it and move on from there
Click to expand...

They already do this for regular stock and FOREX trading, why is it suddenly too difficult to do this for crypto?
 
Dekar12 said:
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
Click to expand...

Don't have to pay taxes or it's not reported to the IRS?

Is is like the birthday gift?
 
noko said:
How do you pay your taxes in eggs if that is your income? I guess you can declare 1 cent for the eggs and the work done was voluntary or just a hobby. When I trade let say a pillow for a pillow - even swap - I lost a pillow and gained a pillow for a net zero difference.
Click to expand...

That's not how it works according to the government.

You sold a pillow, so you owe sales tax on the pillow to the state (assuming your state has a sales tax)
You received a pillow, so you own income tax on the value of the pillow. If the pillow normally sells for $40, then you owe income taxes on the $40.
You might also owe business taxes on your pillow swapping business.

Saying it's a hobby doesn't help either. If you have a hobby of growing and selling plants, and you make a profit, it counts as income.
If you spend more money on growing the plants than you make selling them, then you have a loss and don't owe taxes.
If you have a loss most years, then it's considered a hobby, and you don't owe income taxes.
 
BSmith said:
It looks like the IRS does not care until you cash it out, for the moment.

I just wish it would all die. I want a damn video card upgrade!!!!! and not to have top pay 10 times what it is really should be selling for!
Click to expand...

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.
 
nutzo said:
That's not how it works according to the government.

You sold a pillow, so you owe sales tax on the pillow to the state (assuming your state has a sales tax)
You received a pillow, so you own income tax on the value of the pillow. If the pillow normally sells for $40, then you owe income taxes on the $40.
You might also owe business taxes on your pillow swapping business.

Saying it's a hobby doesn't help either. If you have a hobby of growing and selling plants, and you make a profit, it counts as income.
If you spend more money on growing the plants than you make selling them, then you have a loss and don't owe taxes.
If you have a loss most years, then it's considered a hobby, and you don't owe income taxes.
Click to expand...
So how is the price determine? By the seller, I sold it to you for 1cent and you can't tax 1 cent so there you go. You cannot dictate selling prices - it is not enforceable therefore the law cannot be applied. What? Some person will automatically dictate what items are worth out of millions of items in all sorts of conditions? Not enforceable. Pillow sells for $40 - how would that be determined - prices could be all over the place including Free - used condition? Something like that is utterly ridicules and is not enforceable. We would swap pillows and go on with our lives - Uncle Sam gets zero - no money exchanged and world keeps spinning.
 
SGTGimpy said:
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.
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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.
 
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Galvin said:
Whats worse is if you make a million dollars in bitcoin, then it gets stolen. You still have to pay taxes on it. I think its going to take another few years to sort all this out. I've moved coins between exchanges so many times, I have no idea how to track it. Don't think the irs does either.
Click to expand...
Until the IRS adopts deep learning and uses an AI to fully audit everyone. Where it could trace all the transactions.

noko said:
So how is the price determine? By the seller, I sold it to you for 1cent and you can't tax 1 cent so there you go. You cannot dictate selling prices - it is not enforceable therefore the law cannot be applied. What? Some person will automatically dictate what items are worth out of millions of items in all sorts of conditions? Not enforceable. Pillow sells for $40 - how would that be determined - prices could be all over the place including Free - used condition? Something like that is utterly ridicules and is not enforceable. We would swap pillows and go on with our lives - Uncle Sam gets zero - no money exchanged and world keeps spinning.
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No different than selling a car for a dollar. Small transactions are generally ignored just because of all the accounting required, but it could go to court or be enforced. At which point the trades get assessed and some form of laundering charges if done in bad faith.
 
HockeyJon said:
Lol, remember when this was all about decentralization and being able to keep the government out of this? Remember when people actually believed that was somehow possible? Remember when cryptocurrencies were the bankster’s worst nightmare because supposedly it threatened them but now they’re involved in trading in it as well? Remind me why it makes sense that Bitcoins are worth $11,000 USD again?
Click to expand...
Probably because we're setting ourselves up for another 2008-style crash and Bitcoin is ironically seen as more stable than that.

nutzo said:
That's not how it works according to the government.

You sold a pillow, so you owe sales tax on the pillow to the state (assuming your state has a sales tax)
You received a pillow, so you own income tax on the value of the pillow. If the pillow normally sells for $40, then you owe income taxes on the $40.
You might also owe business taxes on your pillow swapping business.

Saying it's a hobby doesn't help either. If you have a hobby of growing and selling plants, and you make a profit, it counts as income.
If you spend more money on growing the plants than you make selling them, then you have a loss and don't owe taxes.
If you have a loss most years, then it's considered a hobby, and you don't owe income taxes.
Click to expand...
Okay now I'm confused. If I've had bitcoin sitting in an offline wallet for years not doing anything, then how do I declare it if I end up cashing it out later on?
 
tetris42 said:
Probably because we're setting ourselves up for another 2008-style crash and Bitcoin is ironically seen as more stable than that.

Okay now I'm confused. If I've had bitcoin sitting in an offline wallet for years not doing anything, then how do I declare it if I end up cashing it out later on?
Click to expand...
Just declare Capital gains on it, since long term, 15% tax rate- since back then declaring it etc. was not even considered you should be fine.
 
noko said:
So how is the price determine? By the seller, I sold it to you for 1cent and you can't tax 1 cent so there you go. You cannot dictate selling prices - it is not enforceable therefore the law cannot be applied. What? Some person will automatically dictate what items are worth out of millions of items in all sorts of conditions? Not enforceable. Pillow sells for $40 - how would that be determined - prices could be all over the place including Free - used condition? Something like that is utterly ridicules and is not enforceable. We would swap pillows and go on with our lives - Uncle Sam gets zero - no money exchanged and world keeps spinning.
Click to expand...

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.
 
tetris42 said:
Okay now I'm confused. If I've had bitcoin sitting in an offline wallet for years not doing anything, then how do I declare it if I end up cashing it out later on?
Click to expand...

Just like owning a stock.

If you bought the bitcoin for $100, and sell it for $10,100, then you have a gain or $10,000 to report on your taxes.
If you spend half of it, your gain (on the part you used) would $5,000
If you don't sell it or use it, then you have no gain, so no taxes.

It's more complicated if you mined it yourself. You would have to figure out how much it cost you to mine it (equipment, electricity, etc.) to determine you cost basis.

Or you can do like most people and spend it a few hundred at a time, to avoid the IRS noticing, and not worry about it :p
 
I guess I need to install some power meters on my new 240v electrical box installed - see if I can find one that will add up KW hrs to make it more accurate. Still it will be an estimate of power and costs. Now if one mines and also uses the graphics cards as gaming cards - how can one claim the graphics card price as a deduction? Claim 90%? 95%? Since most of the time the GPU is mining compared to gaming. Ignore it? (That would be dishonest to a certain extent).
 
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