Earlier quoted context omitted.
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, startin…
Or blackjack and hookers...
IRS reminds taxpayers to report virtual currency transactions
81–90 of 278 posts
Re: IRS reminds taxpayers to report virtual currency transactions
#82The 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…
This is true for all capital assets. With cryptocurrencies, the data are all public. There may be room for a service which, given a set of wallets, produces a sample tax transcript.
Re: IRS reminds taxpayers to report virtual currency transactions
#83Earlier 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…
Re: IRS reminds taxpayers to report virtual currency transactions
#84Re: IRS reminds taxpayers to report virtual currency transactions
#85Earlier quoted context omitted.
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.
Re: IRS reminds taxpayers to report virtual currency transactions
#86The 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…
It's not that diffiult really - most exchanges allow exporting historic transactions, and there are tools popping up that help to organise it all for the tax purposes.
That might've worked, except it doesn't delineate short and long-term gains, and even worse it counts every transfer to GDAX as a sale. That meant hours of pouring through GDAX's even more bare-bones reports to figure out which coins were sold, which were kept, which were transferred back to Coinbase or to other wallets, which coins were held for longer than a year...
That process, across several different cryptocurrencies and thousands of transactions, took 8 hours of work. At the end of it all you're left with the sinking worry that you overlooked something and are overpaying or underpaying.
Re: IRS reminds taxpayers to report virtual currency transactions
#87Earlier quoted context omitted.
I still find it weird that he has to pay taxes in dollars on something that he doesn't know the value of in dollars since he hasn't converted his cryptocurrency assets to fiat yet.
Didn't he convert to fiat and then used that fiat to buy alt-coins.
Re: IRS reminds taxpayers to report virtual currency transactions
#88Earlier quoted context omitted.
They chose to kill the use of cryptocurrency as currency outright. It was a swift, but calculated decision.
Yes, but do you really want your cryptocurrency gains to be taxed as ordinary income?
Re: IRS reminds taxpayers to report virtual currency transactions
#89It is unrealistic to expect people making frequent trades to carefully document every trade (unless perhaps that is their profession). It's even worse for cryptocurrencies, since the value of the outcome of a trade is entirely relative to some other more established asset (such as US Dollars).
If you trade USD for BTC, then some time later trade BTC for XRP, then liquidate that for something more obscure (like cV), determining the value is really difficult. You would have to lookup the currency pair rates for each pair in a given trade, as well as some chain of currencies which can be associated directly with USD. Not only would that be highly inaccurate, but it could easily be argued very differently depending on which exchange(s) you used (since at any given moment, the difference of rates on different exchanges can be very significant).
I think as far as the IRS is concerned, unless you're obviously getting rich, if you can just show you made reasonable effort to assess and report what you earned, they'll be satisfied. But if they think you're trying to fool them, they make take personal offense and put far more resources into nailing you than you think it's worth in lost tax revenue.
Re: IRS reminds taxpayers to report virtual currency transactions
#90Earlier 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…
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?
Do you account typically report FIFO or LIFO?
You can register a capital loss of $100 if you account last-in-first-out, but will be on the hook when you sell your $10 gravel on the future at any price higher than $10.
You’d register a capital gain of $90 over cost if you account first-in-first-out.
AFAIK, in either case you have to account for all of your transactions the same way, for the year in question. It’s not pick and chose to gain the best benefit.
Tax rate in either case would be calculated based on how long you held your gravel.