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IRS reminds taxpayers to report virtual currency transactions

irs.gov

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Re: IRS reminds taxpayers to report virtual currency transactions

#31

Post by kentm »

cft wrote: post #28
kentm wrote: post #13

Earlier quoted context omitted.

Treat it as if you sold the crypto for USD (and pay capital gains). So if you bought a crypto for $10, the price appreciated to $110, and then you bough something worth $110, then you have to pay taxes on $100 of income. It’s the same place you repot capital gains for equity (I don’t remember the form number)

What if I bought 1BTC at $10, then I bought 1BTC at $200, then I bought something with 1BTC when BTC dropped to $100/1BTC? Which BTC was used for the purchase- the one I bought at $10 or the one at $200? It sort of kills the use of cryptocurrency as "currency" in the US. Imagine if in the end of the year we had to report every dollar transaction (e.g. buying a coffee and a bagel), trace how you earned that dollar and…

It does make it hard, yes, but that’s what the IRS expects.

Edit: easiest thing to do as a workaround, imo, would be to build tax reporting into wallet software.

Re: IRS reminds taxpayers to report virtual currency transactions

#32

Post by saosebastiao »

bringtheaction wrote: post #14
tunesmith wrote: post #7

I thought you didn't need to unless you sold. If you simply buy or receive, that also needs to be reported? I have some of those stellar/lumens from when they awarded them for free for signing up back in 2016, but have never sold or transferred them.

Keep in mind: - Trading cryptocurrencies produces capital gains or losses, with the latter being able to offset gains and reduce tax. - Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses. - Receiving payments in crypto in exchange for products or services or as salary is treated as…

> Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses.

Which is absurdly difficult for the average person to account for. If I buy 60000 XRP for 4 BTC, what is my cost basis? Do I have to keep track of how much those bitcoins were worth on a different exchange with Fiat pairings at the moment I traded on a pure crypto exchange? What if I don't have that data? How is that calculation supposed to account for actual liquidation costs if I liquidate to pay my taxes?

Re: IRS reminds taxpayers to report virtual currency transactions

#33

Post by gxs »

purple-again wrote: post #4

If you are walking down the beach and find a $20 bill on the ground, you are required to report it as income. The only way that I know of that you can legally enrich yourself without paying taxes is via a direct gift and that’s because the giver pays tax instead of you.

Worth mentioning that there exists a $5MM lifetime max that any individual can gift before paying taxes.

A common misconception is that you have to pay tax on every gift you make, but as long as you’re under that $5MM all you have to do is report it.

Re: IRS reminds taxpayers to report virtual currency transactions

#34

Post by tunesmith »

kentm wrote: post #11
tunesmith wrote: post #7

I thought you didn't need to unless you sold. If you simply buy or receive, that also needs to be reported? I have some of those stellar/lumens from when they awarded them for free for signing up back in 2016, but have never sold or transferred them.

Nope. If you mine cryptos or receive them as income they’re reported as income. You also have to report gains if you spend them or trade them for another crypto currency.

The signup promotion in 2016 was for 5000 or 6000 lumens. Historically it looks like in 2016, 6000 lumens would have been worth five or ten bucks. So I guess that should be reported as income back then although it approaches being a rounding error.

At some point, stellar converted lumens to stellar. Anyone know if that would be considered a taxable event? Did that change my basis?

Re: IRS reminds taxpayers to report virtual currency transactions

#35

Post by cft »

kentm wrote: post #31
cft wrote: post #28

Earlier quoted context omitted.

What if I bought 1BTC at $10, then I bought 1BTC at $200, then I bought something with 1BTC when BTC dropped to $100/1BTC? Which BTC was used for the purchase- the one I bought at $10 or the one at $200? It sort of kills the use of cryptocurrency as "currency" in the US. Imagine if in the end of the year we had to report every dollar transaction (e.g. buying a coffee and a bagel), trace how you earned that dollar and…

It does make it hard, yes, but that’s what the IRS expects. Edit: easiest thing to do as a workaround, imo, would be to build tax reporting into wallet software.

PS. I just edited- I think it's hard to calculate even in principle?

Re: IRS reminds taxpayers to report virtual currency transactions

#36

Post by adanto6840 »

gxs wrote: post #33
purple-again wrote: post #4

If you are walking down the beach and find a $20 bill on the ground, you are required to report it as income. The only way that I know of that you can legally enrich yourself without paying taxes is via a direct gift and that’s because the giver pays tax instead of you.

Worth mentioning that there exists a $5MM lifetime max that any individual can gift before paying taxes. A common misconception is that you have to pay tax on every gift you make, but as long as you’re under that $5MM all you have to do is report it.

Not that it would probably ever apply to me, but I'm curious if that's per "individual gift giver - giver receiver" pair? Or is it the case that it's solely per individual gift _giver_? As in, would receiving a $500 gift from Bill Gates (who presumably has met the $5MM lifetime threshold) be fully taxable? Just random Sunday curiousness. :)

Re: IRS reminds taxpayers to report virtual currency transactions

#37

Post by kentm »

saosebastiao wrote: post #32
bringtheaction wrote: post #14

Earlier quoted context omitted.

Keep in mind: - Trading cryptocurrencies produces capital gains or losses, with the latter being able to offset gains and reduce tax. - Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses. - Receiving payments in crypto in exchange for products or services or as salary is treated as…

> Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses. Which is absurdly difficult for the average person to account for. If I buy 60000 XRP for 4 BTC, what is my cost basis? Do I have to keep track of how much those bitcoins were worth on a different exchange with Fiat pairings at…

> If I buy 60000 XRP for 4 BTC, what is my cost basis?

For the BTC? The USD value at the time you bought them.

> Do I have to keep track of how much those bitcoins were worth when I traded?

Yes

> What if I don't have that data?

You can get the transaction date via the block chain or your exchanges reporting and then lookup the USD value at the time.

> How is that calculation supposed to account for actual liquidation costs if I liquidate to pay my taxes?

Liquidating to pay taxes is another taxable event. That’s the same as if you did this with equities.

Re: IRS reminds taxpayers to report virtual currency transactions

#38

Post by spullara »

saosebastiao wrote: post #32
bringtheaction wrote: post #14

Earlier quoted context omitted.

Keep in mind: - Trading cryptocurrencies produces capital gains or losses, with the latter being able to offset gains and reduce tax. - Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses. - Receiving payments in crypto in exchange for products or services or as salary is treated as…

> Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses. Which is absurdly difficult for the average person to account for. If I buy 60000 XRP for 4 BTC, what is my cost basis? Do I have to keep track of how much those bitcoins were worth on a different exchange with Fiat pairings at…

You have to keep track of the fair market value, in USD, at the time of exchange. When you liquidate to pay your taxes that would be another taxable event so you may need to liquidate more to make up for that.

Re: IRS reminds taxpayers to report virtual currency transactions

#39

Post by ghfbjdhhv »

gxs wrote: post #33
purple-again wrote: post #4

If you are walking down the beach and find a $20 bill on the ground, you are required to report it as income. The only way that I know of that you can legally enrich yourself without paying taxes is via a direct gift and that’s because the giver pays tax instead of you.

Worth mentioning that there exists a $5MM lifetime max that any individual can gift before paying taxes. A common misconception is that you have to pay tax on every gift you make, but as long as you’re under that $5MM all you have to do is report it.

And if your gifts are less than $15,000 per year, you don’t even have to report it. So the vast majority of gifts are not supposed to be taxed or reported.

Re: IRS reminds taxpayers to report virtual currency transactions

#40

Post by gxs »

adanto6840 wrote: post #36
gxs wrote: post #33

Earlier quoted context omitted.

Worth mentioning that there exists a $5MM lifetime max that any individual can gift before paying taxes. A common misconception is that you have to pay tax on every gift you make, but as long as you’re under that $5MM all you have to do is report it.

Not that it would probably ever apply to me, but I'm curious if that's per "individual gift giver - giver receiver" pair? Or is it the case that it's solely per individual gift _giver_? As in, would receiving a $500 gift from Bill Gates (who presumably has met the $5MM lifetime threshold) be fully taxable? Just random Sunday curiousness. :)

Individual gift giver. So lifetime max per person! Not too shabby.
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