Taxes on Cryptocurrency

Discussion in 'Mining & Cryptocurrency' started by w1retap, Dec 28, 2017.

  1. w1retap

    w1retap [H]ardForum Junkie

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    http://bitcoinist.com/cryptocurrency-investors-lose-tax-break/

    1. So, how will everyone be handling this? For one, I don't have records of all my transactions, since some were done on exchanges that are long gone, or wallets that are long gone. Maybe those are exempt since the rule kicks in Jan 2018.

    2. As far as cashing out goes, I'm sure that will be cracked down upon as well. I'm trying to come up with a legal strategy to cash out in the future to pay minimal taxes on this. I'm thinking of possibly using a donation method or gift method.

    Anyone care to share some insight? -- remember, keep it legal so the thread doesn't get closed.
     
  2. RevMen

    RevMen Limp Gawd

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    All of my crypto activity is in an LLC that files as a pass-through. I run a trade bot that, at times, makes thousands of trades a day.

    My accountant told me to not worry about every trade and just call it business income when I cash out to fiat. Trading is just business activity.

    I never hold anything long enough for long-term capital gains so whether I track every trade or just call the aggregate income, the result is the same.
     
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  3. cpuspeed

    cpuspeed Limp Gawd

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    don't understand the taxes on swapping one crypto to another. net change in values at the time of the exchange is same minus exchange fees, there is no net gain so no tax only losses from possible fees.
     
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  4. atp1916

    atp1916 2[H]4U

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    Interesting.

    So, when you say you don't hold anything long enough for capital gains, how short of a span are we talking about here?
     
  5. RevMen

    RevMen Limp Gawd

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    Seconds. Minutes. Hours. Days. Weeks for some. I move it around a lot.
     
  6. atp1916

    atp1916 2[H]4U

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    It's profitable enough these days that i'll need to involve my LLC too.

    :|
     
  7. cpuspeed

    cpuspeed Limp Gawd

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    why bother with LLC? you taxed the same. selling less than a year means short term capital gains which is taxed at same rate as regular income.
     
  8. OrangeWolf

    OrangeWolf Gawd

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    It's my understanding that Coinbase can generate a 'report' that summarizes your activity and that Binance can at least allow you to export a history of all your trades.

    Are those things enough if none of your activity predates those things and assuming that all your trading activity is confined to Coinbase, GDAX, and Binance?

    I should note that I am perfectly willing to pay whatever taxes they want me to, so I'm not looking for any loopholes or ways to get around anything. I just want to make doubly sure I don't accidentally break any laws.

    To be honest I'm a little worried that my CPA won't have done much with with cryptocurrency before.
     
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  9. Gamerdad

    Gamerdad Limp Gawd

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    I was wondering about this too. I just buy and hold on cold storage (chump change really) and don't ever cash out. The only trading I do is when I go from BTC or LTC to my alt of choice. I figure I would pay the taxes on gains made when I decide to exchange for fiat. It'd be nice if these exchanges could send you some kind of tax document at the end of the year. Keeping tack of every miniscule trade can be a major pain in the ass. I know you can print out CSV files with all trade activity, but where to enter all that info? I might even refrain from trading next year or just buy whatever coinbase is selling since they're most likely to keep better records, being US based and all.
     
  10. Riccochet

    Riccochet Necrodancer

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    I'll tell you what. The IRS is going to have one hell of a time proving anything when it comes to people that mine to external wallets.

    The only thing I'm going to report are my cash out profits. Capital gains taxes aren't that bad. At least at the level I'll be cashing out at.
     
  11. w1retap

    w1retap [H]ardForum Junkie

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    Yea, maybe I'll contact a lawyer about it to see the best method. As of yesterday, my crypto accounts have exceeded the value of my savings account, so if I were to cash that out it would definitely trigger a red flag. Up until last year I was only cashing out in the few-hundred dollar range on a couple of coins, now it has grown by several magnitudes. I never thought this would become such a headache.. but at least it is a welcomed headache lol.
     
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  12. mkrohn

    mkrohn 2[H]4U

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    exactly what I'm doing. I'm leaning more towards the self managed retirement fund though so that everything coming out can be tax free. I mine, trade and HODL a split amount taxes aren't possible to file by trade when you're a miner on any decent scale with diversification.
     
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  13. RevMen

    RevMen Limp Gawd

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    The difference is the business doesn't pay Social Security and Medicare. I am an employee of the business with a reasonable salary and FICA comes out of that, but it doesn't come out of the rest, which passes to me as shareholder distribution.

    It's worth noting that I was already self-employed as a consultant before I got into crypto, so this framework existed before I realized I would be making actual money by trading Internet monies.
     
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  14. noko

    noko 2[H]4U

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    Well I guess I can claim all my computer hardware for the year and balance it against what I made from Cryptocurrency and claim a deduction from losses. Frankly for mining I have not a clue what is expected if just accumulating coins in a paper wallet - the value fluctuates so much plus so many small transactions and fees - I see no clear way of being accurate. I do see cashing out a clear point for taxes though but if it is in the blockchain, I just don't see how it can be taxed until liquidated into the US system. Frankly I don't think any CPA knows the answer at this point. Does one get taxed for stocks while they are stocks or when they are traded out for cash? Cryptocurrency I would think would follow that same rule unless the US government considers all Cryptocurrency legal tender and willing to insure them like they do with the dollar.

    So if I mined one Litecoin for $300 but subsequently goes to $200 in the calendar year why would I pay taxes at the transaction date? That is what is implied, fair market value but even that is not clear because it changes almost every second. Basically government is making up what looks like vague rules which very few or no one can follow and many will just outright ignore which will give justification for oversight and regulations.
     
  15. RevMen

    RevMen Limp Gawd

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    For mining it's actually pretty straightforward.

    When you receive a coin from mining, that's income. The amount of income is the value of the coin in USD when you receive it. This is also your cost basis. Changes in value of the coin after you receive it don't matter until you sell it.

    When you sell the coin, you compare the value that you sold it at to its value when you received it. If the value is higher, that's gains, if it's lower, that's losses.
     
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  16. oblox

    oblox Gawd

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    This guy gets it.
     
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  17. blade52x

    blade52x 2[H]4U

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    They are too shortsighted to see this means less tax income for them. Being able to defer gains makes it easier to grow a larger cash out pile (which means more taxes paid).

    Now alts will see dumps at the end of year as most prepare to pay their taxes.

    Both sides lose.
     
  18. noko

    noko 2[H]4U

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    That is easy???
    How would I know the value of the coin when I received it? It fluctuates dramatically hour to hour?
    How would I keep track of all the received coins? Especially when going to a pool with multiple coins being mined? Transferred to a pseudo account? Like NiceHash that got hack and my pseudo BTC coins which is not even on the blockchain are in limbo??? Same with Coinbase where the wallets are actually pseudo wallets and not part of the block chain? When you mine, the coins from one day to the next to a week are way different in value when received. Sorry that is not even remotely reasonable, you would have potentially hundreds if not thousands of coins received being at different values even being the same coin.

    So let me get this straight, I mined 20 different coins and pay taxes on the given value for a given year (90% goes bust as in worthless the next year) Now how do I claim losses on the 90% of the coins that are worthless? No, you don't pay for coins in a wallet, it is not a taxable event - when you convert them, when the value is realized, then it becomes a taxable event. I guess tokens and game money, a type of Cryptocurrency may also fall under this, since you had to work for it to receive it.
     
  19. noko

    noko 2[H]4U

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    Do you mine?
     
  20. mkrohn

    mkrohn 2[H]4U

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    he said its straight forward... didn't say it was easy.
     
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  21. noko

    noko 2[H]4U

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    How about impossible? Unless being inaccurate to the IRS is ok which of course can also get you in trouble.

    This has been around for awhile:
    https://www.irs.gov/newsroom/irs-virtual-currency-guidance

    Looks to be more exchange orientated since real dollar values would be assigned on the exchange. Mining going straight to your wallet generally does not have dollar values assign per coin or lot. Link says sale or exchange but then linked PDF file becomes a confusing incomprehensible chatter. There is no means or reliable way to accurately determine a coin or partial coin value in $ as received. There is way too much fluctuations in this market. I mined thousands of Electroneums coins straight to a so called paper wallet (which is really just keys to get access to the blockchain and nothing else, no real money, just keys). I guess I could claim a rather cheap value here and deduct the cost of the hardware/electrical/depreciation for a low value coin but it would be accounted for. Then if it goes to a much higher value it would no longer be an income, only a capital gain with 15% tax rate. So $100 turns into (exaggerating here) million, since I already paid tax on it, it is considered property, so I only have to pay 15% on the gain vice an income for it 2 years down the road.

    Now someone show me how to accurately (good enough for the IRS), can account for the value of each coin as received?
     
  22. Airbrushkid

    Airbrushkid 2[H]4U

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    If I am correct your pool should have a ledger of all your payouts. Amounts, dates even times of the day.



     
  23. w1retap

    w1retap [H]ardForum Junkie

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    The problem is for some of us, many pools that we've used in the past have closed and records aren't available.. or with some pools only records of the past x-weeks / x-months are available. Or with anonymous mining, sometimes only the current round statistics are available.
     
  24. noko

    noko 2[H]4U

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    No, there is a transaction log but once it fills up the previous data is erased, about 12 hours of data. Also it does not discern between the different coins being mined so I do not know if it was Electroneum or some other coin I am mining. Not a ledger nor are dollar values assigned to it. Only way I can figure out what I received is looking at my paper wallet balance, no dollars as received there. Once Coinbase receives the block transfer they tell me $ value. For example I lost about $100 from Litecoin since it hit Coinbase so I pay taxes on a higher value then it is worth if that follows or have to claim capital gain if it goes higher lol. To clarify, I have more then one wallet and coins being mined at one time.

    So when is it considered received? When the pool gives you a coin balance or when it hits my wallet? I would have to assume when it goes to my wallet but then I could have tens of thousands of coins on exchangers in limbo then.
     
  25. Parja

    Parja [H]ardForum Junkie

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    At what point do you actually "own" the coins? Based on how most pools and exchanges operate, the answer to that can vary wildly.
     
  26. Airbrushkid

    Airbrushkid 2[H]4U

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    Once it is deposited to your wallet. And I am learning that it isn't going to be easy at all when it comes to doing your taxes. And doesn't want excuses!


     
  27. noko

    noko 2[H]4U

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    I had a psedo wallet/account at NiceHash, I had roughly $900 worth of IOU BTC when they were hacked. Now it is worth something like $1200. Would that be considered a wallet? Do I have to pay taxes on the $900? or the $1200 but then really as I mined the initial value of the BTC was less then when it was hacked. I have no idea when received the $ value or means to figure that out.

    What is considered accurate in the current value? Different exchanges, coinmarketcap.com, Coinbase etc. have different values for the same coin at the same time??? Which one is accurate to use, which one if any are sanction to be used for IRS documents? Are any of them certified for this? Outside the country with zero jurisdiction from the US is suppose to be used?

    Electroneum I can not use anywhere to buy anything with, pay bills and more importantly pay IRS with. It only value is defined once I exchange it out. Bitcoin can be used as currency but most coins, virtually all cannot be used for much for anything at this time. It is like the IRS is taxing Monopoly money as you work your way around the board. So what coins are considered legal currency? I would think IRS would have a clear definition and specify what they consider a currency. Only ones I know of is Bitcoin and Litecoin which had debit cards at one point where you could go out and buy something or pay someone other then an exchange. So honest folks have zero path to realistically pay taxes without undue hardship if the IRS wants to make an example of you with incomprehensive pulled from ass requirements, I can claim Coinbase $ value - but what about Nicehash then again it maybe the same coin just transferred over. How do you prove that? IRS that $1000 is the same $856 from here which was transferred to a paper wallet here which then I transferred to Coinbase - how do you prove that??? The newer coins are literally untraceable lol. Way less transparent ledger of Bitcoin or Litecoin.

    Only thing that seems remotely reasonable is when you cash out and convert to a nations currency which the laws apply. Even the concept of property is very laughable come to think about it :LOL:. You can't touch it, smell it, throw it, burn it, look at it since it a concept as much as faith, love, hate etc. kinda hard to tax those as well.
     
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  28. Airbrushkid

    Airbrushkid 2[H]4U

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    Isn’t mining fun? And having the IRS wanting there money and don’t what you think.
     
  29. noko

    noko 2[H]4U

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    I don't mind paying taxes if it is fare, clear etc. Tax laws similar to stocks would be more appropriate for most coins > 99% of the current coins, with the ones that actually can be used for currency defined by the IRS. If IRS puts a value for a given coin option unless you want to prove other wise if need be would help. Since the vague implication of pass laws was tried to be used I am not too worried about this. I was going to claim income earn once cashed out. Now it looks like I will claim the low value and use capital gain tax laws once cashed out which would be a big win for me. Not sure about losses. As for Nicehash - I never received the promised item/currency so I will not claim that until I actually do receive it and then it will be for the original value (how do you do that in different years?). Maybe I will just claim the received value and cash it out immediately if ever received.
     
  30. RevMen

    RevMen Limp Gawd

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    Yes, you should be keeping a log of when you receive coins.

    You can find the value at the time you received it by looking at the historical value at CoinMarketCap or CryptoCompare. Whatever you do, just be consistent. I think CMC prices are the best approximation of the fair market value.
     
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  31. Airbrushkid

    Airbrushkid 2[H]4U

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    Thank you for that. I was wondering historical value.



     
  32. noko

    noko 2[H]4U

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    Define received? I am not certain at what point legally I received a coin. The only time I truly received a coin or partial value is if in my own wallet that I control and it is registered in the blockchain. Beyond that like in NiceHash they had their own wallet which they controlled (and lost) which I had zero control over which basically an IOU was given to me and not followed through, so far I have not been paid for the work given, so no earn income from it.

    Exchanges are the same thing where the coins are actually not in the block chain which you control but theirs. They are not considered a bank nor follow banking laws. This to me just means limbo, since Coinbase is FDIC insured I would assume in that case received.

    So IRS accepts CoinMarketCap as a legit means of determining value at a given minute or should we use a day, week or month average? That is not clear what is acceptable to them, would a years average do?

    Keep a log? :ROFLMAO: Well the blockchain would have to do for transactions, everything before that is not define at least to me. I can up the transfer quantity on the pool so there are less transfers to my wallet making it easier to dissect. Coinbase transfers I will just use at that point but what if I transfer from my wallet to Coinbase - which one to use? IRS would see the Coinbase one and not the wallet. Situation where I transfer 8 cent coins to my wallet years later could be $100 per coin transfers to Coinbase. I am assuming I would claim 8cent coins (which could actually be all over the place when actually received, never mind that) as in 2017 tax return I would claim receiving like 10,000 Electroneums at 8cents a piece. So if they do go up a year later I claim a capital gain from it when sold or exchanged. I just not too sure about all of this.
     
  33. Archaea

    Archaea [H]ardness Supreme

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    I’d say ignore all the altcoin stuff that happened behind the scenes at the multipools that autoconvert to btc and pay you in btc. That’s the pool’s problem. Your problem is the btc they paid you.

    If you mined and kept all these coins individually or traded on an exchange that doesn’t have a ledger. Good luck.

    And the IRS will need ridiculous staff and manpower to make heads or tails of it.
     
    Last edited: Dec 30, 2017
  34. noko

    noko 2[H]4U

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    lol yep, they can be nasty no matter what you do, with incomprehensible structured laws that spans tens of thousand pages that we must just obey in which career long lawyers, judges and politicians argue and cannot agree what it means. Besides I just shield myself with a service like H&R block anyways and keep something of a reasonable record. Go with it is not mine or received until I have control over it meaning after the pool pays out the dividends is when I earned it - what happens on the pool is beyond my control or ownership (I work for them, I only receive when they actually pay me in my wallet or to a FDIC exchange like Coinbase). If I work for someone and they do not pay me, I do not owe the IRS money I never received, same can be argued with the IRS with pools. Out of country exchanges same thing, I also will not keep anything on non FDIC exchanges, only like Coinbase but mostly my own wallets. Claim coins as property so I can use capital gain laws vice income tax laws as well.
     
  35. mkrohn

    mkrohn 2[H]4U

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    or the best answer is keep everything off of exchanges and HODL. only mine coins you believe in and forget the trash coins. MPH and NH both have options for you to be paid in BTC or in the case of MPH literally any coin. Given all of the coins I had 4 years ago I'm taking at least half of my earnings from mining and keeping them off exchanges and stashed long term. If ETN hits big wow will i ever have a ton. My normal operations though I put onto coinbase and call it good.
     
  36. noko

    noko 2[H]4U

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    Sounds good to me, I think I will claim it for capital gain options for later, if the value goes up (ETN), and cash out coins and clear the books as well. I rather pay 15% using IRS rules/regulation vice 50% tax later for any big earning coins.
     
  37. wolfofone

    wolfofone Gawd

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    This new tax bill sounds like a cluster of fucks. ig this is one way to kill crypto, fuck this headache lol.
     
  38. Elkwood

    Elkwood Limp Gawd

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    Yep that is how i see it. I plan to run stuff from NH to cb to bank account. Anything i do like that
    ill keep a ledger on. Figure the taxable amount will be what ever goes into the bank account.

    P.s Really hope that ETN moons in the next 2 to 3 years. I plan to have a few 100k's of it !
     
  39. NKD

    NKD [H]ardness Supreme

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    You guys are worrying too much. Just worry about the final cash out. I doubt irs is gonna waste resources on each trade you made when you are paying right amount of taxes at the final cash out. Stop worrying and pay whatever is necessary when you cash out.
     
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  40. blade52x

    blade52x 2[H]4U

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    Just paid my income state taxes (CA hurts - lost about 10%). At least I can itemize them as a deduction come April and I do my federal taxes. We won't be able to do that in 2018 thanks to the new tax bill, which severely limits itemized deductions from 2018 onward.