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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

#51

Post by isostatic »

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…

If I bought 1 ton of gravel at $10, then bought one ton of gravel at $200, then swapped one ton when it was $100 for a meal out. Which ton was used for the purchase, the one I bought at $10 or the one at $200?

Re: IRS reminds taxpayers to report virtual currency transactions

#52

Post by [deleted] »

isostatic wrote: post #44
adanto6840 wrote: post #36

Earlier quoted context omitted.

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. :)

Would have to be per giver, otherwise it would be trivial to avoid (want Dave to get another $1m, either give $2m and have the taxes taken, or give $1.1m to Joe Bloggs, who gives $1m to Dave and keeps the rest.

[deleted]

Re: IRS reminds taxpayers to report virtual currency transactions

#53

Post by modeless »

rblatz wrote: post #8
my_username_is_ wrote: post #3

They still haven't issued guidance on how to treat forks like BTC/BCH, have they?

I would assume it would be treated like a company spin-off. https://www.investopedia.com/ask/answers/052115/why-are-some...

That assumption is reasonable but unfortunately wrong. The laws around spinoffs are specifically written to apply only to securities (stock in a company) and cryptocurrencies are not securities.

Re: IRS reminds taxpayers to report virtual currency transactions

#54

Post by kentm »

cft wrote: post #35
kentm wrote: post #31

Earlier quoted context omitted.

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?

First off, yes it’s a pain in the ass in practice and a real headwind for using crypto as a currency. At the same time most people are treating crypto as a property investment in practice, so it’s hard to dispute the IRS’s approach here.

As for solving the problem with software, it’s already “solved” by your broker. In the investing world when you sell you choose which lots you want to sell. You typically tell your broker what sort of strategy you want to use (LIFO vs FIFO) and they handle it for you. So I’d expect a software solution to work the same way - you would configure the software to LIFO/FIFO/other.

Re: IRS reminds taxpayers to report virtual currency transactions

#55

Post by kinghajj »

my_username_is_ wrote: post #3

They still haven't issued guidance on how to treat forks like BTC/BCH, have they?

I consider them the same coins, simply sold twice, to two communities that disagree on where the coins have been sent. Since my cost basis is $0 (mined pre-2013 as a student living with my parents, and didn't bother to report the pittance of an income that would have been), I don't think the IRS will mind.

Re: IRS reminds taxpayers to report virtual currency transactions

#56

Post by s73v3r_ »

cft wrote: post #35
kentm wrote: post #31

Earlier quoted context omitted.

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?

It’s similar to stocks, when you buy the same stock at different times. Most people simply go “First In, First Out”, although you can use average cost basis or simply select the lot you wish to have sold.

Re: IRS reminds taxpayers to report virtual currency transactions

#57

Post by s73v3r_ »

whataretensors wrote: post #42
matthewmacleod wrote: post #19

Earlier quoted context omitted.

What isn't sane around "report your income"?

FYI I removed my comment because I don't want to get targeted by the biggest killer of small business in the US.

“biggest killer of small business in the US.”

Owners who think they’re being clever, when they’re just violating the law?

Re: IRS reminds taxpayers to report virtual currency transactions

#58

Post by Yizahi »

sergiotapia wrote: post #48

Reminded me of this kid that said he bought some bitcoins and then sold to buy some alt coins. >At the advice of my friends, I took most of my savings and bought 8 bitcoins back in early 2017 for about $7200. You can imagine how I felt when it went up. Around December 2017, I got caught up in the altcoins frenzy and sold most of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn't know this bac…

That was a very useful and interesting thread. I suggest everyone should read a few top comments there.

Re: IRS reminds taxpayers to report virtual currency transactions

#59

Post by swyx »

my_username_is_ wrote: post #3

They still haven't issued guidance on how to treat forks like BTC/BCH, have they?

this is the frustrating thing to me. IRS shouldnt be allowed to stay ambiguous on basic accounting issues (listen to https://letstalkbitcoin.com/blog/post/the-bitcoin-game-53-ad...) if they also want to tax it. particularly if the tax year has already passed, how does it make sense for the IRS to retroactively define tax guidance.

if you dont bother to define the rules of the game then you're just pretty much barefacedly just abusing your legal power to tax whatever you want to tax for the sake of taxing.

Re: IRS reminds taxpayers to report virtual currency transactions

#60

Post by mkirklions »

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.

This is bad for everyone.

Holy crap do we need reform.

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