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>>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

>>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.

godelski 9y ago
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.
- jmalicki 9y ago
  "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. See "Basis of Assets" https://www.irs.gov/pub/irs-pdf/p551.pdf https://www.irs.gov/pub/irs-pdf/p551.pdf and "Investment Income and Expenses" https://www.irs.gov/pub/irs-pdf/p550.pdf https://www.irs.gov/pub/irs-pdf/p550.pdf 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.
jmalicki 9y ago
"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.
- otoburb 9y ago
  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).
  - patio11 9y ago
    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." Or, in the alternative, you could look again.
panarky 9y ago
It's the taxpayer's responsibility to substantiate any cost basis greater than zero.

godelski 9y ago

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.

jmalicki 9y ago
"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. See "Basis of Assets" https://www.irs.gov/pub/irs-pdf/p551.pdf https://www.irs.gov/pub/irs-pdf/p551.pdf and "Investment Income and Expenses" https://www.irs.gov/pub/irs-pdf/p550.pdf https://www.irs.gov/pub/irs-pdf/p550.pdf 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.

jmalicki 9y ago

"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.

otoburb 9y ago
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).
- patio11 9y ago
  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." Or, in the alternative, you could look again.

panarky 9y ago

It's the taxpayer's responsibility to substantiate any cost basis greater than zero.