IRS Reminds US Taxpayers to Report Crypto Earnings

Megalith

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The IRS is warning cryptocurrency holders that they must report their earnings and payments on their annual tax forms. Otherwise, they may face criminal charges, such as tax evasion, which could result in a five-year prison sentence and $250,000 fine.

"A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property," the agency said. Notably, the release once again explains that the IRS classifies cryptocurrencies as property. "Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest."
 

Kdawg

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haha yeah right. This is like reporting unpaid sales tax. No one does it. And the IRS never finds out.
The IRS is woefully understaffed anyway, so there's 0.001% chance they'll know.
 

Elios

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haha yeah right. This is like reporting unpaid sales tax. No one does it. And the IRS never finds out.
The IRS is woefully understaffed anyway, so there's 0.001% chance they'll know.


only they will find out if your converting it USD and it lands in your bank account they are going to want to know where that money came from
 

umeng2002

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Flat tax eliminated them and the whole cottage industry around "doing taxes."

That's why a simple tax will never see the light of day.
 

mesyn191

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Flat tax eliminated them and the whole cottage industry around "doing taxes." That's why a simple tax will never see the light of day.
Taxes are already simple if you don't do tons of deductions n' such. Its the burden of proof + compliance with local/state tax law that creates most of the complexity when doing that.

Flat tax would never take off because the only way to make it economically feasible is by adding back in tons of exceptions for deductions and income IOW not terribly unlike our current system.

If you didn't do that you'd end up taxing the poor/middle class more (which is required by default in any Flat Tax, that is why the rich and wealthy favor it so much) which would piss them off and drive them out to vote out the politicians who made those changes and have them reversed.
 

oldmanbal

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More reasons then ever to use Monero :)

Unless you buy it with anything linked to you like a bank account, or a friend that's willing to give you up when the IRS knocks on his door :S

Lets be honest, no one wants to answer any questions about these things.
 

mesyn191

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haha yeah right. This is like reporting unpaid sales tax. No one does it. And the IRS never finds out.
The IRS is woefully understaffed anyway, so there's 0.001% chance they'll know.
If the amounts of money the IRS might be interested in are small, say few hundred dollars, yeah you'll probably get away with it. So long as you aren't audited.

If you're actually moving around quite a bit of money, say thousands or tens of thousands of dollars or more, it'd be stupid to try and evade the taxes on it. They'll definitely be after those types and its actually fairly difficult to hide those amounts from scrutiny even if you never turned your Buttcoins into dollars since they're having the exchanges divulge information now.
 

RealBeast

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If you are among the accounts that Coinbase reported to the IRS, you will eventually get a letter with a statement of taxes and penalties due. It can be several years after the filing but they will get around to you, just like any income that you get on a 1099 that you do not include. They have a three year statute of limitations window, unless there is fraud then the window for audit is 7 years.
 

pgaster

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haha yeah right. This is like reporting unpaid sales tax. No one does it. And the IRS never finds out.
The IRS is woefully understaffed anyway, so there's 0.001% chance they'll know.

They might get some help someday: https://www.coindesk.com/nsa-reportedly-eyes-to-scrap-bitcoins-anonymity/

"The U.S. National Security Agency (NSA) has been reportedly monitoring the bitcoin blockchain with an eye on identifying users on the distributed network.

According to a report by the Intercept on Tuesday, the media outlet has obtained classified documents from the U.S. whistleblower Edward Snowden which indicate bitcoin surveillance remains a top priority for the agency."
 
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Taxes are already simple if you don't do tons of deductions n' such. Its the burden of proof + compliance with local/state tax law that creates most of the complexity when doing that.

Flat tax would never take off because the only way to make it economically feasible is by adding back in tons of exceptions for deductions and income IOW not terribly unlike our current system.

If you didn't do that you'd end up taxing the poor/middle class more (which is required by default in any Flat Tax, that is why the rich and wealthy favor it so much) which would piss them off and drive them out to vote out the politicians who made those changes and have them reversed.
Oh thank you for a sane posting on the topic. The idea that Flat Tax would do anything at all is ludicrous because the complexity is NOT in the rates.
 

HockeyJon

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haha yeah right. This is like reporting unpaid sales tax. No one does it. And the IRS never finds out.
The IRS is woefully understaffed anyway, so there's 0.001% chance they'll know.

Until they audit Coinbase...
 

sfsuphysics

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Taxes are already simple if you don't do tons of deductions n' such.
Taxes are simple if you simply have a job, get paid, and that's the extent of your income. Once you start getting income from multiple sources, non-jobs, it becomes a little more problematic. Any sort of property rental? any investments? I mean it doesn't make it super hard or anything but it still is more difficult.
 

SparkedFire

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haha yeah right. This is like reporting unpaid sales tax. No one does it. And the IRS never finds out.
The IRS is woefully understaffed anyway, so there's 0.001% chance they'll know.
I don’t think the IRS cares about sales tax unless it’s a deduction. Sales tax is a state issue.
 

Lunas

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JUST DROP INCOME TAX AND IMPLEMENT A FEDERAL SALES TAX. There is by far and away more taxable money being paid under the table to illegals than is taxable on the crypto market... glad i did not use coinbase... also on coinbase if the account did not have over 20k the irs did not give 2 fucks.
 

JerRatt

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Report them how? Has anyone read the code for crypto taxes, they are actually impossible to adhere to. You have to report the earnings of a coin basis the microsecond it was mined, or transferred, or sold, or converted. This doesn't exist, as the price will vary drastically from one place to the next, one micro second to the next.
 

travisty

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Flat tax eliminated them and the whole cottage industry around "doing taxes."

That's why a simple tax will never see the light of day.

What's confusing about taxes and the tax structure? It's already incredibly simple. A 6th grader can do them - that's how they're designed

It will become more complicated as the number of deductions and sources of income increase. Let's be honest here, and i'll speak on personal experience here, after I got a rental property, started to do some work on the side, my investments grew and diversified it came time to get a tax adviser. All in all, comparatively speaking, the tax adviser at least breaks even with the breaks they're able apply and it simplifies my life.

In either case, the idiocy that is the 'flat tax' would not eliminate any of that. Instead what it does is it increases taxes on the poor and decreases the tax on the wealthy.
 
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RiPpLeeFFecT

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Then they need to make it easy to report it. I had to report my mining as hobby income (which it really is), because there is no clear way to report earnings. I haven't converted any of it to USD. Its still effectively worthless until I do something with it. When/if that tiny amount of coin actually turns to something and I take a payout, they won't need to question where it came from.
 

vegeta535

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What's confusing about taxes and the tax structure. It's already incredibly simple. A 6th grader can do them - that's how they're designed

What's complicated is when you need to file for deductions which would still exist with the idiotic flat tax. Big hint: the rich make out like bandits whereas the lower income get screwed
Please. Lower income doesn't even pay taxes. They get back more then they put in typically. The middle class is the ones that get bent over.
 

travisty

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Please. Lower income doesn't even pay taxes. They get back more then they put in typically. The middle class is the ones that get bent over.

That is true in the current system as the rich have added too may loopholes for themselves (since the poor and middle class cannot afford it to lobby for such things)

In a flat tax system the poor would pay taxes which adds extra burden on those who are already struggling to get by and cut down on what the rich pay - since the poor are making up the difference.

There is the idea of a regressive tax, examples would be Sweden, Denmark, and Norway, but in those counties everyone pays a large percent of income in taxes and most of their needs are met in return.

Example of flat tax:
Poor: $30k income
Rich: $1 million income
7% flat tax

Poor pays $2,100
Rich pays $70,000

That sounds equivalent right?

Let's take it further.
That rich person, what is $70k to them? Pocket change. They still made $930,000 over the year. Well enough to buy that extra house and yacht.
The poor person is now down to $27,900. And while $2,100 doesnt sound like much, that could be the difference from being in an apartment or being on the street (which raises crime and hospital visits which adds cost to the system for everyone else)
 
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nutzo

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If you are among the accounts that Coinbase reported to the IRS, you will eventually get a letter with a statement of taxes and penalties due. It can be several years after the filing but they will get around to you, just like any income that you get on a 1099 that you do not include. They have a three year statute of limitations window, unless there is fraud then the window for audit is 7 years.

Usually the IRS waits almost 3 years before sending you that letter. That way they maximize the penalties and interest.
Since some income or deductions are influenced by the previous years tax return, you'll end up being audited/penalized for the next 2-3 years too.

(Many years ago, when we didn't have electronic filing or even tax software, I made an error copying a number off one of my tax documents. Was only about $100, but they hit me for interest and penalties for 2 years in a row. They didn't bother on the 3rd year because the recalculation would have resulted in a refund of a couple dollars)

That being said, if you mined a few hundred dollars, stored in a local wallet, and then paid on-line for something like a gift card, it's unlikely you would be caught.
 

nutzo

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What's confusing about taxes and the tax structure? It's already incredibly simple. A 6th grader can do them - that's how they're designed

It will become more complicated as the number of deductions and sources of income increase. Let's be honest here, and i'll speak on personal experience here, after I got a rental property, started to do some work on the side, my investments grew and diversified it came time to get a tax adviser. All in all, comparatively speaking, the tax adviser at least breaks even with the breaks they're able apply and it simplifies my life.

In either case, the idiocy that is the 'flat tax' would not eliminate any of that. Instead what it does is it increases taxes on the poor and decreases the tax on the wealthy.

Taxes are simple if all you have is income from a job, and you don't make too much.

However, it can get complicated real quickly Too often, if you don't consider the tax issues when making financial decisions, you can end up paying significantly more than you should.

A family member is currently dealing with a delayed inheritance/life estate/trust where someone involved stole a significant portion of the assets.
Trying to figure out what the taxes are going to be (income/capital gains/legal fees/etc.), and who/when to pay them is going to require hiring a estate/tax lawyer.

Flat tax would be simpler. As for poor/middle class, you could just charge the flat rate on all money earned over the official poverty rate. That would give you a progress rate.

Much simpler would be a flat sales tax. Exempt housing and food since that is the major expense for the poor.
The rich would pay much more in taxes when the buy their Audi or BMW compare to a middle class person buying a Honda Accord, or a poor person buy a used car.
No income tax means no tax on saving or investments, no capital gains taxes on your house, no need for IRA's since there is no need to try an lower your income taxes.
Way simpler solution for the individual.

Some support a VAT tax, but that is worse than what we have now. A VAT tax is hidden in the price of goods, so every time government raises the tax, people get mad at the companies for raising prices. People need to see how much taxes they are paying to under stand how much government is costing them. Imagine having to pay a 20% federal sales tax on a $30,000 car purchase (that will be an extra $6,000 please).
 

tetris42

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Alright I'm confused. I have crypto from the past and acquired some. It's all just crypto, it wasn't exchanged for anything, including other crypto. Do I even need to report anything, or do I just report it as capital gains if I cash out in the future?

Also, if I made payments in crypto a couple years ago, but not 2017, does need to be retroactively taxed? How the hell do even declare a payment in crypto? Additional income with the value at the time it was made? If so, that sure sucks if anyone made a LOT of payments, seeing as how it's all in a ledger. I fucking hate how complicated taxes have to be.
 
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doz

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Alright I'm confused. I have crypto from the past and acquired some. It's all just crypto, it wasn't exchanged for anything, including other crypto. Do I even need to report anything, or do I just report it as capital gains if I cash out in the future?

Also, if I made payments in crypto a couple years ago, but not 2017, does need to be retroactively taxed? How the hell do even declare a payment in crypto? Additional income with the value at the time it was made? If so, that sure sucks if anyone made a LOT of payments, seeing as how it's all in a ledger. I fucking hate how complicated taxes have to be.
Seems to me Crypto is not a recognized currency. How can they tax it as income to begin with? It's like selling a used product. Complete bullshit and no matter if you are involved in it or not, you should NOT be for taxing it. Slippery slope. Enjoy your freedoms while you have them, as many others want to suck you dry.
 

travisty

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Taxes are simple if all you have is income from a job, and you don't make too much.

However, it can get complicated real quickly Too often, if you don't consider the tax issues when making financial decisions, you can end up paying significantly more than you should.

A family member is currently dealing with a delayed inheritance/life estate/trust where someone involved stole a significant portion of the assets.
Trying to figure out what the taxes are going to be (income/capital gains/legal fees/etc.), and who/when to pay them is going to require hiring a estate/tax lawyer.

Flat tax would be simpler. As for poor/middle class, you could just charge the flat rate on all money earned over the official poverty rate. That would give you a progress rate.

Much simpler would be a flat sales tax. Exempt housing and food since that is the major expense for the poor.
The rich would pay much more in taxes when the buy their Audi or BMW compare to a middle class person buying a Honda Accord, or a poor person buy a used car.
No income tax means no tax on saving or investments, no capital gains taxes on your house, no need for IRA's since there is no need to try an lower your income taxes.
Way simpler solution for the individual.

Some support a VAT tax, but that is worse than what we have now. A VAT tax is hidden in the price of goods, so every time government raises the tax, people get mad at the companies for raising prices. People need to see how much taxes they are paying to under stand how much government is costing them. Imagine having to pay a 20% federal sales tax on a $30,000 car purchase (that will be an extra $6,000 please).

You're incorrect, the 'flat tax' would still have all those complications.

The flat tax is the same as the current tiered tax structure in the since that they are both an abstraction layer on top of the interface that is taxation. Both are simple and can be interchanged with each-other while everything else remains in place (the complicated stuff).

It's everything on top (as i explained in my original post) that makes it confusing.


Also i think you're confused on tax structures. Taxes when buying something like a car is a "sales tax". A 'flat tax' is the percent of income paid per year.

Most states have a 'sales tax'. The US federal tax is a tiered progressive tax in which income up to a certian point is taxed at a rate, then all further income until the next step is reached is taxed at a higher level.

Sales Tax: https://en.wikipedia.org/wiki/Sales_tax
Flat Tax: https://en.wikipedia.org/wiki/Flat_tax
US Federal Tax: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States

A "sale tax" (even when exempting food and housing) still affects the poorer and middle class more than the upper class

Also the federal government could go to a sales tax instead of a flat or tiered structure but then the voters will always see and know they're being taxed instead of six months before an election (in which time most people will forget what they payed in taxes which will influence votes less)
 
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travisty

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Alright I'm confused. I have crypto from the past and acquired some. It's all just crypto, it wasn't exchanged for anything, including other crypto. Do I even need to report anything, or do I just report it as capital gains if I cash out in the future?

Also, if I made payments in crypto a couple years ago, but not 2017, does need to be retroactively taxed? How the hell do even declare a payment in crypto? Additional income with the value at the time it was made? If so, that sure sucks if anyone made a LOT of payments, seeing as how it's all in a ledger. I fucking hate how complicated taxes have to be.

I have not read into crypto taxes but if it's like stocks you'll need to pay capital gains on what was earned when the coins were sold or exchanged which then goes into tax brackets. If you're in the lower 10 or 15% bracket then you will pay 0%. Otherwise you'd pay 15%

Here's a good rundown from cnbc (auto play warning) https://www.cnbc.com/2018/01/30/cryptocurrency-and-taxes-what-you-need-to-know.html (copied below). NOTE: The site says this is rough estimates so it's best to consult a tax advisor

  • 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.
CNBC also mentions bitcoin.tax and cointracking.info as possible sites to help figure out taxes on coins
 
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travisty

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Seems to me Crypto is not a recognized currency. How can they tax it as income to begin with? It's like selling a used product. Complete bullshit and no matter if you are involved in it or not, you should NOT be for taxing it. Slippery slope. Enjoy your freedoms while you have them, as many others want to suck you dry.

Crypto currency has value. Anything with value can be taxed. That's the simplest explanation.

Anything can be said to be 'not recognized currency'

Example: I have a rock and I tell someone, "I have this pet rock. Do you want it?" If the person does and decides that the 'pet rock' has a value of one dollar, the 'pet rock' is now 'currency' amounting to $1. Since an objects was given in a transaction for a set amount, it's taxable.

In the case of trading coins, each coin has a value. Even if two differing coins are trades, each has a face value that's convertible to US dollars because there are people will to give dollars for the coins. Due to this, each time a coin is received for something else, that's a transaction.

There's nothing too outlandish about this. Taxes are vital for societies to function and have existed since at least ancient Egyption times (~3000 BC) https://en.wikipedia.org/wiki/Tax#History

Whether you agree with how taxes are used is a different matter and is why it's vital for anyone who lives in a (small-d) democracy to vote.

If, on the other hand, you know how to keep social order (funding infrastructure, education, fire responders (police, medical, etc), military, regulatory oversight, etc) without taxation, I'm all ears
 

doz

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Ok, I will start writing off all my computer equipment and claim it for mining.

You want to treat crypto like taxing goods but the value is market based. How about you get taxed on your stock market losses before you get cashed out? IE: Invest $1000 in stock, lose $500, and get taxed on the remaining $500. Makes sense, right?

Same principle for crypto. Now, if you mine, it should be a write off for your mining equipment. If you bought into them, you should not be taxed based on your cash out.
 

tetris42

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Example: I have a rock and I tell someone, "I have this pet rock. Do you want it?" If the person does and decides that the 'pet rock' has a value of one dollar, the 'pet rock' is now 'currency' amounting to $1. Since an objects was given in a transaction for a set amount, it's taxable.
If that's all this was, I don't think there would be any controversy. Paying taxes when you convert crypto to currency makes sense, it's income then. Going with your rock analogy, as I understand it, if you trade your pet rock made of pumice for some granite, boom, taxable event. File your paperwork for your granite transaction and pay taxes in USD of the granite value, even though you're still just holding a rock.
 

illram

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The way Crypto is currently taxed is a little wacky. It should be taxed, just not like it is now.

There should be no tax on trades below a certain $$ amount (e.g., trading Bitcoin for another altcoin) and there should be no tax for buying something under a certain $$ amount in crypto. These are both things the nascent crypto lobby are working on changing in Congress (without much success). Currently you could, for example, buy $4.50 Bitcoin, trade that bitcoin the next day when it is $5.00 for....let's say Litecoin, and then the next day when your litecoin goes up to $5.25 use your Litecoin to buy a $5.25 sandwich. You must report your $0.75 in capital gains for those three transactions, as I currently understand it. (Trading Bitcoin Litecoin and buying the sandwich.) It's silly and until it changes we are going to have issues with blockchain/distributed ledger tech becoming more mainstream.

Whether you like this tech or not there are legit usecases for it that can make a lot of things quicker, more efficient, and cheaper, and it is aggravating to have the IRS, of all fucking government bureaucracies, currently fucking that up for really no good reason.
 

tetris42

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Whether you like this tech or not there are legit usecases for it that can make a lot of things quicker, more efficient, and cheaper, and it is aggravating to have the IRS, of all fucking government bureaucracies, currently fucking that up for really no good reason.
Whoa now, put blame where it's due. The IRS didn't come up with this, this came from congress and was signed into law by the president. The IRS just has to enforce this madness.
 

illram

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Whoa now, put blame where it's due. The IRS didn't come up with this, this came from congress and was signed into law by the president. The IRS just has to enforce this madness.

Well no one passed a crypto specific tax bill as far as I know. This is the IRS interpreting their rules on the books. They could interpret them differently (or someone could take them to court over it I suppose).
 
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