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IRS reminds taxpayers to report virtual currency transactions

233 points by AltcoinReport 9y ago

kumarski 9y ago
Built an app to solve this issue: http://zenledger.io http://zenledger.io Companies like blockseer.com are being used by regulatory folks to find people skirting the rules.
purple-again 9y ago
Another point everyone should remember because I’ve seen the attitude a lot recently. If the reporting requirements seem to be literally impossible to comply with, this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you should conclude “I have to pay the maximum taxes possible under the worst case scenario because I don’t have the records to prove my version of events”. It has nothing to do with crypto, lose basis in your stock and you assume no basis (obviously you make best guess and hope To not get audited, but once audited, you take no basis).
- chanfest22 9y ago
  +1 There are also tools like www.cointracker.io out there to simplify the complexity of these crypto taxation rules
  - Baeocystin 9y ago
    Oh, that looks useful. Thanks!
  - kbaker 9y ago
    Also https://bitcoin.tax https://bitcoin.tax, does everything for you pretty much.
    - hesdeadjim 9y ago
      Worked well for me. I imagine when most people import their trades they will be very surprised by what they owe. I had no idea (but it makes sense) that when I gave some bitcoin gifts it followed the FIFO rules despite the fact that I had just purchased some to gift.
- TallGuyShort 9y ago
  The government needs to fix the problem that it's so difficult to know what you're required to pay without just paying the maximum guess (and then pay more ahead of time to avoid penalties). I've reported an instance of 2 conflicting statements in 2 separate IRS forms to the IRS, and rather than clarifying what was required they referred me to a tax advisor, who also didn't know the answer to the question. So we took the more liberal guess, and filed. And then had to rework it anyway because the law for how much tax I was required to pay in 2017 changed in 2018 anyway. The principles that we consider "rule of law" don't seem to apply to tax law.
  - s73v3r_ 9y ago
    It's not the government's fault you lost track of your records.
    - TallGuyShort 9y ago
      I'm not even talking about that - parent comment talks about requirements that are literally impossible to comply with, and I talk about laws that are put into place after a tax year ends and apply retroactively, and official documents that contradict one another and the inability to get an official explanation from the government prior to the filing deadline. How is any of that even remotely "losing track of my records"? edit: Let me be even more detailed. I had to have my accountant rework my taxes 3 times. Once because of a retroactive law change after the end of the tax year. Once because of the inconsistency I discovered in official documents. And once because ETrade's documents and my employer's conflicted. Both of the latter were prepared by professionals. That's pretty typical of my filings. If it's so complex that all of that is fairly routine, that IS the government's problem. I have no problem keeping track of my own records; in fact my own record keeping and fastidiousness led to the discovery of all 3 of those problems.
      - adrianratnapala 9y ago
        > in fact my own record keeping and fastidiousness led to the discovery of all 3 of those problems. Does that mean it might be safer to be less fastidious so that no-one can uncover records that never existed?
- Htyv 9y ago
  Why do people put up with that extortion?
- tzs 9y ago
  > If the reporting requirements seem to be literally impossible to comply with, this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you should conclude “I have to pay the maximum taxes possible under the worst case scenario because I don’t have the records to prove my version of events”. Shouldn't that be "pay the minimum amount that (1) you can reasonably argue you believe is what you owe, and (2) is close enough to the maximum possible under the worst case scenario that you will not be subject to underpayment penalties if you are audited and they determine you owe the maximum"?
- cmurf 9y ago
  Not maximum possible. This isn't that difficult to compute. Not so long ago, 1099-B only showed the sale price of stocks (funds, etc) and you had to go back and compute basis yourself from the confirmations, even if the asset purchase was 50 years ago. It's no different for a house sale. Having a CPA doesn't help at all whatsoever to compensate for bad record keeping. There are other ways to do this that would be simpler, e.g. tax equals 1-2% of the asset value per year, rather than taxing the income. This isn't fundamentally different from property tax computation.
  - zdragnar 9y ago
    > tax equals 1-2% of the asset value per year, rather than taxing the income So penalize everyone in down years when their stocks lose money, plus wipe out a ton of potential growth in 401k accounts? At least, that's what it sounds like to me.
    - cmurf 9y ago
      Lack of imagination. First, the biggest complaint sould be that it's regressive. Second, no one would accept 1-2% tax on retirement assets, even though this would actually benefit them over a long haul: grow tax free for 40 years, and then pay a n% asset tax, where n=asset pool (your retirement account) age? Almost everyone does better with Roth versions of IRAs and 401(k)'s anyway. Pay the tax up front, no tax at the back end, and thus basis and record keeping isn't even relevant. There's a bunch of ways to simplify this while also making it fair if it weren't for the greedy rich people who want regressive taxes, i.e. flat tax.
- anonymous5133 9y ago
  I work as a tax auditor and this is completely false. Taxpayers only need to pay the MINIMUM amount of tax required by law, not the maximum. If you are audited then we will tell you why you owe additional tax. No, you will not go to jail for paying less tax but upon audit you will be required to pay the deficiency or provide additional explanations/documents etc. Then you can introduce any counter arguments like you didn't know such a law exists, the tax code is ambiguous etc. Making these types of claims will help to provide case law to clarify it for others as well as for auditors. I agree that the taxation of crypto related transaction is quite ambiguous when you start getting into the theoretical nature of how the transaction is conducted.
  - throwawaybbqed 9y ago
    I have two questions: 1) If one had used bitcoin as a currency (bought pizza, bubblegum, etc.), are these new "treatments" of cryptocurrency implying one has to report each of these purchases and the tax implication there in? 2) Lets say you are a miner and mine a bitcoin a month (I know not realistic but helps simplify question). Now, lets say you buy pizza with bitcoins from your wallet every month. What is the cost basis to use? The price is pretty volatile .. so what the heck are you supposed to do?
    - spookthesunset 9y ago
      Of course you need to report them. If you used AMZN stock to buy bubble gum or shoes, you'd have to report it too. Just because it is named crypto "currency" doesn't actually make it a currency...
      - deleted 9y ago
        [deleted]
      - ricardobeat 9y ago
        You can’t possibly buy bubblegum using stock. Having the properties of a currency makes them currencies!
deleted 9y ago
[deleted]
my_username_is_ 9y ago
They still haven't issued guidance on how to treat forks like BTC/BCH, have they?
- kentm 9y ago
  It’s still ambiguous but the most straightforward way is to treat it as miscellaneous income, which is how I reported it.
  - ryanmarsh 9y ago
    If Apple's stock were to split and then "moon" would you claim the difference in portfolio value as misc income? That sounds nonsensical to me. The IRS guidance states it can be treated as a capital asset. You're still HODLing right? Right?
    - kentm 9y ago
      I did the research a few months ago and don’t remember the details, so sorry if this is vague. There are certain criteria that are required for something to be treated as a split and IIRC coin forks were really iffy in this case. The usual case in a stock split is that you get either more of the same security or something of similar likeness (a non voting class of shares in the case of the google split), which is arguable in the case of crypto. You could argue it’s a split to save money and if you had a huge amount in BTC at the time of the split it’d be worthwhile. My tax savings were going to end up being trivial so I went with what was “safe”. Edit: noticed your comment about Apple stock “moon”-big. If we’re reporting the fork as income then it’d be income at the value at the time of the fork. So if you had one BTC then the BCH income would be $277 or so and that would become the cost basis going forward. I didn’t have a lot of BTC so the actual tax cost was very low. If you’re holding thousands of BTC at the time then the story would be different and you’d be incentivized to argue a different tax treatment. Apologies for the wordiness here!!
  - kemonocode 9y ago
    Do you owe taxes on unclaimed coin forks? I'd wager no but considering how complex taxation in general has turned out to be with cryptocurrencies...
purple-again 9y ago
If you are walking down the beach and find a $20 bill on the ground, you are required to report it as income. The only way that I know of that you can legally enrich yourself without paying taxes is via a direct gift and that’s because the giver pays tax instead of you.
- gxs 9y ago
  Worth mentioning that there exists a $5MM lifetime max that any individual can gift before paying taxes. A common misconception is that you have to pay tax on every gift you make, but as long as you’re under that $5MM all you have to do is report it.
  - adanto6840 9y ago
    Not that it would probably ever apply to me, but I'm curious if that's per "individual gift giver - giver receiver" pair? Or is it the case that it's solely per individual gift _giver_? As in, would receiving a $500 gift from Bill Gates (who presumably has met the $5MM lifetime threshold) be fully taxable? Just random Sunday curiousness. :)
    - gxs 9y ago
      Individual gift giver. So lifetime max per person! Not too shabby.
      - purple-again 9y ago
        Lifetime max $5,000,000. Yearly max changes but hovers around $15k per person (wife and husband diffrent people!) and doesn’t touch yearly max.
    - deleted 9y ago
      [deleted]
    - isostatic 9y ago
      Would have to be per giver, otherwise it would be trivial to avoid (want Dave to get another $1m, either give $2m and have the taxes taken, or give $1.1m to Joe Bloggs, who gives $1m to Dave and keeps the rest.
k-ian 9y ago
why don't we just... link directly to the memo... https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currency-transactions https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report...
- sctb 9y ago
  OK! We've updated the link from https://altcoinreport.co/irs-warns-taxpayers-to-file-cryptocurrency-gains/ https://altcoinreport.co/irs-warns-taxpayers-to-file-cryptoc....
tunesmith 9y ago
I thought you didn't need to unless you sold. If you simply buy or receive, that also needs to be reported? I have some of those stellar/lumens from when they awarded them for free for signing up back in 2016, but have never sold or transferred them.
- craftyguy 9y ago
  Literally in the first sentence: > report their cryptocurrency earnings
- kentm 9y ago
  Nope. If you mine cryptos or receive them as income they’re reported as income. You also have to report gains if you spend them or trade them for another crypto currency.
  - tunesmith 9y ago
    The signup promotion in 2016 was for 5000 or 6000 lumens. Historically it looks like in 2016, 6000 lumens would have been worth five or ten bucks. So I guess that should be reported as income back then although it approaches being a rounding error. At some point, stellar converted lumens to stellar. Anyone know if that would be considered a taxable event? Did that change my basis?
    - sokoloff 9y ago
      Not a tax pro, but I would treat any involuntary conversion similar to a corporate action where you got new shares for old shares, the new shares inherited the basis of the old shares, and would generally not be a taxable event. This is assuming it’s analogous to a tax-free spinoff event in the equities world.
      - toast0 9y ago
        You only get to treat a corporate action as a non-taxable event if the event meets certain requirements and follows certain forms. As cryptocoins aren't actually shares in a corporation, I don't think you're going to get a non-taxable conversion.
cft 9y ago
Can someone explain how a "property payment" is reported and taxed: "A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property." https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currency-transactions https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report...
- kentm 9y ago
  Treat it as if you sold the crypto for USD (and pay capital gains). So if you bought a crypto for $10, the price appreciated to $110, and then you bough something worth $110, then you have to pay taxes on $100 of income. It’s the same place you repot capital gains for equity (I don’t remember the form number)
  - cft 9y ago
    What if I bought 1BTC at $10, then I bought 1BTC at $200, then I bought something with 1BTC when BTC dropped to $100/1BTC? Which BTC was used for the purchase- the one I bought at $10 or the one at $200? It sort of kills the use of cryptocurrency as "currency" in the US. Imagine if in the end of the year we had to report every dollar transaction (e.g. buying a coffee and a bagel), trace how you earned that dollar and calculate capital gains/loss.
    - kentm 9y ago
      It does make it hard, yes, but that’s what the IRS expects. Edit: easiest thing to do as a workaround, imo, would be to build tax reporting into wallet software.
      - cft 9y ago
        PS. I just edited- I think it's hard to calculate even in principle?
        kentm 9y ago
roddux 9y ago
"No", respond taxpayers. How do they intend to record this?
- kgwgk 9y ago
  How does the non-compliant taxpayer intend to justify the origin of the money when BTC hits $1mn or whatever and he buys a lamborghini and a penthouse?
- kentm 9y ago
  Coinbase and other crypto exchanges report to the IRS for one. There’s also forensic accounting where large unexplained cash flows (i.e. buying a house for money far above your income level) establish probable cause, which allows them to go fishing.
  - markonthewall 9y ago
    It's actually trivial to dodge US taxes. The most basic and effective way to accomplish that is to establish fiscal residency in a friendly european country. It becomes /really/ easy when you have dual citizenship. Same applies for crypto gains, if you avoid using US based crypto-exchanges you are probably OK for the foreseeable future. I have found that many americans overestimate the reach, competence, and sheer willpower of the IRS. You would be surprised at what /doesn't/ happen if you stop filing taxes.
    - kentm 9y ago
      I probably am overestimating their reach. I would imagine the willpower scales proportionally with the amount of lost revenue minus the cost of pursuing. I’m sure a lot of people in crypto think they’re cleverly covering their tracks when they’re not, and it really comes down to whether or not the IRS notices. Personally I don’t want to roll the dice.
    - chx 9y ago
      > You would be surprised at what /doesn't/ happen if you stop filing taxes. You are right: the sun would still rise everything morning, life would continue pretty much unchanged, no one would break down the door to haul you away for not filing your return. This is not Hollywood. But a little envelope could show up in a year, two years -- or twenty years. If you do not file there is no time limit on collection of taxes, interest and penalties. https://www.irs.gov/irm/part5/irm_05-001-019 https://www.irs.gov/irm/part5/irm_05-001-019 Maybe you are living in a van now and getting cash on the nail and can't care less. But... what if you clean up in ten years and want to live better? Even a zero return is better than no return. And if you do not live in a van but have an actual income with a paper trail, the IRS might just file a Substitution for Return on your behalf and then, if you do not respond, they will, with the full force of the law, come after what they think you owe them, putting a federal tax lien on your real property, garnishing your wages and so on. Once you or they filed a return, there's a ten year time limit on collecting the money, but, again, that doesn't apply if you do not file. What really doesn't happen is criminal tax evasion charges. That's truly rare and reserved for the heavy hitters.
whataretensors 9y ago
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- matthewmacleod 9y ago
  What isn't sane around "report your income"?
  - whataretensors 9y ago
    FYI I removed my comment because I don't want to get targeted by the biggest killer of small business in the US.
    - s73v3r_ 9y ago
      “biggest killer of small business in the US.” Owners who think they’re being clever, when they’re just violating the law?
      - Spooky23 9y ago
        One of my neighbors was talking like this. Turned out he was stealing employee payroll taxes and sales taxes to get current with his trade creditors.
        whataretensors 9y ago
        This immediate suspicion when speaking out is why I removed the comment. I am not stealing anything and I don't have any employees.
    - DoreenMichele 9y ago
      My recollection is all you said was "The IRS needs to come up with some sane rules surrounding this issue." There was nothing wrong with saying it, never mind the spin of replies to it. I am stating that because removing the comment combined with your follow up comment looks weird and suspicious in a way the first comment did not to me. I would hate to see you subjected to the Streisand Effect here in a way that could have tax and legal consequences. Best.
ryanmarsh 9y ago
This all seems pretty reasonable IMHO. Relevant section: * A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. * Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC. * Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes. * Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third Party Network Transactions. But I think this last one is probably the most interesting to us HODLers * The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
mannykannot 9y ago
There are people who have lost the key to wallets. For most of them, that is the same as not owning the cryptocurrency, but a small number might get lucky and remember where they put it, or remember enough of it to eventually recover it, at some point in the future. I haven't looked in detail, but do the rules address this scenario?
- khc 9y ago
  You report transactions. So if you lost your keys there should be no transactions
- s73v3r_ 9y ago
  Yes. If you don’t have the key, you can’t sell. Selling is when you would realize your gain (or loss), and then do tax stuff.
- floatingatoll 9y ago
  Lost assets are commonly reported on this form, which you should file if you knowingly hold coins and then lose access to them: https://www.irs.gov/pub/irs-pdf/i4684.pdf https://www.irs.gov/pub/irs-pdf/i4684.pdf If you recover the property in the future after filing it as lost, pay a tax professional to advise you.
- loeg 9y ago
  You only realize income on sales. So if it's lost and you can't sell it, there is no taxable income.
sergiotapia 9y ago
Reminded me of this kid that said he bought some bitcoins and then sold to buy some alt coins. >At the advice of my friends, I took most of my savings and bought 8 bitcoins back in early 2017 for about $7200. You can imagine how I felt when it went up. Around December 2017, I got caught up in the altcoins frenzy and sold most of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn't know this back then but it looks like I owe income taxes on those trades, Thread: https://www.reddit.com/r/personalfinance/comments/84huks/i_just_discovered_that_i_owe_the_irs_50k_that_i/ https://www.reddit.com/r/personalfinance/comments/84huks/i_j...
- Yizahi 9y ago
  That was a very useful and interesting thread. I suggest everyone should read a few top comments there.
- jobigoud 9y ago
  I still find it weird that he has to pay taxes in dollars on something that he doesn't know the value of in dollars since he hasn't converted his cryptocurrency assets to fiat yet.
  - gst 9y ago
    Vanguard allows me to exchange one mutual fund for another mutual fund (without having to explicitly sell and re-buy). Do you think that's something that shouldn't be taxable? Where's the difference to the cryptocurrency example above?
    - deleted 9y ago
      [deleted]
    - nashashmi 9y ago
      Depends on the technical contract but per IRS rules are that when you trade one asset for another, you are virtually selling the asset and buying another. They did it to keep accounting simple.
    - deleted 9y ago
njarboe 9y ago
The problem, if one want to trade crypto currencies, is that you have to record every transaction. Then one has to figure out if the coins you have traded have been held for over a year and thus treated at the long term capital gains tax rate as opposed to the short term rate. Then, I believe with the new tax bill, one has to, going forward, sell the oldest coins first (if they are going to be treated like stocks). This makes complying very hard; impossible if you did not start at the beginning being very careful with your records. Basically trading a lot, especially algorithmic trading, is not something illegal, just impossible to do legally, in practice. Same with stocks. Professionals (of course) have some kind of special rules where they only have to keep track of net gains (or losses) and not every trade. A good analogy would be if, when gambling at a casino, one had to keep track of every bet and report it and the outcome. Then, if one kept chips for over a year, you would also have to keep track of how old the chips you were betting were. Cashing out chips you held for longer than a year would have a lower tax rate. New rules now would say you have to bet with your oldest chips first. Now report all this activity to the IRS with your taxes each year. Vegas and other casinos would not exist with such rules and so much pressure would be against laws treating Vegas style gambling the same way.
- seanmcdirmid 9y ago
  IRS doesn't treat chips as stock-like things, they are treated as cash. Can you imagine if crypto currencies were treated like foreign currency instead? You wouldn't be complaining about bookkeeping at least...
  - cft 9y ago
    They chose to kill the use of cryptocurrency as currency outright. It was a swift, but calculated decision.
    - seanmcdirmid 9y ago
      Yes, but do you really want your cryptocurrency gains to be taxed as ordinary income?
vkdelta 9y ago
good read on 1031 Like-Kind exchange for those who are thinking about it. https://www.mdmfinancialservices.com/cryptocurrency-and-like-kind-exchanges/ https://www.mdmfinancialservices.com/cryptocurrency-and-like...
dzinrgeek 9y ago
Fuckem, until I can also claim my loses they can come find me!
blunte 9y ago
A tax CPA I used in the past advised me with (hundreds of) short term equity trades to just present the before and after figures, since that represented the true income. They explained that in their experience, that was satisfactory to the IRS. It is unrealistic to expect people making frequent trades to carefully document every trade (unless perhaps that is their profession). It's even worse for cryptocurrencies, since the value of the outcome of a trade is entirely relative to some other more established asset (such as US Dollars). If you trade USD for BTC, then some time later trade BTC for XRP, then liquidate that for something more obscure (like cV), determining the value is really difficult. You would have to lookup the currency pair rates for each pair in a given trade, as well as some chain of currencies which can be associated directly with USD. Not only would that be highly inaccurate, but it could easily be argued very differently depending on which exchange(s) you used (since at any given moment, the difference of rates on different exchanges can be very significant). I think as far as the IRS is concerned, unless you're obviously getting rich, if you can just show you made reasonable effort to assess and report what you earned, they'll be satisfied. But if they think you're trying to fool them, they make take personal offense and put far more resources into nailing you than you think it's worth in lost tax revenue.
- hkmurakami 9y ago
  No wonder there are companies out there whose value add message is solely to provide tax compliance for crypto trading. This sounds like a nightmare since you don't have exact timestamp data for anything really.
  - mathgeek 9y ago
    This isn't tax advice, but it's common accounting practice to use a daily average value for trades where you only know the date and not the exact time of the trade. There's plenty of guidance from the IRS since many crypto trade situations have corresponding traditional concepts.
- kchoudhu 9y ago
  Why is it unreasonable? Your brokerage should be tracking your entry and exit for each trade and sending you a comprehensive 1099-B come tax time. If your cryptocurrency brokerage isn't doing that for you, move your money elsewhere. If you can't find a brokerage that does that for you, maybe you should start wondering what other important controls are missing from your brokerage. Just saying.
denweb 9y ago
nullification. let's all agree to not pay. done
kureikain 9y ago
If I invest but didn't cash out, then do I have to report? And if yes, then report what?
- loeg 9y ago
  As usual, you report income. If you bought something and did not sell it, you didn't receive any income. Replace "something" with any kind of asset.
mtgx 9y ago
The make it easy and simple to report them. Expecting regular people that can't afford expensive accountants to report potentially thousands of transactions a year is kind of crazy. But America likes its tax system to be super complicated and complex.
akeck 9y ago
If someone pays me for a service in bitcoins (e.g. GPU rental), what dollar amount do I report for income? The dollar value of the bitcoin at the time I was paid? The dollar value on 12/31/2017 at 23:59?
- heptathorp 9y ago
  You owe income tax on the value at the time you earned the income... If you later sold it for more, you owe tax on the gains.
- k-ian 9y ago
  yes. then when you sell the btc for usd, you pay the capital gains tax (probably 15%, it depends) on the difference from the price it was accepted at, and the price it was sold at
freech 9y ago
"Income from virtual currency transactions", not "virtual currency transactions".
droopybuns 9y ago
Do I get to report my misplaced cryptocurrency wallet password as a loss?
thirdreplicator 9y ago
Bite me.
spiraldancing 9y ago
So, reading through this discussion, I'm seeing a lot of "IRS tax law is confusing, complicated, and even contradictory on cryptocurrencies", and a lot of other people saying, in effect "well tough, it's the law, deal with it". What I'm getting out of it all is, people who did not make money on cryptocurrencies this past year are getting some satisfaction from the difficulties of those that did.

233 points by AltcoinReport 9y ago

Built an app to solve this issue: http://zenledger.io http://zenledger.io Companies like blockseer.com are being used by regulatory folks to find people skirting the rules.

purple-again 9y ago

Another point everyone should remember because I’ve seen the attitude a lot recently. If the reporting requirements seem to be literally impossible to comply with, this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you should conclude “I have to pay the maximum taxes possible under the worst case scenario because I don’t have the records to prove my version of events”. It has nothing to do with crypto, lose basis in your stock and you assume no basis (obviously you make best guess and hope To not get audited, but once audited, you take no basis).

chanfest22 9y ago
+1 There are also tools like www.cointracker.io out there to simplify the complexity of these crypto taxation rules
- Baeocystin 9y ago
  Oh, that looks useful. Thanks!
- kbaker 9y ago
  Also https://bitcoin.tax https://bitcoin.tax, does everything for you pretty much.
  - hesdeadjim 9y ago
    Worked well for me. I imagine when most people import their trades they will be very surprised by what they owe. I had no idea (but it makes sense) that when I gave some bitcoin gifts it followed the FIFO rules despite the fact that I had just purchased some to gift.
TallGuyShort 9y ago
The government needs to fix the problem that it's so difficult to know what you're required to pay without just paying the maximum guess (and then pay more ahead of time to avoid penalties). I've reported an instance of 2 conflicting statements in 2 separate IRS forms to the IRS, and rather than clarifying what was required they referred me to a tax advisor, who also didn't know the answer to the question. So we took the more liberal guess, and filed. And then had to rework it anyway because the law for how much tax I was required to pay in 2017 changed in 2018 anyway. The principles that we consider "rule of law" don't seem to apply to tax law.
- s73v3r_ 9y ago
  It's not the government's fault you lost track of your records.
  - TallGuyShort 9y ago
    I'm not even talking about that - parent comment talks about requirements that are literally impossible to comply with, and I talk about laws that are put into place after a tax year ends and apply retroactively, and official documents that contradict one another and the inability to get an official explanation from the government prior to the filing deadline. How is any of that even remotely "losing track of my records"? edit: Let me be even more detailed. I had to have my accountant rework my taxes 3 times. Once because of a retroactive law change after the end of the tax year. Once because of the inconsistency I discovered in official documents. And once because ETrade's documents and my employer's conflicted. Both of the latter were prepared by professionals. That's pretty typical of my filings. If it's so complex that all of that is fairly routine, that IS the government's problem. I have no problem keeping track of my own records; in fact my own record keeping and fastidiousness led to the discovery of all 3 of those problems.
    - adrianratnapala 9y ago
      > in fact my own record keeping and fastidiousness led to the discovery of all 3 of those problems. Does that mean it might be safer to be less fastidious so that no-one can uncover records that never existed?
Htyv 9y ago
Why do people put up with that extortion?
tzs 9y ago
> If the reporting requirements seem to be literally impossible to comply with, this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you should conclude “I have to pay the maximum taxes possible under the worst case scenario because I don’t have the records to prove my version of events”. Shouldn't that be "pay the minimum amount that (1) you can reasonably argue you believe is what you owe, and (2) is close enough to the maximum possible under the worst case scenario that you will not be subject to underpayment penalties if you are audited and they determine you owe the maximum"?
cmurf 9y ago
Not maximum possible. This isn't that difficult to compute. Not so long ago, 1099-B only showed the sale price of stocks (funds, etc) and you had to go back and compute basis yourself from the confirmations, even if the asset purchase was 50 years ago. It's no different for a house sale. Having a CPA doesn't help at all whatsoever to compensate for bad record keeping. There are other ways to do this that would be simpler, e.g. tax equals 1-2% of the asset value per year, rather than taxing the income. This isn't fundamentally different from property tax computation.
- zdragnar 9y ago
  > tax equals 1-2% of the asset value per year, rather than taxing the income So penalize everyone in down years when their stocks lose money, plus wipe out a ton of potential growth in 401k accounts? At least, that's what it sounds like to me.
  - cmurf 9y ago
    Lack of imagination. First, the biggest complaint sould be that it's regressive. Second, no one would accept 1-2% tax on retirement assets, even though this would actually benefit them over a long haul: grow tax free for 40 years, and then pay a n% asset tax, where n=asset pool (your retirement account) age? Almost everyone does better with Roth versions of IRAs and 401(k)'s anyway. Pay the tax up front, no tax at the back end, and thus basis and record keeping isn't even relevant. There's a bunch of ways to simplify this while also making it fair if it weren't for the greedy rich people who want regressive taxes, i.e. flat tax.
anonymous5133 9y ago
I work as a tax auditor and this is completely false. Taxpayers only need to pay the MINIMUM amount of tax required by law, not the maximum. If you are audited then we will tell you why you owe additional tax. No, you will not go to jail for paying less tax but upon audit you will be required to pay the deficiency or provide additional explanations/documents etc. Then you can introduce any counter arguments like you didn't know such a law exists, the tax code is ambiguous etc. Making these types of claims will help to provide case law to clarify it for others as well as for auditors. I agree that the taxation of crypto related transaction is quite ambiguous when you start getting into the theoretical nature of how the transaction is conducted.
- throwawaybbqed 9y ago
  I have two questions: 1) If one had used bitcoin as a currency (bought pizza, bubblegum, etc.), are these new "treatments" of cryptocurrency implying one has to report each of these purchases and the tax implication there in? 2) Lets say you are a miner and mine a bitcoin a month (I know not realistic but helps simplify question). Now, lets say you buy pizza with bitcoins from your wallet every month. What is the cost basis to use? The price is pretty volatile .. so what the heck are you supposed to do?
  - spookthesunset 9y ago
    Of course you need to report them. If you used AMZN stock to buy bubble gum or shoes, you'd have to report it too. Just because it is named crypto "currency" doesn't actually make it a currency...
    - deleted 9y ago
      [deleted]
    - ricardobeat 9y ago
      You can’t possibly buy bubblegum using stock. Having the properties of a currency makes them currencies!

deleted 9y ago

[deleted]

my_username_is_ 9y ago

They still haven't issued guidance on how to treat forks like BTC/BCH, have they?

kentm 9y ago
It’s still ambiguous but the most straightforward way is to treat it as miscellaneous income, which is how I reported it.
- ryanmarsh 9y ago
  If Apple's stock were to split and then "moon" would you claim the difference in portfolio value as misc income? That sounds nonsensical to me. The IRS guidance states it can be treated as a capital asset. You're still HODLing right? Right?
  - kentm 9y ago
    I did the research a few months ago and don’t remember the details, so sorry if this is vague. There are certain criteria that are required for something to be treated as a split and IIRC coin forks were really iffy in this case. The usual case in a stock split is that you get either more of the same security or something of similar likeness (a non voting class of shares in the case of the google split), which is arguable in the case of crypto. You could argue it’s a split to save money and if you had a huge amount in BTC at the time of the split it’d be worthwhile. My tax savings were going to end up being trivial so I went with what was “safe”. Edit: noticed your comment about Apple stock “moon”-big. If we’re reporting the fork as income then it’d be income at the value at the time of the fork. So if you had one BTC then the BCH income would be $277 or so and that would become the cost basis going forward. I didn’t have a lot of BTC so the actual tax cost was very low. If you’re holding thousands of BTC at the time then the story would be different and you’d be incentivized to argue a different tax treatment. Apologies for the wordiness here!!
- kemonocode 9y ago
  Do you owe taxes on unclaimed coin forks? I'd wager no but considering how complex taxation in general has turned out to be with cryptocurrencies...

purple-again 9y ago

If you are walking down the beach and find a $20 bill on the ground, you are required to report it as income. The only way that I know of that you can legally enrich yourself without paying taxes is via a direct gift and that’s because the giver pays tax instead of you.

gxs 9y ago
Worth mentioning that there exists a $5MM lifetime max that any individual can gift before paying taxes. A common misconception is that you have to pay tax on every gift you make, but as long as you’re under that $5MM all you have to do is report it.
- adanto6840 9y ago
  Not that it would probably ever apply to me, but I'm curious if that's per "individual gift giver - giver receiver" pair? Or is it the case that it's solely per individual gift _giver_? As in, would receiving a $500 gift from Bill Gates (who presumably has met the $5MM lifetime threshold) be fully taxable? Just random Sunday curiousness. :)
  - gxs 9y ago
    Individual gift giver. So lifetime max per person! Not too shabby.
    - purple-again 9y ago
      Lifetime max $5,000,000. Yearly max changes but hovers around $15k per person (wife and husband diffrent people!) and doesn’t touch yearly max.
  - deleted 9y ago
    [deleted]
  - isostatic 9y ago
    Would have to be per giver, otherwise it would be trivial to avoid (want Dave to get another $1m, either give $2m and have the taxes taken, or give $1.1m to Joe Bloggs, who gives $1m to Dave and keeps the rest.

k-ian 9y ago

why don't we just... link directly to the memo... https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currency-transactions https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report...

sctb 9y ago
OK! We've updated the link from https://altcoinreport.co/irs-warns-taxpayers-to-file-cryptocurrency-gains/ https://altcoinreport.co/irs-warns-taxpayers-to-file-cryptoc....

tunesmith 9y ago

I thought you didn't need to unless you sold. If you simply buy or receive, that also needs to be reported? I have some of those stellar/lumens from when they awarded them for free for signing up back in 2016, but have never sold or transferred them.

craftyguy 9y ago
Literally in the first sentence: > report their cryptocurrency earnings
kentm 9y ago
Nope. If you mine cryptos or receive them as income they’re reported as income. You also have to report gains if you spend them or trade them for another crypto currency.
- tunesmith 9y ago
  The signup promotion in 2016 was for 5000 or 6000 lumens. Historically it looks like in 2016, 6000 lumens would have been worth five or ten bucks. So I guess that should be reported as income back then although it approaches being a rounding error. At some point, stellar converted lumens to stellar. Anyone know if that would be considered a taxable event? Did that change my basis?
  - sokoloff 9y ago
    Not a tax pro, but I would treat any involuntary conversion similar to a corporate action where you got new shares for old shares, the new shares inherited the basis of the old shares, and would generally not be a taxable event. This is assuming it’s analogous to a tax-free spinoff event in the equities world.
    - toast0 9y ago
      You only get to treat a corporate action as a non-taxable event if the event meets certain requirements and follows certain forms. As cryptocoins aren't actually shares in a corporation, I don't think you're going to get a non-taxable conversion.

cft 9y ago

Can someone explain how a "property payment" is reported and taxed: "A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property." https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currency-transactions https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report...

kentm 9y ago
Treat it as if you sold the crypto for USD (and pay capital gains). So if you bought a crypto for $10, the price appreciated to $110, and then you bough something worth $110, then you have to pay taxes on $100 of income. It’s the same place you repot capital gains for equity (I don’t remember the form number)
- cft 9y ago
  What if I bought 1BTC at $10, then I bought 1BTC at $200, then I bought something with 1BTC when BTC dropped to $100/1BTC? Which BTC was used for the purchase- the one I bought at $10 or the one at $200? It sort of kills the use of cryptocurrency as "currency" in the US. Imagine if in the end of the year we had to report every dollar transaction (e.g. buying a coffee and a bagel), trace how you earned that dollar and calculate capital gains/loss.
  - kentm 9y ago
    It does make it hard, yes, but that’s what the IRS expects. Edit: easiest thing to do as a workaround, imo, would be to build tax reporting into wallet software.
    - cft 9y ago
      PS. I just edited- I think it's hard to calculate even in principle?
      - kentm 9y ago

roddux 9y ago

"No", respond taxpayers. How do they intend to record this?

kgwgk 9y ago
How does the non-compliant taxpayer intend to justify the origin of the money when BTC hits $1mn or whatever and he buys a lamborghini and a penthouse?
kentm 9y ago
Coinbase and other crypto exchanges report to the IRS for one. There’s also forensic accounting where large unexplained cash flows (i.e. buying a house for money far above your income level) establish probable cause, which allows them to go fishing.
- markonthewall 9y ago
  It's actually trivial to dodge US taxes. The most basic and effective way to accomplish that is to establish fiscal residency in a friendly european country. It becomes /really/ easy when you have dual citizenship. Same applies for crypto gains, if you avoid using US based crypto-exchanges you are probably OK for the foreseeable future. I have found that many americans overestimate the reach, competence, and sheer willpower of the IRS. You would be surprised at what /doesn't/ happen if you stop filing taxes.
  - kentm 9y ago
    I probably am overestimating their reach. I would imagine the willpower scales proportionally with the amount of lost revenue minus the cost of pursuing. I’m sure a lot of people in crypto think they’re cleverly covering their tracks when they’re not, and it really comes down to whether or not the IRS notices. Personally I don’t want to roll the dice.
  - chx 9y ago
    > You would be surprised at what /doesn't/ happen if you stop filing taxes. You are right: the sun would still rise everything morning, life would continue pretty much unchanged, no one would break down the door to haul you away for not filing your return. This is not Hollywood. But a little envelope could show up in a year, two years -- or twenty years. If you do not file there is no time limit on collection of taxes, interest and penalties. https://www.irs.gov/irm/part5/irm_05-001-019 https://www.irs.gov/irm/part5/irm_05-001-019 Maybe you are living in a van now and getting cash on the nail and can't care less. But... what if you clean up in ten years and want to live better? Even a zero return is better than no return. And if you do not live in a van but have an actual income with a paper trail, the IRS might just file a Substitution for Return on your behalf and then, if you do not respond, they will, with the full force of the law, come after what they think you owe them, putting a federal tax lien on your real property, garnishing your wages and so on. Once you or they filed a return, there's a ten year time limit on collecting the money, but, again, that doesn't apply if you do not file. What really doesn't happen is criminal tax evasion charges. That's truly rare and reserved for the heavy hitters.

whataretensors 9y ago

matthewmacleod 9y ago
What isn't sane around "report your income"?
- whataretensors 9y ago
  FYI I removed my comment because I don't want to get targeted by the biggest killer of small business in the US.
  - s73v3r_ 9y ago
    “biggest killer of small business in the US.” Owners who think they’re being clever, when they’re just violating the law?
    - Spooky23 9y ago
      One of my neighbors was talking like this. Turned out he was stealing employee payroll taxes and sales taxes to get current with his trade creditors.
      - whataretensors 9y ago
        This immediate suspicion when speaking out is why I removed the comment. I am not stealing anything and I don't have any employees.
  - DoreenMichele 9y ago
    My recollection is all you said was "The IRS needs to come up with some sane rules surrounding this issue." There was nothing wrong with saying it, never mind the spin of replies to it. I am stating that because removing the comment combined with your follow up comment looks weird and suspicious in a way the first comment did not to me. I would hate to see you subjected to the Streisand Effect here in a way that could have tax and legal consequences. Best.

ryanmarsh 9y ago

This all seems pretty reasonable IMHO. Relevant section: * A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. * Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC. * Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes. * Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third Party Network Transactions. But I think this last one is probably the most interesting to us HODLers * The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.

mannykannot 9y ago

There are people who have lost the key to wallets. For most of them, that is the same as not owning the cryptocurrency, but a small number might get lucky and remember where they put it, or remember enough of it to eventually recover it, at some point in the future. I haven't looked in detail, but do the rules address this scenario?

khc 9y ago
You report transactions. So if you lost your keys there should be no transactions
s73v3r_ 9y ago
Yes. If you don’t have the key, you can’t sell. Selling is when you would realize your gain (or loss), and then do tax stuff.
floatingatoll 9y ago
Lost assets are commonly reported on this form, which you should file if you knowingly hold coins and then lose access to them: https://www.irs.gov/pub/irs-pdf/i4684.pdf https://www.irs.gov/pub/irs-pdf/i4684.pdf If you recover the property in the future after filing it as lost, pay a tax professional to advise you.
loeg 9y ago
You only realize income on sales. So if it's lost and you can't sell it, there is no taxable income.

sergiotapia 9y ago

Reminded me of this kid that said he bought some bitcoins and then sold to buy some alt coins. >At the advice of my friends, I took most of my savings and bought 8 bitcoins back in early 2017 for about $7200. You can imagine how I felt when it went up. Around December 2017, I got caught up in the altcoins frenzy and sold most of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn't know this back then but it looks like I owe income taxes on those trades, Thread: https://www.reddit.com/r/personalfinance/comments/84huks/i_just_discovered_that_i_owe_the_irs_50k_that_i/ https://www.reddit.com/r/personalfinance/comments/84huks/i_j...

Yizahi 9y ago
That was a very useful and interesting thread. I suggest everyone should read a few top comments there.
jobigoud 9y ago
I still find it weird that he has to pay taxes in dollars on something that he doesn't know the value of in dollars since he hasn't converted his cryptocurrency assets to fiat yet.
- gst 9y ago
  Vanguard allows me to exchange one mutual fund for another mutual fund (without having to explicitly sell and re-buy). Do you think that's something that shouldn't be taxable? Where's the difference to the cryptocurrency example above?
  - deleted 9y ago
    [deleted]
  - nashashmi 9y ago
    Depends on the technical contract but per IRS rules are that when you trade one asset for another, you are virtually selling the asset and buying another. They did it to keep accounting simple.
  - deleted 9y ago

njarboe 9y ago

The problem, if one want to trade crypto currencies, is that you have to record every transaction. Then one has to figure out if the coins you have traded have been held for over a year and thus treated at the long term capital gains tax rate as opposed to the short term rate. Then, I believe with the new tax bill, one has to, going forward, sell the oldest coins first (if they are going to be treated like stocks). This makes complying very hard; impossible if you did not start at the beginning being very careful with your records. Basically trading a lot, especially algorithmic trading, is not something illegal, just impossible to do legally, in practice. Same with stocks. Professionals (of course) have some kind of special rules where they only have to keep track of net gains (or losses) and not every trade. A good analogy would be if, when gambling at a casino, one had to keep track of every bet and report it and the outcome. Then, if one kept chips for over a year, you would also have to keep track of how old the chips you were betting were. Cashing out chips you held for longer than a year would have a lower tax rate. New rules now would say you have to bet with your oldest chips first. Now report all this activity to the IRS with your taxes each year. Vegas and other casinos would not exist with such rules and so much pressure would be against laws treating Vegas style gambling the same way.

seanmcdirmid 9y ago
IRS doesn't treat chips as stock-like things, they are treated as cash. Can you imagine if crypto currencies were treated like foreign currency instead? You wouldn't be complaining about bookkeeping at least...
- cft 9y ago
  They chose to kill the use of cryptocurrency as currency outright. It was a swift, but calculated decision.
  - seanmcdirmid 9y ago
    Yes, but do you really want your cryptocurrency gains to be taxed as ordinary income?

vkdelta 9y ago

good read on 1031 Like-Kind exchange for those who are thinking about it. https://www.mdmfinancialservices.com/cryptocurrency-and-like-kind-exchanges/ https://www.mdmfinancialservices.com/cryptocurrency-and-like...

dzinrgeek 9y ago

Fuckem, until I can also claim my loses they can come find me!

blunte 9y ago

A tax CPA I used in the past advised me with (hundreds of) short term equity trades to just present the before and after figures, since that represented the true income. They explained that in their experience, that was satisfactory to the IRS. It is unrealistic to expect people making frequent trades to carefully document every trade (unless perhaps that is their profession). It's even worse for cryptocurrencies, since the value of the outcome of a trade is entirely relative to some other more established asset (such as US Dollars). If you trade USD for BTC, then some time later trade BTC for XRP, then liquidate that for something more obscure (like cV), determining the value is really difficult. You would have to lookup the currency pair rates for each pair in a given trade, as well as some chain of currencies which can be associated directly with USD. Not only would that be highly inaccurate, but it could easily be argued very differently depending on which exchange(s) you used (since at any given moment, the difference of rates on different exchanges can be very significant). I think as far as the IRS is concerned, unless you're obviously getting rich, if you can just show you made reasonable effort to assess and report what you earned, they'll be satisfied. But if they think you're trying to fool them, they make take personal offense and put far more resources into nailing you than you think it's worth in lost tax revenue.

hkmurakami 9y ago
No wonder there are companies out there whose value add message is solely to provide tax compliance for crypto trading. This sounds like a nightmare since you don't have exact timestamp data for anything really.
- mathgeek 9y ago
  This isn't tax advice, but it's common accounting practice to use a daily average value for trades where you only know the date and not the exact time of the trade. There's plenty of guidance from the IRS since many crypto trade situations have corresponding traditional concepts.
kchoudhu 9y ago
Why is it unreasonable? Your brokerage should be tracking your entry and exit for each trade and sending you a comprehensive 1099-B come tax time. If your cryptocurrency brokerage isn't doing that for you, move your money elsewhere. If you can't find a brokerage that does that for you, maybe you should start wondering what other important controls are missing from your brokerage. Just saying.

denweb 9y ago

nullification. let's all agree to not pay. done

kureikain 9y ago

If I invest but didn't cash out, then do I have to report? And if yes, then report what?

loeg 9y ago
As usual, you report income. If you bought something and did not sell it, you didn't receive any income. Replace "something" with any kind of asset.

mtgx 9y ago

The make it easy and simple to report them. Expecting regular people that can't afford expensive accountants to report potentially thousands of transactions a year is kind of crazy. But America likes its tax system to be super complicated and complex.

akeck 9y ago

If someone pays me for a service in bitcoins (e.g. GPU rental), what dollar amount do I report for income? The dollar value of the bitcoin at the time I was paid? The dollar value on 12/31/2017 at 23:59?

heptathorp 9y ago
You owe income tax on the value at the time you earned the income... If you later sold it for more, you owe tax on the gains.
k-ian 9y ago
yes. then when you sell the btc for usd, you pay the capital gains tax (probably 15%, it depends) on the difference from the price it was accepted at, and the price it was sold at

freech 9y ago

"Income from virtual currency transactions", not "virtual currency transactions".

droopybuns 9y ago

Do I get to report my misplaced cryptocurrency wallet password as a loss?

thirdreplicator 9y ago

Bite me.

spiraldancing 9y ago

So, reading through this discussion, I'm seeing a lot of "IRS tax law is confusing, complicated, and even contradictory on cryptocurrencies", and a lot of other people saying, in effect "well tough, it's the law, deal with it". What I'm getting out of it all is, people who did not make money on cryptocurrencies this past year are getting some satisfaction from the difficulties of those that did.