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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

#61

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.

My recollection is all you said was "The IRS needs to come up with some sane rules surrounding this issue." There was nothing wrong with saying it, never mind the spin of replies to it.

I am stating that because removing the comment combined with your follow up comment looks weird and suspicious in a way the first comment did not to me. I would hate to see you subjected to the Streisand Effect here in a way that could have tax and legal consequences.

Best.

Re: IRS reminds taxpayers to report virtual currency transactions

#62
The problem, if one want to trade crypto currencies, is that you have to record every transaction. Then one has to figure out if the coins you have traded have been held for over a year and thus treated at the long term capital gains tax rate as opposed to the short term rate. Then, I believe with the new tax bill, one has to, going forward, sell the oldest coins first (if they are going to be treated like stocks). This makes complying very hard; impossible if you did not start at the beginning being very careful with your records. Basically trading a lot, especially algorithmic trading, is not something illegal, just impossible to do legally, in practice. Same with stocks. Professionals (of course) have some kind of special rules where they only have to keep track of net gains (or losses) and not every trade.

A good analogy would be if, when gambling at a casino, one had to keep track of every bet and report it and the outcome. Then, if one kept chips for over a year, you would also have to keep track of how old the chips you were betting were. Cashing out chips you held for longer than a year would have a lower tax rate. New rules now would say you have to bet with your oldest chips first. Now report all this activity to the IRS with your taxes each year. Vegas and other casinos would not exist with such rules and so much pressure would be against laws treating Vegas style gambling the same way.

Re: IRS reminds taxpayers to report virtual currency transactions

#63
post #11

Earlier quoted context omitted.

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.

What reforms do you propose?

It seems perfectly reasonable to me that income is income regardless of whether it is dollars or magic beans and that gains on investments are taxed largely without regard for the form of the investment.

Re: IRS reminds taxpayers to report virtual currency transactions

#64

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…

This was the complication that the coinheads chose to ignore. Cryptocoins, like their bullion cousins are awful mediums of exchange for precisely this reason.

Re: IRS reminds taxpayers to report virtual currency transactions

#65
post #62

The problem, if one want to trade crypto currencies, is that you have to record every transaction. Then one has to figure out if the coins you have traded have been held for over a year and thus treated at the long term capital gains tax rate as opposed to the short term rate. Then, I believe with the new tax bill, one has to, going forward, sell the oldest coins first (if they are going to be treated like stocks). T…

IRS doesn't treat chips as stock-like things, they are treated as cash. Can you imagine if crypto currencies were treated like foreign currency instead? You wouldn't be complaining about bookkeeping at least...

Re: IRS reminds taxpayers to report virtual currency transactions

#66
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.

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.

This is how my wife and I are saving for our son's future. We gift him money (you can each gift up to the limit without reporting it or decreasing the lifetime gift limit) and then we invest the money on his behalf via a UTMA account with Vanguard.

He'll owe taxes upon withdrawal in the future, 17 years from now at the earliest, but he'll also have full freedom to use the money any way he sees fit. So school, starting a business, buying a house or letting the investment ride until retirement.

Re: IRS reminds taxpayers to report virtual currency transactions

#67
post #12

"No", respond taxpayers. How do they intend to record this?

> "No", respond taxpayers.

"K, enjoy prison. And the fines. And interest."

> How do they intend to record this?

Coinbase shares data with the IRS. I imagine Kraken will also, as they are US-based. Maybe you've used a foreign exchange that isn't obliged to share this data with the USG, though if you've received large fiat sums to your bank account you may have raised some AML flags already...

Re: IRS reminds taxpayers to report virtual currency transactions

#68

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…

For tax purposes, the complexity is roughly the same as if you traded stock shares of (say) a closely-held private Belgian company for stock shares of (say) a closely-held private Luxembourgish company.

Neither is easy to value, but the rules for doing so are well-defined.

The only thing that's new about this is that the average person can more easily get themselves into a difficult tax situation than before these tokens existed. That's in turn because of the SEC accredited investor rules and other countries' equivalents, which make these tough securities rarely accessible to ordinary folks without financial & tax sophistication. The accredited investor definitions have a lot of flaws, but not the idea behind having such a barrier.

And, indeed, the SEC and foreign equivalents are starting to pay more and more attention to cryptocurrency... The rules are still the rules, as much as people don't like it.

Re: IRS reminds taxpayers to report virtual currency transactions

#69

There are people who have lost the key to wallets. For most of them, that is the same as not owning the cryptocurrency, but a small number might get lucky and remember where they put it, or remember enough of it to eventually recover it, at some point in the future. I haven't looked in detail, but do the rules address this scenario?

Lost assets are commonly reported on this form, which you should file if you knowingly hold coins and then lose access to them:

https://www.irs.gov/pub/irs-pdf/i4684.pdf

If you recover the property in the future after filing it as lost, pay a tax professional to advise you.

Re: IRS reminds taxpayers to report virtual currency transactions

#70
post #62

The problem, if one want to trade crypto currencies, is that you have to record every transaction. Then one has to figure out if the coins you have traded have been held for over a year and thus treated at the long term capital gains tax rate as opposed to the short term rate. Then, I believe with the new tax bill, one has to, going forward, sell the oldest coins first (if they are going to be treated like stocks). T…

IRS doesn't treat chips as stock-like things, they are treated as cash. Can you imagine if crypto currencies were treated like foreign currency instead? You wouldn't be complaining about bookkeeping at least...

They chose to kill the use of cryptocurrency as currency outright. It was a swift, but calculated decision.
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