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> Paying taxes on free money isn't the end of the world. Playing devil's advocate: it's not exactly "free money", it's free "tokens" of some kind, which might

by cesarb 5y ago

> Paying taxes on free money isn't the end of the world. Playing devil's advocate: it's not exactly "free money", it's free "tokens" of some kind, which might not be convertible to money at the same rate which was used to estimate the tax. If the tax amount was assessed at the value the tokens were supposed to have today (based on what they recently traded for at some exchange somewhere), but you were too slow and only traded the next day and the price paid for these tokens has fallen heavily, you might have to pay more in tax than the money you can get from these "free tokens". So yes, it's not hard to imagine a situation in which paying tax on that "free money" can be "the end of the world" for some.

TedDoesntTalk 5y ago
In the US, you only pay taxes on income and gains. In other words, you’re not going to pay taxes on those tokens until you redeem them for fiat currency. The tax is an percentage of the fiat currency you receive, not the token value. Just like stocks (you don’t pay for any changes in value to the stock until you sell it for fiat currency).
- fossuser 5y ago
  There are some exceptions like exercising stock options where you’re taxed for the difference between the strike price and the fair market value at the time of exercise (I’m not sure why the law is this way).
  - Retric 5y ago
    Because your trading thing A for thing B. Suppose you could trade stock for a Yacht without income taxes applying. That’s the kind of loophole everyone buying a yacht would use, especially if you could use a near cash equivalent like gold instead of barter. The difference between stock and stock options might not seem like enough to matter, but it’s simply the same generic rule applying.
    - fossuser 5y ago
      I'm not sure this follows in the case of options? You have a contract to buy stock at X price. You do this at a discount and get the stock. You could just tax the gain on the stock on its sale with existing tax law and you could do this specifically for options if having some broad law would create weird exceptions like you suggest. ISOs existed to correct for this failure in options, but the income at which AMT removes that protection hasn't been updated substantially since it was created so this protection no longer really covers exercise. I also don't really understand how it could be abused. My change would be to have option exercise pay no tax on the spread, with all taxes payed on gains on sale. As it is, people with massive wealth can exercise when there is no spread (because they have lots of cash already when the shares are granted to them) or they get special early exercise via the 83b election with the IRS and special access from their startup. The people that get hit hardest by this are regular employees starting out that don't have lots of cash to exercise when the spread is zero.
      - Retric 5y ago
        Changing the law would of course change the system but paying people with options has significant economic and political implications. The current solution is for companies to agree to buy back enough shares to cover the tax burden when people exercise their options.
  - morpheuskafka 5y ago
    The difference between the strike price and market price is the value of the option--its the money you otherwise would have had to pay to buy the stock if you didn't have the option. That's why it is so.
    - fossuser 5y ago
      So tax the gain on sale of the stock - there's no good reason to tax it on exercise (especially when the stock is illiquid and the price can still go down). The current law is bad imo.
- twox2 5y ago
  Crypto is taxed as income. Everything is taxed as income. You are only taxed on gains if you have a cost basis and are trading the tokens, but otherwise if you are compensated via tokens you owe income tax on that whether or not you convert it to fiat.
  - whimsicalism 5y ago
    Just like how it works for stock grants unless you inherited them.
    - twox2 5y ago
      Yep, not just stock grants, but anything. For example you find a bug in an airline, and report it and they compensate you as a thank you with 200k airline miles... you now owe income tax on those miles.
      - sumedh 5y ago
        > you now owe income tax on those miles. How do you calculate the tax on that?
        twox2 5y ago
        Based on the value of the "item" for example airlines will assign a value to these miles ie (100,000 miles worth $1200) - or something like that. Otherwise, I don't know. I'm not an accountant/cpa, but I know that this stuff is taxable whether it's tokens or ketchup packets.
  - randombits0 5y ago
    Imagine that, they tax you on a special “number”! Do they accept Crypto? If not, please point to the money they want to tax. They can’t have it both ways. Either crypto is an equivalent to money or it isn’t. If it is, accept it. If it’s not, tax it when the money “appears” out the other end.
    - deleted 5y ago
bduerst 5y ago
So just offload ~35% or whatever it is to cover the taxes in anticipation that they're reporting it to the IRS. Not sure if it qualifies as a gift though, which may be taxed different than income.
- pc86 5y ago
  The giftor pays the tax in the US, not the person receiving the gift. And only under certain scenarios. Practically speaking, "gift tax" is usually not a thing for what most people would consider gifts, but always speak to a CPA and probably attorney, etc. etc. etc..
hellojesus 5y ago
Agree fully with this point if it is considered income and not a gift. Let's assume the income case, a qyestion: What would happen if someone took these coins then transfered them to a new wallet while claiming that their private key was compromised. So "theft" essentially. Would they still be on the hook for taxes? The real downside to crypto to me is that there is no ownership, only proof of authentication credentials ownership.
- NikolaNovak 5y ago
  From position of ignorance, I assume broadly same as being paid and than saying dog ate your cash on way Home. Crypto is not the first opportunity for dishonest actors to do dishonest things (it's just more fun to watch as they proclaim princioles and future and innocence :-)
  - throw123123123 5y ago
    You can definitely deduct income with those claims, but the crypto one is a lot easier to lie about and nigh impossible to catch.
- 8note 5y ago
  I imagine that would open you up to fraud charges when you use said tokens to buy something and ship it to yourself

by cesarb 5y ago

TedDoesntTalk 5y ago

In the US, you only pay taxes on income and gains. In other words, you’re not going to pay taxes on those tokens until you redeem them for fiat currency. The tax is an percentage of the fiat currency you receive, not the token value. Just like stocks (you don’t pay for any changes in value to the stock until you sell it for fiat currency).

fossuser 5y ago
There are some exceptions like exercising stock options where you’re taxed for the difference between the strike price and the fair market value at the time of exercise (I’m not sure why the law is this way).
- Retric 5y ago
  Because your trading thing A for thing B. Suppose you could trade stock for a Yacht without income taxes applying. That’s the kind of loophole everyone buying a yacht would use, especially if you could use a near cash equivalent like gold instead of barter. The difference between stock and stock options might not seem like enough to matter, but it’s simply the same generic rule applying.
  - fossuser 5y ago
    I'm not sure this follows in the case of options? You have a contract to buy stock at X price. You do this at a discount and get the stock. You could just tax the gain on the stock on its sale with existing tax law and you could do this specifically for options if having some broad law would create weird exceptions like you suggest. ISOs existed to correct for this failure in options, but the income at which AMT removes that protection hasn't been updated substantially since it was created so this protection no longer really covers exercise. I also don't really understand how it could be abused. My change would be to have option exercise pay no tax on the spread, with all taxes payed on gains on sale. As it is, people with massive wealth can exercise when there is no spread (because they have lots of cash already when the shares are granted to them) or they get special early exercise via the 83b election with the IRS and special access from their startup. The people that get hit hardest by this are regular employees starting out that don't have lots of cash to exercise when the spread is zero.
    - Retric 5y ago
      Changing the law would of course change the system but paying people with options has significant economic and political implications. The current solution is for companies to agree to buy back enough shares to cover the tax burden when people exercise their options.
- morpheuskafka 5y ago
  The difference between the strike price and market price is the value of the option--its the money you otherwise would have had to pay to buy the stock if you didn't have the option. That's why it is so.
  - fossuser 5y ago
    So tax the gain on sale of the stock - there's no good reason to tax it on exercise (especially when the stock is illiquid and the price can still go down). The current law is bad imo.
twox2 5y ago
Crypto is taxed as income. Everything is taxed as income. You are only taxed on gains if you have a cost basis and are trading the tokens, but otherwise if you are compensated via tokens you owe income tax on that whether or not you convert it to fiat.
- whimsicalism 5y ago
  Just like how it works for stock grants unless you inherited them.
  - twox2 5y ago
    Yep, not just stock grants, but anything. For example you find a bug in an airline, and report it and they compensate you as a thank you with 200k airline miles... you now owe income tax on those miles.
    - sumedh 5y ago
      > you now owe income tax on those miles. How do you calculate the tax on that?
      - twox2 5y ago
        Based on the value of the "item" for example airlines will assign a value to these miles ie (100,000 miles worth $1200) - or something like that. Otherwise, I don't know. I'm not an accountant/cpa, but I know that this stuff is taxable whether it's tokens or ketchup packets.
- randombits0 5y ago
  Imagine that, they tax you on a special “number”! Do they accept Crypto? If not, please point to the money they want to tax. They can’t have it both ways. Either crypto is an equivalent to money or it isn’t. If it is, accept it. If it’s not, tax it when the money “appears” out the other end.
  - deleted 5y ago

bduerst 5y ago

So just offload ~35% or whatever it is to cover the taxes in anticipation that they're reporting it to the IRS. Not sure if it qualifies as a gift though, which may be taxed different than income.

pc86 5y ago
The giftor pays the tax in the US, not the person receiving the gift. And only under certain scenarios. Practically speaking, "gift tax" is usually not a thing for what most people would consider gifts, but always speak to a CPA and probably attorney, etc. etc. etc..

hellojesus 5y ago

Agree fully with this point if it is considered income and not a gift. Let's assume the income case, a qyestion: What would happen if someone took these coins then transfered them to a new wallet while claiming that their private key was compromised. So "theft" essentially. Would they still be on the hook for taxes? The real downside to crypto to me is that there is no ownership, only proof of authentication credentials ownership.

NikolaNovak 5y ago
From position of ignorance, I assume broadly same as being paid and than saying dog ate your cash on way Home. Crypto is not the first opportunity for dishonest actors to do dishonest things (it's just more fun to watch as they proclaim princioles and future and innocence :-)
- throw123123123 5y ago
  You can definitely deduct income with those claims, but the crypto one is a lot easier to lie about and nigh impossible to catch.
8note 5y ago
I imagine that would open you up to fraud charges when you use said tokens to buy something and ship it to yourself