Could the IRS do me a solid and send me what the capital gains on my crypto currency are? I'll pay the taxes--I just don't want to have to calculate the taxes.
I know, I know. Intuit and H&R Block refuse to allow that to happen, but if we could stop prioritizing entrenched industries, that'd be really nice.
> I'll pay the taxes--I just don't want to have to calculate the taxes.
You, me and most everyone else reasonable. In some countries, taxes are as simple as the tax agency sending you a bill or a check. But, America's love of excess capitalism means our tax code is needlessly complicated and pretty much insists on as many third party businesses to be involved as possible - every company you work for, plus anyone holding your securities, plus Intuit or some other tax preparer, and so forth.
The most sensible requirement, since we're not going to get sensible tax reform ever, would be just making legal exchanges operating in the US have to send out a 1099 variant (maybe 1099-MISC could cover it? Or they could create a new one) so people aren't left scratching their heads all the time. But we'll see if that ever happens...
> But, America's love of excess capitalism means our tax code is needlessly complicated and pretty much insists on as many third party businesses to be involved as possible - every company you work for, plus anyone holding your securities, plus Intuit or some other tax preparer, and so forth.
I don't think it's fair calling this capitalism. Capitalism is the idea the the production of goods is controlled by private entities, whereas what you are talking about is a government over complicating/regulating an industry at the behest of a company. In a capitalist society, regulation is not a thing, whereas in the corporatist society I believe we live in, regulation harms the citizens through capture and reduction in effeciency.
I agree, this isn't capitalism but more like crony capitalism or better yet -- corporatism. Government should not pick winners or losers, much less requiring them.
>>Could the IRS do me a solid and send me what the capital gains on my crypto currency are? I'll pay the taxes--I just don't want to have to calculate the taxes.
Unlike stocks which seem to be entirely traded on exchanges, bitcoin could have been obtained through mining (unlikely, but possible) or a true person-to-person trade/barter. In order to calculate capital gains, one needs to know the cost-basis (i.e. the price you paid to acquire the asset). If bitcoins are deposited into your Coinbase BTC account, there's no way for Coinbase to know what you paid for them, hence difficult/impossible for them to calculate the capital gains.
"Unlike stocks which seem to be entirely traded on exchanges" - no.
You could have bought stock directly from the company, in an IPO or secondary offering (where it does not go through an exchange), from an individual or broker not intermediated by an exchange, etc.
You can keep stock certificates in a safe deposit box, and then later transfer them into your brokerage account, they have no idea what you paid for them.
This is a solved problem, cryptocurrency is not special. If they have the cost basis they can tell you, if not, they can leave it blank.
Thanks for the clarification. To whit, the few retail equity US and Canadian trading platforms I've used (Schwab's, Interactive Brokers, Scottrade before they became TD Ameritrade, Questrade) also do not provide an explicit feature that purports to calculate capital gains, so Coinbase seems to be exhibiting feature parity with equity retail exchanges. Coinbase and other retail equity trading platforms do provide an easy to calculate gains/losses made from your trades, but as we are both saying, gains/losses shown in the accounts may not necessarily correspond to the actual capital gains at the end of the year in certain situations.
>>This is a solved problem, cryptocurrency is not special. If they have the cost basis they can tell you, if not, they can leave it blank.
We're in agreement - this is a solved problem that the retail investor or their accountant needs to calculate manually via aggregation of the entire lifecycle of the asset(s) to properly account for capital gains (or losses).
To whit, the few retail equity US and Canadian trading platforms I've used (Schwab's, Interactive Brokers, Scottrade before they became TD Ameritrade, Questrade) also do not provide an explicit feature that purports to calculate capital gains
You should probably call the IRS tipline and say "I think [Schwab] isn't filing their 1099-Bs, you know the thing which reports cost bases and short-term/long-term capital gains for retail investors, and accordingly they're on the hook for billions of dollars of penalties, but to keep the math easy just write me a check for a billion dollars rather than what the law actually says you owe me for this hot tip."
I checked again, and you're right. Interactive Brokers is the only platform I still infrequently use but it does have a list of pre-filled tax forms available for download. Worksheet 8949 is also pre-filled, but this is probably where one would need to submit a revised version if previous cost-basis amounts need to be adjusted as in the specific edge cases we're talking about above.
Coinbase seems to have sent 1099-K documents to eligible customers which isn't as detailed as 1099-Bs since I believe the Ks only report gross transaction volumes over $20K[1].
> To whit, the few retail equity US and Canadian trading platforms I've used (Schwab's, Interactive Brokers, Scottrade before they became TD Ameritrade, Questrade) also do not provide an explicit feature that purports to calculate capital gains
I cannot account for the discrepancy, but I use Charles Schwab, and it absolutely DOES calculate and display capital gains. In cases where I have moved a security into the account (rather than purchasing it directly within the account) I have had to provide original cost basis information for them in order for the calculations to be correct.
Couldn't you use the cost of operation? I figure you could either keep track of it yourself or use a standard depreciation rate on equipment and electricity costs (since probably few people tracked that). Would be like running a business, which you kind of are as a miner. But you do make a point that this is a difficult thing and coinbase can't really track it.
BUT from what I understand, people leave a lot of coins on exchanges and never transfer them back to personal wallets. Coinbase can track that.
"Couldn't you use the cost of operation?" - that's pretty inconsistent with other IRS rules... you probably need to convince the IRS you're mining bitcoin as a business with the intent to profit with all the proof that entails, and then it's likely deductible as a business expense, not a cost basis, similar to how margin interest is not part of your cost basis for buying a stock.
None of that covers cryptocurrency directly yet, but looking at how more traditional investments are treated can inspire you to try to do your taxes in the spirit of the rules to avoid likely problems.
Time for consequences 2 years later when our system finally processes your return and you've long since forgotten where you put that receipt for an $8 taxi ride.
One of the biggest frustrations of modern life is knowing how efficient and easy things could be if these systems were designed better...and then realizing that nothing will be done about it because entrenched interests hold all the power in American government.
This. It could be so simple. Have the IRS suggest what they think I owe - they can have all the metadata, and I'll happily just pay the taxes. If someone doesn't agree, they can do their own return. The current system is so inefficient and wastes a lot of people's time.
> Have the IRS suggest what they think I owe - they can have all the metadata, and I'll happily just pay the taxes.
What's funny is that they will. After the fact. I got a notice last year from the IRS about some back taxes I owed because I forgot to include some stock I sold in my taxes for that year.
They were right. I had overlooked it. But their figure for what I owed was a little higher than what I calculated it to be. I sent back a revised tax return with a check and an explanation for how I arrived at my number and the matter was closed.
So just to reaffirm: the obstacle is more political than technical.
I'd imagine there'd be a "do you have unreported income or other unusual situations to disclose" step that'd open you to prosecution if you deliberately omitted stuff. It's not like they wouldn't do audits any more.
What OP is saying is that it's in the government's to keep things as they are, since if you overestimate your taxes by e.g. missing out on deductions, they won't have to make a correction on that.
[citation needed]. The IRS has asked repeatedly to introduce return-free filing, only to be blocked by Congress after their paymasters at Intuit and H&R Block voiced discontent with the possibility of their revenue stream being shut off.
How about instead of big-brother style "hand all your metadata over to the state", that instead the state releases an open-source program you can run that collects & analyzes all your metadata and then produces the bill?
Just a note, but if you don't hold on to them for more than a year then you calculate them like normal income. Long term assets (>= 1 year hold) are calculated at the reduced rate.
But I also agree that you shouldn't have to calculate it. I'm in favor of return free filing.
The IRS is actually quite helpful, you just have to ask. For example you can request that they give you all the information they have on you. This can make filing or amending old returns significantly easier.
And in my experience at least, their customer service people are courteous and genuinely helpful. It's nothing at all like the standard substandard DMV experience.
Another cool thing is they have an absolutely fantastic record for providing real opportunities (not just busywork) to disabled persons.
It's not just Intuit and H&R Block. A lot of us small business owners don't want the IRS knowing every detail of our businesses in order to just magically send us a pre-filled return each year.
The current tax system places responsibility on you, the investor, to tabulate all of your gains and losses, but it also gives you the freedom to invest in complex and unusual transactions like coins in the first place. Don't be so quick to assume you could give up the one without giving up the other, were it not for those pesky TurboTax lobbyists.
> A lot of us small business owners don't want the IRS knowing every detail of our businesses in order to just magically send us a pre-filled return each year.
For the 99% of us who aren't small business owners, the IRS already has all our information: my W-2's, 1099's, etc. are already sent there by my employer/bank/broker. Making me do my tax returns anyway is literally useless, just busywork for its own sake.
> The current tax system places responsibility on you, the investor, to tabulate all of your gains and losses, but it also gives you the freedom to invest in complex and unusual transactions like coins in the first place.
As people have explained countless times, letting the IRS compute your returns for you in no way precludes the ability for you to do it yourself, if you desire. That is how it works in every other country - most people just accept the government's return, the people who have complex financials file their own. Stop making the rest of us do pointless work just because of your paranoia.
That sounds like you're arguing that you want the ability to continue avoiding taxes by not letting the IRS know the whole truth. That's fine, but if I have to pick one entity to extract money from me id rather it go to the government which at least has a tiny chance of benefiting me rather than going to a private company who has no reason to do anything to benefit me
The majority of things I Co Sider crucial to keeping my current standard of living comes from private entities as well but that set of private entities is not the same as all private entities.
If my choices were to pay the tax man directly or pay a third party to calculate my tax for me because it's too complicated to do myself in part because of that third entities lobbying, then I am always going to choose to cut out the middle man
Also I agree the the IRS can figure out the taxes you'd need to pay if they ever cared to look at you, but I was responding to the parent comment implying that they shouldn't get more information so that they could go outside the regulations
Are you affiliated with cointracker? I only ask because you've linked to it three times in the comments here, and if you are you should disclose that fact. If you just love the service, no worries!
I'll calculate my own taxes thank you very much. If big brother doesn't agree, then I'll show my work and sources. Otherwise, the less they know the better.
No, that's exactly what an audit is. They want to see proof. Sometimes you just need to send a letter to the IRS explaining your reasoning. If they don't agree, and you think you are right, then you should probably get a cpa. If they still don't accept and you want to fight their decision, then get a tax lawyer.
Having also been there, this was not my experience. The IRS sent me a bill for $1500 claiming I had taken an early deduction from my IRA. I had, but it was only to correct a mistake I made right before of contributing too much for a given year. I filed paperwork with my brokerage at the time to reflect this, but apparently the IRS didn't get that.
I replied to the bill with the relevant paperwork and a 1 page letter explaining what happened, and the IRS agreed I did not actually owe them anything. No lawyer required.
One of the tax implications I’ve often thought about is those that heavily trade among different cryptos.
If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain.
Now, perhaps one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade. The IRS generally doesn’t like someone to be able to trade assets without recognizing a gain, otherwise it breaks down the fundamental framework upon which the entire tax system is based. The law provides a few provisions for tax free trades, but they are specifically prescribed by the tax law, such as a 1031 exchange between real estate holdings.
If you’ve heavily traded between cryptos over the past year with massively appreciating values, I would be worried that the IRS would claim you should have recognized a tax gain with every trade. For some, the ramifications for such a perspective could be huge.
It isn’t 100% clear because there hasn’t been an explicit ruling from the IRS but it’s very unlikely that crypto to crypto would be considered a 1031 like-kind trade. They didn’t even allow trades between precious metals or gold coins with different grades of gold to qualify.
I think the bigger issue for US taxpayers is that the IRS doesn’t allow individuals to carryback losses. From what I’ve read, corporations in the US and individual taxpayers in Canada can carry back losses for up to 3 years. The way the crypto market exploded up until late Dec, and then has crashed hard since then could leave some traders with a big tax liability from 2017 that they could end up having to work off for years. The good news is that they might be able to carry 2018’s losses forward to offset future capital gains, but that could be cold comfort to the kids that lost it all on leverage when the bubble popped.
1031 exchanges are indeed explicitly only for real estate starting in 2018. For 2017, it's best to consult a tax professional as the rules are somewhat unclear.
The problem is, USD is the only legal tender. When I sell Intel stock, that where I made profit in USD. I pay tax on that. But if I trade BTC for DOGE, I haven't made any money. All I have done is swap tokens. And just because someone would pay X dollars for tokens, doesn't mean I made any money.
I mean where does it end? If I tell you I'll pay you 10000 dollars for the pocket lint in your pocket, did you just make a gain of 10k? Do you now owe the IRS 10k? If you haven't actually made any legal tender, how can you be taxed on a trade at all? The value of something is completely relative, speculative, and ever-changing.
Profit or gain may be measured in USD, but a transaction does not need to include USD to generate a taxable gain.
The IRS has all sorts of rules involving barters, meaning trading one asset for another without USD being involved in the transaction at all. [1]
Say you buy a car for $10k, let it sit in your garage for 30 years and it now becomes a classic vintage worth $30k. If you go and trade that car for a new motorcycle worth $30k, the IRS requires you to record your $20k gain on the car when you make the trade for the motorcycle.
Where does it end? When you’ve paid the IRS the tax you owe, as per the law.
Regarding the pocket lint, if you tell me you’ll pay $10k for mine, I have no gain. When the sale happens, I recognize the $10k gain and pay the tax. This seems to be a pretty typical transaction for pocket lint or a truckload of butter.
Or actually if it was literally pocket lint, y'all could probably get away with having the payer file form 709 and the seller doing nothing, and nobody would owe any tax.
Lets say you make a 50% gain on btc. You have made money, but haven't realized the gain. You pay taxes when you realize a gain. You're argument is based on semantics, and not convincing.
At the end of the day, whether you traded BTC for DOGE or for IKEA couches, you were able to buy more of the second thing after you traded your BTC. You sold it. You realized your 50% gain.
Its farcicle to argue that by trading BTC for DOGE you're not realizing your gain. You're no longer tied to BTC, and your purchasing power increased at the time of the trade. Your wealth converted to USD went up. You sold your asset. You owe taxes.
> If I tell you I'll pay you 10000 dollars for the pocket lint in your pocket, did you just make a gain of 10k?
Yes. this is exactly how it works. you made a $10k profit. Its not a capital gain, but you made a profit and owe taxes. You dont owe them 10k, but you owe them part of it. If you then go and invest that 10k on physical capital in order to make more lint, then you can deduct that again as a business expense because you've essentially lost 10k on an investment (assuming 100% depreciation).
> The value of something is completely relative, speculative, and ever-changing.
This is why the thing that matters is when you realize your gain by selling the asset. It doesn't matter what you sold it for, you either realized a gain or a loss and that has tax implications.
Say you're way, way up in your Bitcoin investment, and you yse part of the gains to buy a $10 toaster with the equivalent amount of Bitcoin (let's assume no tax in the toaster itself).
Do you realize a $10/gain, and owe money on that? If yes, let's say you return the toaster, and your Bitcoin is refunded. Do you still pay taxes?
Yes. The point is that when you "trade" BTC for something, you're selling it. We differentiate between a sale and a trade colloquially based on whether currency is involved, but currency isn't that special--its just another good. You realize your gain when you sell your thing in exchange for some other thing.
Moreover, if you bought the toaster, and sold it for $20 in BTC, you would have profited $10 and would need to pay taxes on it.
Your comment reads like an insight from an authoritative and trustworthy source, but you have no idea what you’re talking about and your intuitions are totally wrong.
Not an accountant, but I think you should recognize gains with every trade just like Intel and Google trades that liquidate or forex trades.
Key point here is that you also recognize every loss. Which means in effect you are only paying tax on the amount your wealth increased over the tax period.
It could still be huge, but only proportional to huge overall gains.
Not sure about the trading fees for frequent traders. That's definitely a CPA question.
I believe they factor into calculating the gain/loss. E.g., if you buy 100 units for $99 plus a $1 fee, then your cost basis is ($99 + $1)/(100 units) = $1.00/unit. If you later sell them all for $111 with a $1 fee, then your capital gain is ($111 - $1) - ($100) = $10.
Think about it this way: you place a trade on December 28th or so that is valued at a few million, then make a series of disastrous trades that bring your account down to 10k in February.
You owe taxes to the feds and state of about 500,000, which you don't have anymore. That is of course carried forward as a loss for the next year, but that only results in reducing taxable income at a potentially lower bracket.
I'm almost certain there was a guy on r/CryptoMarkets (or one of those crypto currency subs) who this happened to. He apparently traded a few bitcoin up to a few hundred in 2017. Then closed out his positions near the end of the year. Reinvested everything after the new year and lost almost all of it. If that's all true he could be on the hook for a lot of money.
> If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain.
For someone who knows nothing about tax law, if I draw the $15k back from Google to USD, would I pay taxes on the full 15k?
This gains growth tax thing seems to make sense, if there is no taxes when converting it to USD. Eg, if I take 10k and make an additional 10k converting from BTC->ETH and pay taxes on that new 10k, that's reasonable to me if I only pay taxes once on those gains. If however, I withdraw the 20k ETH to USD, and pay taxes on the 20k, then effectively I've paid double taxes on the gained $10k.
Is there a way to handle that in tax law? Or are trades among stocks/etc supposed to be double taxed like that?
> one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade.
This is called a "like-kind trade" which is IMO muddy for cryptocoins [1].
It's muddy for 2017 and prior years, but the new tax bill limits 1031 "like-kind" exchanges to real estate - so beginning Jan 1, 2018, it's a taxable event every time you sell a cryptocurrency, even if you're receiving another cryptocurrency in return.
The link you cited above covers this on page 4.
Keep in mind also that like-kind exchanges, if you're going to use them this year and for prior year reporting, require you to claim them explicitly on your taxes [1].
I know that this is the total transactions and not profits, and the numbers are way, way off. I have a local copy of all my trades, of course, and they match perfectly with the transaction history available on GDAX. But the numbers that Coinbase reported on this 1099-K are completely wrong. They literally put the wrong numbers in the 1099-K. And as one would expect, dealing with Coinbase support is about as much fun as being set on fire. I fear that Coinbase is going to end up costing me a lot of time and money because of their botched accounting.
They'll start doing this more and more. Just be careful though because the moment you have a single transaction outside of Coinbase, their reports will be incorrect. You may want to consider checking out cross-platform tools like https://www.cointracker.io which help you keep track of all your cost basis across exchanges and wallets automatically.
While generally I tend to favor less government involvement, especially when it comes to privacy, I find myself on the other side of the fence here.
Ignoring the arguments about what Coinbases is _legally_ required to hand over, it seems like Coinbase withholding this information from the IRS really only favors criminals. If you're a law abiding citizen you're already giving all this information to the IRS yourself. Every Coin-fiat transaction is taxed and must be reported. So there's not much difference for you. It's only if you aren't following the laws that this has an impact on you. So I find myself in _favor_ of the IRS snooping around in Coinbase's business. More compliance means less average taxes.
That said, there are nuances. What information exactly gets provided to the IRS is important. Exchange/transaction events? Sure. Money in/out? Ehhh, maybe not. Bitcoin address data? Definitely not.
(To be perfectly clear, this is _not_ an instance of "if you have nothing to hide". This is an instance where we're _already_ giving this data to the government, and that's _necessary_ because of our tax laws. There is no equivalence to other privacy cases.)
I thought it was hilarious that the Coinbase blog announcement of their tax reporting explicitly states that this reporting is completely useless for the 99% of Coinbase users who have transactions on other exchanges and ICO's.
https://blog.coinbase.com/new-tax-tools-on-coinbase-4d259854...
I'm founding www.ZenLedger.io to help crypto investors and CPA's to comply with IRS law, aggregate ledgers across exchanges and wallets, and make everything easier. We also undo things like Coinbase falsely classifying all coin movement off their exchange as a taxable sale when they know it's most likely a non-taxable transfer. So, we help you pay less taxes.
Check us out please.
We have a great team of developers and business/finance professionals working hard to get it all done for you.
This is not surprising at all, and it's been a long time coming.
It will be more interesting when the IRS starts trying to get your electric consumption data (assuming people aren't using solar panels, and/or live in a jurisdiction whose electric companies don't have to hand over such information about their customers to another governmental body) because more people are mining (inflationary) cryptocurrencies and trading that for other "assets" without going through 3rd parties like Coinbase (i.e. needing to upload any forms of government ID).
I wonder if this is the kind of stuff the G20 finance ministers will talk about at their upcoming meeting[0], though I kind of doubt it.
My prediction: they will store the history of all Bitcoin transactions and try to identify all wallet owners; when identified they will check if profits were reported and if taxes were paid; if not -> good luck; the same for other countries in the world </end of my prediction>
I’ve got from good sources that in Canada the RCMP is (...was several years ago) already doing exactly this. And it’s very easy to do since the exchange in question requires ID to create your account.
Sure. And so has the IRS, which “persuaded a federal judge”, according to the article.
I guess they thought it was a reasonable request to get the data of the 25,000 US citizens who made significant profit with bitcoin in those years, when only a few hundred reported such earnings in total.
It's not just a matter of tracking those that cashed out as taxes are on the net profits of individual trades. Even converting between coins (ex: sell BTC, buy ETH) is a taxable event.
The 4th amendment does not prevent combing through public data (the blockchain), nor does it prevent going through due process to obtain data (the coinbase order).
I would say this a very natural and logical thing to do - with the blockchain storing the history of transactions for eternity, you just need to get some programmers to write some code to cross reference a few systems and leave it running for the years to come, catching people as soon as they make a single mistake. The business case and expected ROI for this project must be the easiest one any inspector ever had to write.
So if I made a whole $32 off of my experiment on Coinbase (invested $50 when the price was around $273.59/bitcoin and then sold when the price was around $459.69/bitcoin), will the IRS really care about their cut? I honestly expected some kind of documentation from Coinbase with respect to taxes, such as a 1099-B. I never received such a document.
I also read somewhere that the IRS is only coming after people who made $20,000 or more. (Note: I couldn't read this article due to the paywall)
Should I be concerned that they'll try to get their $10 from me and then pile on a bunch of penalties?
Just pay the damn tax. If you’re thinking “will the IRS care,” avoid the hassle and pay it. Forgetting $32 of gains is one thing. Wilfully determining the IRS won’t come after you is another.
>> Should I be concerned that they'll try to get their $10 from me and then pile on a bunch of penalties?
No, despite their reputation, the IRS is pretty reasonable about stuff like this, at least in my experience. They're relentless if they think you owe a ton or were malicious, but they don't intentionally trump up penalties on the every day person.
I guess it makes sense. The IRS is profit-driven. The state wants to maximize the amount of money recovered minus how much it costs.
It makes more sense to go after the targets they can get the most money from. They won't bother you with your $10, it is a waste of their time compared to the thousands they can recover on larger scale, well established fraud.
The IRS once sent me a letter because I had slightly underpaid my taxes where they informed me of the amount I had underpaid and assessed a 10% penalty.... for a grand total of ~$8.
They weren't jerks about it but they do seem to have a weird attention to detail for certain matters.
For an individual, it’s a detail. At scale, real money.
With 150 million tax payers, if they had a $10 cut off everyone underpaid, that’s a potential loss of $1.5 billion, over half of the annual national parks budget. Not so weird.
I've had something similar happen with MD state taxes. They know all your reported sources of income and know exactly what you've paid, and if the arithmetic doesn't add up, their software will come after you even for small amounts. In my case I had accidentally attributed a small amount in January quarterly estimated taxes to the wrong year.
Probably not a huge concern, but I look at it this way. Is it worth your future time to deal with over ~$10 in taxes? Is it something that can lead to triggering an audit?
Even if the chance of the IRS coming back to me is small, I'd much rather pay the $10 now than deal with them later.
It depends on your definition of “care”. As other comments have noted, you might get a letter. History suggests they would not be likely to attempt to prosecute you for tax evasion.
The letters described are for correctable human mistakes that can be detected by math crosschecking and fixed by a letter. If they decide you are trying to avoid paying taxes on Bitcoin, and they decide to be upset about that, they would likely initiate an audit instead of a form letter — the serious, investigator, difficult kind.
"Chain-splits. These occur when a cryptocurrency branches into two or more versions, as bitcoin and Bitcoin Cash did last year. Investors are often entitled to new coins as a result.
This is probably the biggest open question, with no good answer.
For Bitcoin Cash, if you declare that, what value do you use? Futures price before the fork? Price immediately after? Which exchange? And the price fluctuated wildly, so they all seem arbitrary.
The alternative is to claim a cost-basis of $0 when you actually realize those gains, which makes a hell of a lot more sense to me, but the IRS might disagree. Who knows?
And what about Bitcoin Gold or the dozens of super-shady forks? Technically they have value, but it's value I don't think I'll realize because they're so shady. You have to go through the trouble of clearing your wallet of 'real' Bitcoin, and then import it to whatever 'totally not going to hack you' wallet software you need to use to claim it. Even if you don't lose your 'real' Bitcoin, all the other shady forks could be stolen. It's clearly not 'real' in the way that traditional securities are.
Further, anyone can fork a coin at any time; there could be dozens a year. Am I supposed to keep track of every single fork of every coin I hold?
Also what if I haven't imported my private key into the forked coin's wallet? Do I have to report the income right away or only until after I've gained control of the coins?
I've wondered what to do if I won't or can't prove that I control BTC that I transferred out of coinbase wallet into personal wallets?
I will definitely pay my cap gains on the small amount of coin I sold (BTC->USD within coinbase). But I have no idea about first in first out, when is it a wash if I buy more?
I don't even want to think about trying to calculate cap gains on purchases made with BTC since the price is almost always different even if I buy BTC on coinbase and use it to buy server time 60 minutes later..
What would happen if someone was to lose access to their wallets? Would they still have to pay taxes? If my memory serves me right, close to 4 million bitcoins are missing.
Regardless of whether you lose them you pay taxes when you make a taxable transaction, being either exchanging FIAT to crypto or crypto to a different crypto.
If you itemize deductions, and the loss is large enough, you can deduct a loss or theft.
So if you mined and then traded $100k in Bitcoin for Ethereum and then the Ethereum was stolen, you would use form 4684 to claim the loss against your taxable income.
But I haven't heard of anyone doing this yet and I can imagine it would get some scrutiny from the IRS, seeing as it would be hard to prove a loss or theft.
Yes, these are capital gains taxes. If you buy a bunch of crypto in a year, and sell none, you owe no capital gains taxes for that year.
You only pay capital gains taxes on them in the years where you sell.
Keep in mind that in the IRS's eyes, any exchange (like BTC -> LTC) counts as a sale, and so does buying goods with crypto (like buying a video game with BTC).
My only concern is that I bought Bitcoin for a friend because he had trouble setting his account up. Now that tax time is coming up, this has me worried that I'll get singled out because what I claim doesn't match my account. He's filing for his portion of things, so it should all work out in the end, but I don't want to be audited to have to explain that.
Talk to a tax accountant. My gut would tell me you should file to match your account transactions, and your friend should write you a check to cover the incurred tax liability.
I am not a lawyer or cpa but it sounds like a similar case when someone may have invested in bitcoin and immediately realized they were over extended. So they decided to reduce their position for a small transaction fee. Unfortunately this was enough to make the trade a small loss and ultimately I don’t know many people who pay taxes on losses.
It won't matter if it's a small amount. But you will simply need to show it on your tax calculations. Your 1099k will only have gross numbers. You will do the profit calculations. So the Bitcoin you sent to a friend will be deducted when you make your calculations.
Asking for a friend. If X buys a few bitcoin and then transfers it to a gambling site and proceeds to lose it all does stupid X (the goddamn idiot) owe any taxes?
The only way X can show that he/she didn't retain the bitcoin is to show transfers to the gambling website (transfers in and no transfers out, because as I said earlier, X is a dumbass).
Privacy coins and decentralized exchanges will start rewarding individuals who engage in untraceable tax evasion, which will get easier over time. This puts a negative reward signal on honesty.
The current governance system will have to adapt or die. It's not much different than any other disrupted industry, except this one is armed.
Why fear a government agency with aging equipment and lack of employees due to continuous budget cuts by politicians who don't want their buddies audited? The IRS can't keep up with tax law changes and collect much of what they are supposed to collect already much less add new and more complex things to track.
You're either trolling, or just being completely naive not to fear the IRS. If there is ANY agency you should fear, it's the Internal Revenue Service. They have infinite resources, and it might take a while, but they will get their money in the end.
If you declare taxes, you have very little to fear. If you use potential loopholes, be aware you might need to consult a tax lawyer and go to court. But again, if you are aware of this, aside from your final legal bill, you have nothing to fear.
So, if you were American, had a coinbase account, and made significant capital gains in the years under investigation, would you not be worried?
Because it seems to me like they are very much capable of enforcement, as exemplified by the article.
Rich people in the US don’t avoid taxes by stymying investigations they give 5% of their income to Republican candidates and PACs, and have the law changed for them.
I'm not worried because I made best effort to report and pay taxes properly on my crypto holdings just like I do on my other investments.
I really don't see the big deal here. People who were thinking that crypto was going to magically be exempt from taxes were delusional. The only open question is if the IRS may change crypto->crypto trades to like kind. As of today with the current guidance though, no - crypto is property similar to a stock.
Coinbase has already issued tax forms for those who owe capital gains taxes because of cryptocurrency sales. So this isn't in any way new or unexpected.
I don't think that is correct. They are issuing 1099-K's for people who are accepting Bitcoin payments through Coinbase. They haven't issued any 1099's for people who only have a capital gain from buying and selling.
The definition not accepting payments is broad, though: if you made a profit trading alt-coins on another exchange and cashed out using coinbase, you get a 1099-K.
> if you were American, had a coinbase account, and made significant capital gains in the years under investigation, would you not be worried?
Well since I wouldn't have committed tax fraud (and potentially other felonies) by not reporting capital gains, I wouldn't be the slightest bit worried, no.
As if tax loopholes are unique to the gop. I would wager they are pretty evenly distributed between Democrat and Republican. Not to mention corporate and wealthy donors.
Maybe it's different where you live, but my experience is that the only people that can afford to not fear the IRS are precisely the "politicians and their buddies"...it wouldn't surprise me at all to see task forces being formed just to identify under-reporting via Bitcoin and issue threatening letters (e.g. pay what is due or say goodbye to any assets you have) to whoever comes up on that list.
As HN has a lot of people who have complicated financial situations and will eventually get one, I'd like to point folks in the direction of what the IRS' typical first play is if they think you underpaid taxes.
They do not send you a threatening letter. They do not throw you in prison. They send you a bill; more formally, a CP3219A. (The IRS says it is not a bill, it is a proposal. In practice, it's a bill you can argue with.)
If you ever get one, you will simply call up your accountant and follow their advice. It's less annoying than owning a bank money...
... providing you didn't commit tax fraud.
Here's an example of tax fraud, taken directly from a case where the IRS did, indeed, refer to prosecution: Joe Smith owns a small business. Joe Smith, Inc. paid a Japanese technology company $600k for "technology services", per his tax return.
Joe Smith received a $600k wire from Japan, which he did not declare as income.
Can you guess the nature of the "technology service"? Yep, it was "Mt. Gox, please technologically service me by buying Bitcoin and then wiring the money back to me. Hah hah hah we are so clever hah hah hah."
Can confirm this. I run a consulting company and received a letter like that in 2016. They sent a bill with corroborating documentation indicating I’d underpaid by about $2,600. I reviewed my own records, concluded they were right, checked in with my accountant and paid it. It wasn’t threatening at all, nor did I feel like I’d be imminently prosecuted. The IRS, for all its public perception, has actually been sort of a joy to work with, insofar as I’ve had to interact with them at all.
That said, I’m always vaguely terrified each year when I deduct the low five figures I’ve spent on bare meral server hardware. Being audited remains in my top ten fears, even though I don’t try to evade taxes. I always wonder if someone at the IRS is going to see my return and say, “He paid this much for ‘Computer Hardware’? That seems fishy.”
For the limited purpose of helping another entrepreneur sleep easy, and not to offer accounting advice: The IRS has to recover ~$1k per IRSian hour to make it worth their time, for reasons which fall fairly straightforwardly from consulting math that you're very familiar with.
Consider the set of all companies in the economy which spent $15k last year on "computer hardware." How many IRS hours would be required to read all their returns, given that they are sitting in a pile. How many would, on examination, show a deficiency? How much would those deficiencies be worth, on average? What's your ballpark estimate for how long it takes a government employee to put through a single routine non-trivial work order?
Suppose the IRS sits down with a randomly selected small business for a site visit audit. Suppose they budget 2 hours onsite and 8 hours offsite for the audit. How many of those minutes do you think they will spend on that line item, specifically? Does it allow them to do more than ask "I see your return shows $15k on computer hardware. What was the hardware? Can you show me your records?"
The Automated Under-Reporter program does this on-the-fly with no recurring cost, and provides corroborating evidence to the auditor. In fact, an analysis of AUR showed that the IRS is too-lenient in prosecuting claims with automatically-trawled evidence!
The Automated Under-Reporter Program is not a "sufficiently advanced compiler" for tax returns. It does simple match: did your brokerage account say you made $30k in dividends on a 1099-DIV to the IRS last year? Cool. Do you show a line item which matches $30k in dividend income on your 1040? No? Add an item to a work queue.
It doesn't (and can't) divine "Did the expense on this business return factually happen? Was it for the operation of the business? Is it standard and ordinary?"
You are right and wrong. It's not 'politicians and their buddies', the line is much much lower than that but there is absolutely a bright line between who pays the IRS and who hires people like I use to be (I sat across from the IRS times innumerable cutting them to shreds) to make sure they pay almost nothing.
Anyone that can afford accounting services from the Big 4 (PwC, Deloitte, EY, KPMG) is getting this golden glove treatment. I am sure that there are numerous mid market firms with significant amounts of ex big4 staff that are also helping their clients just as much. Small CPA shops will be hit or miss with mostly misses. My results were 20% experience, 20% skill, 50% training by my Big 4 employer, and 10% fear of my employer escalating the situation if they didn't get a sign off from me (I'm not the one that would get sent to represent the client in tax court).
The vast majority of the IRS's work is based on incompetency and fear. Nearly all of the charges they tried to leverage against my clients were false and due to paperwork errors (more often on the client's side than the IRS but not always...not even close to always) that were easy to resolve with minimal penalties and interest.
To be clear, they didn't get to throw the middle finger at the IRS and pay nothing, they paid what they owed which was practically never even in the same ballpark as the bill the IRS came at them with. The people who can't hire a professional Tax CPA to sort it out for them get fucked not because they are the only ones paying what they owe but because they are the only ones paying way fucking more than they owe. That's a whole other ethical problem that should be addressed with the IRS.
I was hit with a huge tax bill because my foreign tax credit was somehow blown away in my tax return. I was able to refile my forms, and getting an ITIN for my wife, changed my filing status to go from a huge bill to a smaller but significant refund.
I did this by myself without a CPA but I knew what I was doing. The IRS was pretty understanding the whole way and quickly understood my situation. They never tried to threaten me or anything like that. It didn’t help that their mail to china kept getting lost, however.
I know, I know. Intuit and H&R Block refuse to allow that to happen, but if we could stop prioritizing entrenched industries, that'd be really nice.