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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
by 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 agoIRS 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 agoThey chose to kill the use of cryptocurrency as currency outright. It was a swift, but calculated decision.
- seanmcdirmid 9y agoYes, but do you really want your cryptocurrency gains to be taxed as ordinary income?
- repsilat 9y agoAt a casino your "bets in flight" could be considered securities... If the roulette wheel spins for a year while your bets are down, maybe you could claim long term capital gains on your winnings because you held the position long enough...
- jmalicki 9y agoTo claim the "bets in flight" are securities, someone would have to argue that you are making money from the efforts of others (see Howey Test[1]), rather than chance... [1] https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.
- kolinko 9y agoIt's not that diffiult really - most exchanges allow exporting historic transactions, and there are tools popping up that help to organise it all for the tax purposes.
- cloakandswagger 9y agoI use Coinbase and yes, it was that difficult. I didn't receive a 1099 from them, so I had to use their "Cost Basis for Taxes" report. That might've worked, except it doesn't delineate short and long-term gains, and even worse it counts every transfer to GDAX as a sale. That meant hours of pouring through GDAX's even more bare-bones reports to figure out which coins were sold, which were kept, which were transferred back to Coinbase or to other wallets, which coins were held for longer than a year... That process, across several different cryptocurrencies and thousands of transactions, took 8 hours of work. At the end of it all you're left with the sinking worry that you overlooked something and are overpaying or underpaying.
- chanfest22 9y agoOooof! Consider checking out tools like www.cointracker.io that help do this for you automatically!
- JumpCrisscross 9y ago> if one want to trade crypto currencies, is that you have to record every transaction This is true for all capital assets. With cryptocurrencies, the data are all public. There may be room for a service which, given a set of wallets, produces a sample tax transcript.
- hobofan 9y agoYou still need the fiat exchange value at the time of buying/selling the cryptocurrencies (unless you only assume "token for token" trades), which is not stored on the blockchain.
- hkmurakami 9y agoFwiw IRS has a table for the FX exchange rate you can use for tax purposes for a given year (maybe date too?). We used this data for international subsidiary tax compliance for US tax reporting. I wonder if the IRS will actually able to provide such benchmark data for at least the common coins.
- JumpCrisscross 9y agoAren’t those data trivial to procure for the common cryptocurrencies? For uncommon ones, just ask the user to find the price on dates X, Y and Z.
- iamdave 9y agoA given day could have multiple instances of open/close price n for any number of trading intervals though couldn't it?
- JumpCrisscross 9y agoThe IRS is usually fine with reasonable approximations. Tax lawyers and preparers are familiar with this problem; their input could inform a compliant system. Disclaimer: I am neither a lawyer nor a tax expert. This is not legal nor tax advice. Talk to a CPA about your tax situation.
- hkmurakami 9y agoFyi FIFO sales did not pass.
- njarboe 9y agoThanks for the info. I tried not to pay much attention to the tax news before it passed so my head would not be filled with ideas of "what might be in it" that get converted to "is in it" after it passed. I guess one (probably more) got through.