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Just About Everyone with Bitcoin Is Lying to the IRS

40 points by chollida1 9y ago

ozten 9y ago
What are the demographics of Credit Karma users? That seems like a limited and biased sample to extrapolate that "just about everyone with Bitcoin is Lying". I've reported BTC income to the IRS in 2014 and 2017, will do so again in 2018...
- ksherlock 9y ago
  If I had BTC income (which I don't) I'd make damn sure to use an accountant so someone else has their name on the line. And I certainly wouldn't use Credit Karma (and not only because I've never heard of them).
  - Sargos 9y ago
    You've really never heard of Credit Karma before?
    - brewdad 9y ago
      Nope. Should I?
- thisisit 9y ago
  Yes, demographics for Credit Karma does play a role. But, given that IRS did raise under reporting as the main issue during the fight with Coinbase : n 2013, 807 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin; in 2014, 893 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin; and in 2015, 802 individuals reported a transaction it is a concern.
spacehome 9y ago
Their data all comes from people who file taxes Credit Karma. > The figure, reported by CNBC, comes from Credit Karma, a popular financial app through which people can view their credit score and file taxes. Of the more than 250,000 people who have filed through Credit Karma this year, a whopping 0.0004 percent have claimed to have money in bitcoin or other cryptocurrencies. Could it be possible that people who file taxes with Credit Karma are not a random sampling of the population, and maybe bitcoin holders (and particularly those who report it on their taxes) have structural reasons to avoid CK? Lazy reporting to not even mention it in the article. Is it just me, or is there an increasing trend to take one statistic and stretch it out to a 5 paragraph news article? (And that percentage is just a fancy way to say that 1 Credit Karma tax client out of 250,000 declared bitcoin.)
- halfdan 9y ago
  Also, why report 250k and 0.0004% and not just "~100 people". Makes it much easier to digest.
  - cecilpl2 9y ago
    100 people is 0.04%. 0.0004% is one person.
  - mathewsanders 9y ago
    I read it as 250k x 0.0004 / 100 (which equals 1)
    - TylerE 9y ago
      0.0004% = 0.000004
- Cookiesaurusbex 9y ago
  Also "Bitcoin traders have been less than pleased with the realization they have to pay taxes on any of their earnings" isn't a fair statement. I have spent a lot of time reading on crypto currency forums this last year. I think most people (aside from some of the more libretarian / anarchist "taxation is theft" folks) were aware that that would be some kind of capital gains tax on what they cashed out. What people didn't realize was that you would get taxed per transaction on unrealized gains.
meritt 9y ago
Coinbase provided 1099-Ks to the IRS. If filers didn't also provide an 8949 (cost-basis statement) to demonstrate their net gain/loss, they're likely going to be on the hook for taxes on the entire amount reported in the 1099-K.
exelius 9y ago
I am actually worried about Trump from a solvency standpoint. Hear me out on this. Trump has unquestionably shaken faith and trust in government. To the point I’m willing more than a few voters are thinking “jeez, if these guys are gonna screw me, I’m gonna take what’s mine”. Hell, our president has admitted to avoiding taxes in multiple on-the-record accounts! As a result, everyone I know has admitted to cheating a little bigger on their taxes this year, and omission of personal investments like Bitcoin is one of the easiest. From what I’ve read in the past (I don’t know if this is true), it would only take a 2% decline in personal income tax filings to cause serious cash flow problems for the US government. The republicans have spent years weakening the IRS’ enforcement power, and now Trump has given a lot of people both motive and a role model to avoid paying taxes. Maybe if it breaks our current social contract enough, we’ll get to create a new one appropriate for a 21st century world leader.
- jeffreyrogers 9y ago
  I don't think Trump ever claimed to have done anything fraudulent (whether he did or not is another matter). I'm not trying to get into a political debate or argue over Trump's flaws or merits, but there's a big difference between using legal loopholes that are available to you and deliberately not reporting things to pay fewer taxes.
  - lightbyte 9y ago
    >but there's a big difference between using legal loopholes that are available to you and deliberately not reporting things to pay fewer taxes. Legally that's true, but I think the average person upset about this sees zero difference at all. Myself included, in my opinion using legal loopholes to get out of tax is morally just as bad, if not worse than deliberately not reporting things to pay fewer taxes.
    - cryptical 9y ago
      "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." -Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465 (1935)
whataretensors 9y ago
Making taxes difficult with crypto is a feature. It allows for selective enforcement and more IRS weaponization.
deleted 9y ago
[deleted]
vonzeppelin 9y ago
Credit Karma's tax system couldn't even handle multi state tax filings so there is no way their tax filers could have been a good representation of anything.
gringoDan 9y ago
I don't think most people are underreporting out of malice. I'm guessing most with money in cryptocurrencies fall into one of two buckets: 1) People - esp. millennials who have never paid capital gains taxes - who don't even realize that crypto gains are taxed. (They should, but that's a different issue.) 2) People who put money into crypto and had some decent gains (<$10,000). Come tax season, they realized how difficult it would be to report their gains and just gave up, betting that they wouldn't be audited by the IRS. Obviously if you realized massive gains and are actively evading taxes, that's a problem. But I feel for the little players here - a whole lot of people would report their capital gains if there was an easier mechanism in place. The current process of trying to figure out the dollar value of each individual trade on exchanges lacking basic reporting infrastructure is a mess. I'm not surprised that a lot of people just throw up their hands and give up. (And yes, I realize that putting an easier mechanism in place to pay taxes on crypto is inviting the sort of financial regulation that runs counter to the ethos of blockchain...but let's be honest, in their current form, cryptocurrencies are not what we were promised. They have by and large been co-opted by financial institutions and the very intermediaries they were meant to supplant.)
- tfandango 9y ago
  I wonder if there's an aspect of being in too deep already. I'm not sure I would have thought about reporting Bitcoin gains years ago when it was more of a technical interest. Now that it has skyrocketed, I can imagine scenarios where people wouldn't have enough USD to cover the taxes so instead of selling their Bitcoin they just keep quiet. Oklahoma had a similar thing on their state tax forms for internet sales tax, everyone just checked the "I didn't shop online" box to the tune of about 90%.
  - tathougies 9y ago
    You aren't taxed on the estimated value of your bitcoin. If you bought bitcoin at $2 (for example) five years ago, and now it's worth $5000, you owe no taxes. However, if you sell the bitcoin for a gain of $4998 USD, now you owe tax on the $4998 you realized in gain. Unless, you sell your bitcoin and just spend all the money, you should be fine just keeping your money in bitcoin.
apo 9y ago
The figure, reported by CNBC, comes from Credit Karma, a popular financial app through which people can view their credit score and file taxes. Of the more than 250,000 people who have filed through Credit Karma this year, a whopping 0.0004 percent have claimed to have money in bitcoin or other cryptocurrencies. Garbage in, garbage out - like basing the alcoholism rate for the US by surveying the state of Utah. Check your scores anytime, anywhere, and never pay for it. https://www.creditkarma.com/ https://www.creditkarma.com/ Bitcoin attracts people who can't stand the mess that credit cards have created. A person obsessive enough about a credit score to use an app that lets them view it anytime, anywhere won't be interested in Bitcoin to begin with.
- chc 9y ago
  This appears to be about people who filed taxes through Credit Karma, not normal users. You need to file your taxes somewhere, and Credit Karma is probably the best free option available.
  - jobigoud 9y ago
    This makes me realize I don't know how the American system works. You file your taxes to private companies? Then they send it to the IRS? You can't just fill a form, online or on paper, and send it to the administration yourself?
    - dragonwriter 9y ago
      > You can't just fill a form, online or on paper, and send it to the administration yourself? Yes, you can. There are both paper and fillable electronic forms (and, for simple cases with incomes under $66,000, tax prep software) available free from the government, and you can file them for free, by mail or electronically, as appropriate, with the IRS.
      - chc 9y ago
        But of course the IRS probably isn't the only entity to which you owe taxes (states and the federal government are separate entities), so the IRS's forms only get you part of the way. What services like Credit Karma do is let you input your W-2 forms or similar (which indicate taxes paid), ask you questions to determine any adjustments you might need/want to make, generate the correct forms to send to the IRS and your state tax agency, and transfer the money you owe from your bank account. Doing all that by hand is quite a bit more work.
thisisit 9y ago
> The IRS has offered guidance on bitcoin transactions since 2014 and considers the cryptocurrency to be property, not currency. As such, every purchase, sale, trade, and mining effort is considered to be a taxable event. Wait. So, cryptocurrencies are not taxed on capital gains? If it is considered property then do people need to calculate their base price, profit and then pay taxes?
- gascan 9y ago
  > cryptocurrencies are not taxed on capital gains? Stocks are also property, and they are certainly taxed on capital gains. > If it is considered property then do people need to calculate their base price, profit and then pay taxes? Yes.
- tathougies 9y ago
  A capital gain is a gain in capital made during the sale of property. Selling bitcoin for more than it was bought for and collecting the profit is the very definition of a capital gain.

40 points by chollida1 9y ago

What are the demographics of Credit Karma users? That seems like a limited and biased sample to extrapolate that "just about everyone with Bitcoin is Lying". I've reported BTC income to the IRS in 2014 and 2017, will do so again in 2018...

ksherlock 9y ago
If I had BTC income (which I don't) I'd make damn sure to use an accountant so someone else has their name on the line. And I certainly wouldn't use Credit Karma (and not only because I've never heard of them).
- Sargos 9y ago
  You've really never heard of Credit Karma before?
  - brewdad 9y ago
    Nope. Should I?
thisisit 9y ago
Yes, demographics for Credit Karma does play a role. But, given that IRS did raise under reporting as the main issue during the fight with Coinbase : n 2013, 807 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin; in 2014, 893 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin; and in 2015, 802 individuals reported a transaction it is a concern.

spacehome 9y ago

Their data all comes from people who file taxes Credit Karma. > The figure, reported by CNBC, comes from Credit Karma, a popular financial app through which people can view their credit score and file taxes. Of the more than 250,000 people who have filed through Credit Karma this year, a whopping 0.0004 percent have claimed to have money in bitcoin or other cryptocurrencies. Could it be possible that people who file taxes with Credit Karma are not a random sampling of the population, and maybe bitcoin holders (and particularly those who report it on their taxes) have structural reasons to avoid CK? Lazy reporting to not even mention it in the article. Is it just me, or is there an increasing trend to take one statistic and stretch it out to a 5 paragraph news article? (And that percentage is just a fancy way to say that 1 Credit Karma tax client out of 250,000 declared bitcoin.)

halfdan 9y ago
Also, why report 250k and 0.0004% and not just "~100 people". Makes it much easier to digest.
- cecilpl2 9y ago
  100 people is 0.04%. 0.0004% is one person.
- mathewsanders 9y ago
  I read it as 250k x 0.0004 / 100 (which equals 1)
  - TylerE 9y ago
    0.0004% = 0.000004
Cookiesaurusbex 9y ago
Also "Bitcoin traders have been less than pleased with the realization they have to pay taxes on any of their earnings" isn't a fair statement. I have spent a lot of time reading on crypto currency forums this last year. I think most people (aside from some of the more libretarian / anarchist "taxation is theft" folks) were aware that that would be some kind of capital gains tax on what they cashed out. What people didn't realize was that you would get taxed per transaction on unrealized gains.

meritt 9y ago

Coinbase provided 1099-Ks to the IRS. If filers didn't also provide an 8949 (cost-basis statement) to demonstrate their net gain/loss, they're likely going to be on the hook for taxes on the entire amount reported in the 1099-K.

exelius 9y ago

I am actually worried about Trump from a solvency standpoint. Hear me out on this. Trump has unquestionably shaken faith and trust in government. To the point I’m willing more than a few voters are thinking “jeez, if these guys are gonna screw me, I’m gonna take what’s mine”. Hell, our president has admitted to avoiding taxes in multiple on-the-record accounts! As a result, everyone I know has admitted to cheating a little bigger on their taxes this year, and omission of personal investments like Bitcoin is one of the easiest. From what I’ve read in the past (I don’t know if this is true), it would only take a 2% decline in personal income tax filings to cause serious cash flow problems for the US government. The republicans have spent years weakening the IRS’ enforcement power, and now Trump has given a lot of people both motive and a role model to avoid paying taxes. Maybe if it breaks our current social contract enough, we’ll get to create a new one appropriate for a 21st century world leader.

jeffreyrogers 9y ago
I don't think Trump ever claimed to have done anything fraudulent (whether he did or not is another matter). I'm not trying to get into a political debate or argue over Trump's flaws or merits, but there's a big difference between using legal loopholes that are available to you and deliberately not reporting things to pay fewer taxes.
- lightbyte 9y ago
  >but there's a big difference between using legal loopholes that are available to you and deliberately not reporting things to pay fewer taxes. Legally that's true, but I think the average person upset about this sees zero difference at all. Myself included, in my opinion using legal loopholes to get out of tax is morally just as bad, if not worse than deliberately not reporting things to pay fewer taxes.
  - cryptical 9y ago
    "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." -Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465 (1935)

whataretensors 9y ago

Making taxes difficult with crypto is a feature. It allows for selective enforcement and more IRS weaponization.

deleted 9y ago

[deleted]

vonzeppelin 9y ago

Credit Karma's tax system couldn't even handle multi state tax filings so there is no way their tax filers could have been a good representation of anything.

gringoDan 9y ago

I don't think most people are underreporting out of malice. I'm guessing most with money in cryptocurrencies fall into one of two buckets: 1) People - esp. millennials who have never paid capital gains taxes - who don't even realize that crypto gains are taxed. (They should, but that's a different issue.) 2) People who put money into crypto and had some decent gains (<$10,000). Come tax season, they realized how difficult it would be to report their gains and just gave up, betting that they wouldn't be audited by the IRS. Obviously if you realized massive gains and are actively evading taxes, that's a problem. But I feel for the little players here - a whole lot of people would report their capital gains if there was an easier mechanism in place. The current process of trying to figure out the dollar value of each individual trade on exchanges lacking basic reporting infrastructure is a mess. I'm not surprised that a lot of people just throw up their hands and give up. (And yes, I realize that putting an easier mechanism in place to pay taxes on crypto is inviting the sort of financial regulation that runs counter to the ethos of blockchain...but let's be honest, in their current form, cryptocurrencies are not what we were promised. They have by and large been co-opted by financial institutions and the very intermediaries they were meant to supplant.)

tfandango 9y ago
I wonder if there's an aspect of being in too deep already. I'm not sure I would have thought about reporting Bitcoin gains years ago when it was more of a technical interest. Now that it has skyrocketed, I can imagine scenarios where people wouldn't have enough USD to cover the taxes so instead of selling their Bitcoin they just keep quiet. Oklahoma had a similar thing on their state tax forms for internet sales tax, everyone just checked the "I didn't shop online" box to the tune of about 90%.
- tathougies 9y ago
  You aren't taxed on the estimated value of your bitcoin. If you bought bitcoin at $2 (for example) five years ago, and now it's worth $5000, you owe no taxes. However, if you sell the bitcoin for a gain of $4998 USD, now you owe tax on the $4998 you realized in gain. Unless, you sell your bitcoin and just spend all the money, you should be fine just keeping your money in bitcoin.

apo 9y ago

The figure, reported by CNBC, comes from Credit Karma, a popular financial app through which people can view their credit score and file taxes. Of the more than 250,000 people who have filed through Credit Karma this year, a whopping 0.0004 percent have claimed to have money in bitcoin or other cryptocurrencies. Garbage in, garbage out - like basing the alcoholism rate for the US by surveying the state of Utah. Check your scores anytime, anywhere, and never pay for it. https://www.creditkarma.com/ https://www.creditkarma.com/ Bitcoin attracts people who can't stand the mess that credit cards have created. A person obsessive enough about a credit score to use an app that lets them view it anytime, anywhere won't be interested in Bitcoin to begin with.

chc 9y ago
This appears to be about people who filed taxes through Credit Karma, not normal users. You need to file your taxes somewhere, and Credit Karma is probably the best free option available.
- jobigoud 9y ago
  This makes me realize I don't know how the American system works. You file your taxes to private companies? Then they send it to the IRS? You can't just fill a form, online or on paper, and send it to the administration yourself?
  - dragonwriter 9y ago
    > You can't just fill a form, online or on paper, and send it to the administration yourself? Yes, you can. There are both paper and fillable electronic forms (and, for simple cases with incomes under $66,000, tax prep software) available free from the government, and you can file them for free, by mail or electronically, as appropriate, with the IRS.
    - chc 9y ago
      But of course the IRS probably isn't the only entity to which you owe taxes (states and the federal government are separate entities), so the IRS's forms only get you part of the way. What services like Credit Karma do is let you input your W-2 forms or similar (which indicate taxes paid), ask you questions to determine any adjustments you might need/want to make, generate the correct forms to send to the IRS and your state tax agency, and transfer the money you owe from your bank account. Doing all that by hand is quite a bit more work.

thisisit 9y ago

> The IRS has offered guidance on bitcoin transactions since 2014 and considers the cryptocurrency to be property, not currency. As such, every purchase, sale, trade, and mining effort is considered to be a taxable event. Wait. So, cryptocurrencies are not taxed on capital gains? If it is considered property then do people need to calculate their base price, profit and then pay taxes?

gascan 9y ago
> cryptocurrencies are not taxed on capital gains? Stocks are also property, and they are certainly taxed on capital gains. > If it is considered property then do people need to calculate their base price, profit and then pay taxes? Yes.
tathougies 9y ago
A capital gain is a gain in capital made during the sale of property. Selling bitcoin for more than it was bought for and collecting the profit is the very definition of a capital gain.