10 ms·

I got a letter from the IRS a few months ago and the text said something along the lines of “we know you have accounts on cryptocurrency trading services. Pleas

I got a letter from the IRS a few months ago and the text said something along the lines of “we know you have accounts on cryptocurrency trading services. Please be aware that crypto trading is taxable and you can face severe penalties and even jail if you don’t report them”. I do have accounts but I have not traded with them... My guess the account they’re referring to is the one in coinbase, which I have not used since they announced the service.

vmception 6y ago
My annoyance with the Coinbase data is that even Coinbase assumes your crypto is a capital gain or capital loss. Paying an invoice? Never considered that! Tax deductible transaction? With crypto huh, never asked! Receiving crypto for services rendered? What do you mean using crypto for what it was designed for I’m so confused! The asset doesnt matter, only the nature of the transaction matters
- mrgordon 6y ago
  Isn’t this how the IRS treats it so that’s how Coinbase has to treat it? If one buys a bagel with Bitcoin, then one needs to treat it as a sale of Bitcoin to US Dollars
  - ibeckermayer 6y ago
    Yes, hence the entire crypto fad is a mass delusion built on lies. It’s regulated like a security, hence you’re not going to be able to use it like currency. Ever.
    - smabie 6y ago
      You can already use it like currency for some things: web hosting, drugs, vpns, etc.
    - vmception 6y ago
      Ermmmmm not quite. What needs to change in your filter bubble for you to have a different, or at least more nuanced, conclusion? Who would you need to hear it from?
- mark2996 6y ago
  That's how crypto taxes actually work though. Every transaction is a capital gain/loss based on current law.
  - vmception 6y ago
    It’s also a gain or loss if there was a gain or loss. If you got paid and liquidated immediately, the price change was not worth mentioning and the income tax is. If you bought crypto to immediately pay for a server, the price change is not worth mentioning because it likely didn’t change more than a fraction of a percent and the expense is worth mentioning. Current law factors that in, because current law doesn't factor in what asset was used for payment. With rise of stablecoins like DAI and USDC where equally large volumes are being used, focusing exclusively on capital gain/loss is even more misguided.
    - xxpor 6y ago
      It doesn't matter though. It's like when I get RSUs and sell all immediately. I still have to file the sales as a capital gain, even if the amount is basically 0.
      - vmception 6y ago
        The also was italicized for emphasis. But to your point, RSUs - unless you did an 83b election - have a bigger income tax component, especially in your sell immediately example. Which reinforces my point that the prioritization is wrong and that focusing exclusively on capital gain/loss is misguided. This time I’ll italicize exclusively, for emphasis, lest that somehow gets lost in the message.
- Anon1096 6y ago
  That's exactly how it should work though. If you buy 1 BTC today for 10k USD, and then its market value increases to 400k USD and you buy a house using it, can you really argue that you haven't just made a capital gain of 390k USD?
  - vmception 6y ago
    That’s how it also should work, if you are using a volatile asset. Not everyone using crypto is using volatile cryptos, and not everyone using volatile cryptos is holding them long enough for capital gain/loss to be the primary concern, meaning there is likely a more relevant tax report such as a income tax or a deduction against income tax. So the assumption is flawed. The priorities in reporting are flawed.
  - IncRnd 6y ago
    Only if you sell it. One way is when someone chooses to get a loan agaist the asset instead of selling it. Of course, a lender would be crazy to loan against the future value of BTC.
    - vmception 6y ago
      Lenders have been doing great lending against btc and other digital assets. They all set up systems to immediately liquidate the borrower and also sell the asset (or hedge against it). Its the borrower that amplifies their risk. But if a borrower collateralizes well enough it is much more tax efficient for them. These are solved problems for 2 years. And yes, that is an additional example about why assuming there is a capital gain or loss merely from seeing the flow of crypto through a Coinbase account is misguided. Could be just a tax deductible interest payment to service a business debt in a sole proprietorship. Its simply not up to Coinbase to determine or the IRS to assume either. Coinbase is getting better about it if you use their own products for staking and earning. (1099-Misc, 1099-K). But they are still doing it wrong for people that use crypto properly and keep personal off-exchange custody of assets.
    - zwily 6y ago
      Using your bitcoin to purchase something after it has appreciated is the same as selling it, and you owe tax on the difference in value.
- chanfest22 6y ago
  This is why Coinbase has partnered with TurboTax and CoinTracker (YC W18) to complete crypto taxes: https://help.coinbase.com/en/coinbase/taxes-reports-and-financial-services/taxes/using-turbotax-or-cointracker-to-report-on-cryptocurrency https://help.coinbase.com/en/coinbase/taxes-reports-and-fina...
  - vmception 6y ago
    Good move. I’ve gone from excel most of last decade, to services like cointracker in 2017-2018, back to excel because those services dont keep up with the various trading venues and types of transactions in crypto and across chains, to excel + zapper.fi and yield farming accounting services in 2020
- seiferteric 6y ago
  Isn't that because crypto is not considered currency by the US? You only get to not do this if you are paying debts in USD, even though the value of USD could fluctuate in the same way theoretically, that is ignored.
  - vmception 6y ago
    Correct, the IRS is capable of perceiving how an asset can be used, but they are not capable of unilaterally declaring the classification of an asset. Currently, when it comes to determining whether an asset is a "currency", it has to be issued or used by a recognized nation state, or Congress has to label the asset as such. Congress could easily delegate additional discretion to the IRS, they just haven't yet as they have been unprepared for this outcome. When you look at the universe of assets, they either exist in walled gardens (brokerage accounts that there is no expectation to withdraw from, or that you simply can't withdraw from), are not easily divisible or have separate denominations if they were, or are impractical to transport (a barrel of oil, other spot commodities), or are not fungible (art, collectibles, barter assets). All crypto assets transcend and overlap with the fungibility of every other asset class all at once, while being able to function as non-fungible assets if desired.
    - gamblor956 6y ago
      Congress could easily delegate additional discretion to the IRS, they just haven't yet as they have been unprepared for this outcome. Congress has considered this matter already, and they have chosen not to treat cryptocurrency as a domestic currency by refusing to consider bills that would classify cryptocurrency as a domestic currency. Non-domestic currency (i.e., foreign currency) is treated as an asset under US tax law, and as a currency not issued by the US government, cryptocurrency is a non-domestic currency and is thus subject to the same tax treatment. All of that other stuff you said is irrelevant.
      - vmception 6y ago
        They havent chosen they havent gotten out of committee, like thousands of other bills per session. I would agree with you if the full house actually voted and failed.
- gamblor956 6y ago
  Cryptocurrency is considered a capital asset, so there are 2 taxes that apply to a cryptocurrency transaction: (1) normal income taxes, to the person receiving the crypto, and (2) capital gain taxes (or losses) to the person sending the crypto, because capital taxes apply to capital assets when they are disposed. The nature of the transaction is irrelevant to (2).
- Thorrez 6y ago
  >Paying an invoice? Never considered that! If you pay an invoice with bitcoins that have experienced capital gains, you have to pay capital gains tax. >Tax deductible transaction? With crypto huh, never asked! What is a tax deductible transaction? If you donate bitcoins to a charity by sending the bitcoins to the charity's bitcoin address that is indeed fully tax deductible and you don't need to pay capital gains tax (and you get an income tax deduction of the entire value). But is coinbase really trying to get you to pay capital gains tax when you simply send bitcoins from one address to another? That doesn't make sense. >Receiving crypto for services rendered? How does receiving crypto have anything do do with capital gains? Capital gains come into play only when you get rid of the crypto. >The asset doesnt matter, only the nature of the transaction matters Yes, and any time you exchange cryptocurrencies for something else (dollars, goods, services) that is a capital gains relevant transaction.
phil21 6y ago
This could be true. Also could be true you were part of a data leak from one of the exchanges. The IRS actively pursues collecting this data, and I've had some very interesting conversations with one of the contractors they use to help scan the Internet for such things. If you were included in the mtgox leak, you probably got such a letter too.
chanfest22 6y ago
Here's what you can do to respond to the letter: https://www.cointracker.io/blog/irs-crypto-tax-letter-guide/ https://www.cointracker.io/blog/irs-crypto-tax-letter-guide/

vmception 6y ago

My annoyance with the Coinbase data is that even Coinbase assumes your crypto is a capital gain or capital loss. Paying an invoice? Never considered that! Tax deductible transaction? With crypto huh, never asked! Receiving crypto for services rendered? What do you mean using crypto for what it was designed for I’m so confused! The asset doesnt matter, only the nature of the transaction matters

mrgordon 6y ago
Isn’t this how the IRS treats it so that’s how Coinbase has to treat it? If one buys a bagel with Bitcoin, then one needs to treat it as a sale of Bitcoin to US Dollars
- ibeckermayer 6y ago
  Yes, hence the entire crypto fad is a mass delusion built on lies. It’s regulated like a security, hence you’re not going to be able to use it like currency. Ever.
  - smabie 6y ago
    You can already use it like currency for some things: web hosting, drugs, vpns, etc.
  - vmception 6y ago
    Ermmmmm not quite. What needs to change in your filter bubble for you to have a different, or at least more nuanced, conclusion? Who would you need to hear it from?
mark2996 6y ago
That's how crypto taxes actually work though. Every transaction is a capital gain/loss based on current law.
- vmception 6y ago
  It’s also a gain or loss if there was a gain or loss. If you got paid and liquidated immediately, the price change was not worth mentioning and the income tax is. If you bought crypto to immediately pay for a server, the price change is not worth mentioning because it likely didn’t change more than a fraction of a percent and the expense is worth mentioning. Current law factors that in, because current law doesn't factor in what asset was used for payment. With rise of stablecoins like DAI and USDC where equally large volumes are being used, focusing exclusively on capital gain/loss is even more misguided.
  - xxpor 6y ago
    It doesn't matter though. It's like when I get RSUs and sell all immediately. I still have to file the sales as a capital gain, even if the amount is basically 0.
    - vmception 6y ago
      The also was italicized for emphasis. But to your point, RSUs - unless you did an 83b election - have a bigger income tax component, especially in your sell immediately example. Which reinforces my point that the prioritization is wrong and that focusing exclusively on capital gain/loss is misguided. This time I’ll italicize exclusively, for emphasis, lest that somehow gets lost in the message.
Anon1096 6y ago
That's exactly how it should work though. If you buy 1 BTC today for 10k USD, and then its market value increases to 400k USD and you buy a house using it, can you really argue that you haven't just made a capital gain of 390k USD?
- vmception 6y ago
  That’s how it also should work, if you are using a volatile asset. Not everyone using crypto is using volatile cryptos, and not everyone using volatile cryptos is holding them long enough for capital gain/loss to be the primary concern, meaning there is likely a more relevant tax report such as a income tax or a deduction against income tax. So the assumption is flawed. The priorities in reporting are flawed.
- IncRnd 6y ago
  Only if you sell it. One way is when someone chooses to get a loan agaist the asset instead of selling it. Of course, a lender would be crazy to loan against the future value of BTC.
  - vmception 6y ago
    Lenders have been doing great lending against btc and other digital assets. They all set up systems to immediately liquidate the borrower and also sell the asset (or hedge against it). Its the borrower that amplifies their risk. But if a borrower collateralizes well enough it is much more tax efficient for them. These are solved problems for 2 years. And yes, that is an additional example about why assuming there is a capital gain or loss merely from seeing the flow of crypto through a Coinbase account is misguided. Could be just a tax deductible interest payment to service a business debt in a sole proprietorship. Its simply not up to Coinbase to determine or the IRS to assume either. Coinbase is getting better about it if you use their own products for staking and earning. (1099-Misc, 1099-K). But they are still doing it wrong for people that use crypto properly and keep personal off-exchange custody of assets.
  - zwily 6y ago
    Using your bitcoin to purchase something after it has appreciated is the same as selling it, and you owe tax on the difference in value.
chanfest22 6y ago
This is why Coinbase has partnered with TurboTax and CoinTracker (YC W18) to complete crypto taxes: https://help.coinbase.com/en/coinbase/taxes-reports-and-financial-services/taxes/using-turbotax-or-cointracker-to-report-on-cryptocurrency https://help.coinbase.com/en/coinbase/taxes-reports-and-fina...
- vmception 6y ago
  Good move. I’ve gone from excel most of last decade, to services like cointracker in 2017-2018, back to excel because those services dont keep up with the various trading venues and types of transactions in crypto and across chains, to excel + zapper.fi and yield farming accounting services in 2020
seiferteric 6y ago
Isn't that because crypto is not considered currency by the US? You only get to not do this if you are paying debts in USD, even though the value of USD could fluctuate in the same way theoretically, that is ignored.
- vmception 6y ago
  Correct, the IRS is capable of perceiving how an asset can be used, but they are not capable of unilaterally declaring the classification of an asset. Currently, when it comes to determining whether an asset is a "currency", it has to be issued or used by a recognized nation state, or Congress has to label the asset as such. Congress could easily delegate additional discretion to the IRS, they just haven't yet as they have been unprepared for this outcome. When you look at the universe of assets, they either exist in walled gardens (brokerage accounts that there is no expectation to withdraw from, or that you simply can't withdraw from), are not easily divisible or have separate denominations if they were, or are impractical to transport (a barrel of oil, other spot commodities), or are not fungible (art, collectibles, barter assets). All crypto assets transcend and overlap with the fungibility of every other asset class all at once, while being able to function as non-fungible assets if desired.
  - gamblor956 6y ago
    Congress could easily delegate additional discretion to the IRS, they just haven't yet as they have been unprepared for this outcome. Congress has considered this matter already, and they have chosen not to treat cryptocurrency as a domestic currency by refusing to consider bills that would classify cryptocurrency as a domestic currency. Non-domestic currency (i.e., foreign currency) is treated as an asset under US tax law, and as a currency not issued by the US government, cryptocurrency is a non-domestic currency and is thus subject to the same tax treatment. All of that other stuff you said is irrelevant.
    - vmception 6y ago
      They havent chosen they havent gotten out of committee, like thousands of other bills per session. I would agree with you if the full house actually voted and failed.
gamblor956 6y ago
Cryptocurrency is considered a capital asset, so there are 2 taxes that apply to a cryptocurrency transaction: (1) normal income taxes, to the person receiving the crypto, and (2) capital gain taxes (or losses) to the person sending the crypto, because capital taxes apply to capital assets when they are disposed. The nature of the transaction is irrelevant to (2).
Thorrez 6y ago
>Paying an invoice? Never considered that! If you pay an invoice with bitcoins that have experienced capital gains, you have to pay capital gains tax. >Tax deductible transaction? With crypto huh, never asked! What is a tax deductible transaction? If you donate bitcoins to a charity by sending the bitcoins to the charity's bitcoin address that is indeed fully tax deductible and you don't need to pay capital gains tax (and you get an income tax deduction of the entire value). But is coinbase really trying to get you to pay capital gains tax when you simply send bitcoins from one address to another? That doesn't make sense. >Receiving crypto for services rendered? How does receiving crypto have anything do do with capital gains? Capital gains come into play only when you get rid of the crypto. >The asset doesnt matter, only the nature of the transaction matters Yes, and any time you exchange cryptocurrencies for something else (dollars, goods, services) that is a capital gains relevant transaction.

phil21 6y ago

This could be true. Also could be true you were part of a data leak from one of the exchanges. The IRS actively pursues collecting this data, and I've had some very interesting conversations with one of the contractors they use to help scan the Internet for such things. If you were included in the mtgox leak, you probably got such a letter too.

chanfest22 6y ago

Here's what you can do to respond to the letter: https://www.cointracker.io/blog/irs-crypto-tax-letter-guide/ https://www.cointracker.io/blog/irs-crypto-tax-letter-guide/