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Crypto can be withdrawn from exchanges to a personal account that only that individual controls. This is unlike stocks, which sit in brokerages and could only

Crypto can be withdrawn from exchanges to a personal account that only that individual controls. This is unlike stocks, which sit in brokerages and could only be transferred to another brokerage (in kind transfer). An example for someone in the US is that they buy crypto on Coinbase, and then they withdraw that crypto to a hardware wallet that they have control of. They leave their crypto on their hardware wallet for a few years and then transfer all or maybe only some portion of it to a different exchange, say, Kraken, and sell it there. How do the exchanges file a 1099 for that? Maybe while the crypto was on the individual's hardware wallet, they also used some of it to purchase some goods or services. How is that tracked except on the individual's tax return? I'm for regulation because I think it means the crypto space will mature and more people will feel it is safe to get involved. I also don't think people should use crypto for avoiding taxes (I do think that is overblown in the media considering that most blockchains are literally a public ledger, and all the government needs are some crypto experts and they can look at current as well as previous years of transactions, so folks shouldn't be doing anything shady). I do also think that laws should adapt to new technological innovations. The only issue is that there isn't a critical mass yet that this technology is here to stay. The analogy is like fitting a square peg into a round hole. That's what the government is trying to do by over regulating crypto with regulations from the 20th century. I actually would love if crypto exchanges could somehow give 1099s. That would extremely simplify the crypto tax reporting process, which right now can be very complicated, but I just don't see how it would work unless individuals only bought crypto on an exchange, left it on that exchange, and only sold whatever they bought on that exchange.

ProjectArcturis 5y ago
If someone withdrew their crypto, or deposited fresh crypto and sold it the exchanges would note it as part of the 1099, just like a brokerage would if you transferred stock. It would then be the taxpayer's responsibility to correctly report their buy and sell prices. You could cheat, of course, but you might get caught. Issuing 1099s at least simplifies the tax process and captures capital gains in a lot of cases.
- w4llstr33t 5y ago
  It is already the taxpayer’s responsibility to report their capital gains. The IRS has issued "John Doe" summons to Coinbase in 2016 [1] and Kraken in 2021 [2]. They also already gave warnings to 10,000 US tax payers, in 2019, that they thought did not pay their fair share of crypto taxes [3]. They are working with plenty of information already. Anyone who chooses to omit capital gains from crypto may also see consequences in the future. Most blockchains are immutable public ledgers. The auditing of this technology will only get more advanced over time. To your point about depositing, how does the exchange know the original price that the crypto deposited was purchased at, when it could’ve been purchased elsewhere (including a different centralized exchange like Coinbase, Kraken, KuCoin or Binance, or a decentralized exchange like Uniswap), or perhaps it was mined, or perhaps it was from a fork of another coin (with the current US tax laws, the cost basis is zero from a fork). It’s not as simple as you are making it sound when the source of the crypto is unknown. How would formal verification actually work for a single exchange to calculate cost basis, i.e. the gain or loss, considering all these different cases? The people making these laws do not actually know in practice how these things would be enforced by the exchanges. They are trying to fit old securities laws into a new technology. Just saying that's it's too complicated is not the right answer. I think laws should be adjusted to accommodate for new innovations. I also think people should pay their taxes and crypto should not be used as a method of tax avoidance. [1] https://www.justice.gov/opa/pr/court-authorizes-service-john-doe-summons-seeking-identities-us-taxpayers-who-have-used https://www.justice.gov/opa/pr/court-authorizes-service-john... [2] https://www.justice.gov/opa/pr/court-authorizes-service-john-doe-summons-seeking-identities-us-taxpayers-who-have-used-1 https://www.justice.gov/opa/pr/court-authorizes-service-john... [3] https://www.cnbc.com/2019/07/26/irs-is-warning-thousands-of-cryptocurrency-holders-to-pay-their-taxes.html https://www.cnbc.com/2019/07/26/irs-is-warning-thousands-of-...

ProjectArcturis 5y ago

If someone withdrew their crypto, or deposited fresh crypto and sold it the exchanges would note it as part of the 1099, just like a brokerage would if you transferred stock. It would then be the taxpayer's responsibility to correctly report their buy and sell prices. You could cheat, of course, but you might get caught. Issuing 1099s at least simplifies the tax process and captures capital gains in a lot of cases.

w4llstr33t 5y ago
It is already the taxpayer’s responsibility to report their capital gains. The IRS has issued "John Doe" summons to Coinbase in 2016 [1] and Kraken in 2021 [2]. They also already gave warnings to 10,000 US tax payers, in 2019, that they thought did not pay their fair share of crypto taxes [3]. They are working with plenty of information already. Anyone who chooses to omit capital gains from crypto may also see consequences in the future. Most blockchains are immutable public ledgers. The auditing of this technology will only get more advanced over time. To your point about depositing, how does the exchange know the original price that the crypto deposited was purchased at, when it could’ve been purchased elsewhere (including a different centralized exchange like Coinbase, Kraken, KuCoin or Binance, or a decentralized exchange like Uniswap), or perhaps it was mined, or perhaps it was from a fork of another coin (with the current US tax laws, the cost basis is zero from a fork). It’s not as simple as you are making it sound when the source of the crypto is unknown. How would formal verification actually work for a single exchange to calculate cost basis, i.e. the gain or loss, considering all these different cases? The people making these laws do not actually know in practice how these things would be enforced by the exchanges. They are trying to fit old securities laws into a new technology. Just saying that's it's too complicated is not the right answer. I think laws should be adjusted to accommodate for new innovations. I also think people should pay their taxes and crypto should not be used as a method of tax avoidance. [1] https://www.justice.gov/opa/pr/court-authorizes-service-john-doe-summons-seeking-identities-us-taxpayers-who-have-used https://www.justice.gov/opa/pr/court-authorizes-service-john... [2] https://www.justice.gov/opa/pr/court-authorizes-service-john-doe-summons-seeking-identities-us-taxpayers-who-have-used-1 https://www.justice.gov/opa/pr/court-authorizes-service-john... [3] https://www.cnbc.com/2019/07/26/irs-is-warning-thousands-of-cryptocurrency-holders-to-pay-their-taxes.html https://www.cnbc.com/2019/07/26/irs-is-warning-thousands-of-...