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That makes no sense. You pay taxes on realized gains (i.e. when you cash out), not unrealized ones... otherwise people like Elon Musk would have to pay tens of
by uwuemu 4y ago
That makes no sense. You pay taxes on realized gains (i.e. when you cash out), not unrealized ones... otherwise people like Elon Musk would have to pay tens of billions of dollars in taxes and sell off part of their stock to even be able to pay the tax (and probably ruin the company in the process). The same applies to crypto, and even though it's mostly not needed (you pay tax on realized gains in most countries and it makes common sense crypto would be similar), some countries alredy explicitly codified this, just to be crystal clear: You pay your taxes when you convert back to cash. That's the "taxable event". Same as when you sell your stock.
- mellavora 4y agoPlease check your local regulations on this. What Uwuemu says makes sense, but tax law does not have to make sense. I might be wrong, but I believe the IRS views every transaction as a taxable event. Crypto -> crypto included.
- somebodythere 4y agoYou are right. When you trade crypto->crypto, the IRS views it as if you traded crypto->USD then USD->crypto.
- uwuemu 4y agoso when you buy 1 btc for $30k, trade the btc for 100 of bscoin, bscoin rises to 50 bscoin pet 1 btc, you change back to btc, now you have 2 btc, but the next day big crash occurs and 1 btc is worth just 10k... you cash out and there you have it, a $10k loss... but, you're supposed to pay the tax man on the bscoin -> btc trade? That makes no sense. And then what, you'll want that tax back because of the loss? More BS paperwork for no reason? And all this for what?
- somebodythere 4y agoThat's correct, but under US tax law, in certain cases you are able to realize the loss on the BTC to offset the gains you made earlier (tax-loss harvesting)
- giaour 4y agoThis is also what happens when you buy and sell stocks or bonds, FWIW. Each sale is a taxable event, even if you receive payment in the form of a different stock or bond.
- uwuemu 4y agoThat's nice and all and I don't live in the US, but just imagining the way you would track all of this makes me shiver. Anyways, from my point of view (and also many countries point of view), the entire point of realized gain tax is to be the income tax for stock traders... i.e. income is what the government typically collects taxes on... when I convert BTC to DOGE (or whatever), there is no income, so there is nothing to tax. Otherwise you're getting into a dangerous territory of soft banning crypto trade by way of purposefully obtuse tax code. Ban on a good by abusing the bureaucracy instead of properly dealing with it through the voters and their representatives.
- grey-area 4y agoIn the vast majority of countries including the UK, US and Europe this is a taxable event. Which country are you talking about here?
- ricardobeat 4y agoIn the Netherlands you pay tax yearly, based on an estimated profit for your total holdings on January 1st. Taxing every stock trade seems insane, is it really how it works elsewhere?
- swinglock 4y agoIt's the same as stocks. Let's walk through an example. You have 1 share of Stock A and I have 1 share of Stock B. We both paid 1 USD for each of our different stocks. Now I want Stock A and you want Stock B, so we'll trade with each other, and lucky us, both stocks are now valued at 2 USD per share. After performing this trade, ask yourself these questions (from my perspective, or swap A and B for yours, it's the same either way): * Have I held Stock B? * What did I pay for Stock B? * Do I now hold Stock B? * Why not? * What did I sell it for? * And how much was that valued? * So then how much did I gain? * How much is owed in tax? Unless your local tax law specifies "cashing out" not only as a taxable event, but the only taxable event, which I assure you it does not for stocks, the correct answers are as below. The equivalent to what you seem to describe for crypto would be transferring money in and out of the exchange where you trade stocks, and it would be ludicrous if this was the taxable event, which it isn't - but this is a common misconception among amateur crypto traders. * I did hold 1 Stock B. * I paid 1 USD for it. * I don't hold it anymore. * My dog did not eat it, so I must have sold it, which I did. * I sold it for 1 Stock A and it was valued at 2 USD at the time of the transaction. * 1 USD of value was gained at the time I sold from the time I bought. * I owe a percentage of the 1 USD of value gained, depending on the capital gains tax rate, which differs. I'd ask the local tax office anonymously. Not knowing doesn't fly as an excuse, everyone says that and it doesn't matter if it's true. Where is this place, if you don't mind? Bonus question, what if we trade 1 DOGE for 1 Stock C? Is that different? What about 1 DOGE for 1 USD? What about 1 DOGE for 1 token backed by 1 USD? What about 1 Stock C for 1 token backed by 1 USD? Somehow it seems to get more complicated with "cashing out" laws, not less. Also I don't believe they exist, but I'd like to know too if they do anywhere.
- swinglock 4y agoYou do pay taxes on realized gains, but they are realized when you sell the asset, not then you "cash out", and it makes perfect sense. There are many true horror stories of amateur traders going from in the green to losing more than they own. I don't know any place where what you describe is legal. If this is your strategy (as in method to cheat with taxes) now is probably a good time to calculate how much you owe and put that aside into something less volatile, not to accidentally ruin your life.
- strix_varius 4y agoThe “taxable event” is the sale of an asset. I wonder how many other jokers are accidentally conducting life-ruining levels of tax fraud.