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Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

altcoinreport.co

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Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#31

Post by charlesdm »

antisthenes wrote: post #22
personlurking wrote: post #13

Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…

That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals). You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go? The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoin…

Depends. If he's in a high tax state and it was all short term capital gains, then those gains are taxable as income. If he didn't keep the tax money separate and the market tanks 80% (which it did) he'd end up with losses that can't be offset because you can't carry losses backwards, only forward.

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#32

Post by hippich »

antisthenes wrote: post #22
personlurking wrote: post #13

Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…

That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals). You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go? The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoin…

You can end up in this situation if you traded profitably in 2017 (which is totally reasonable to expect due all the price hikes) and then lost a lot in trades in 2018.

As far as how he got $330k - each time you convert one crypto to another you realize gain/loss. And it is quite possible to expect him to do just that.

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#33

Post by trophycase »

antisthenes wrote: post #22
personlurking wrote: post #13

Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…

That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals). You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go? The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoin…

It does make sense.

I buy Bitcoin at $1000 in March. I trade my Bitcoin for Ripple in December when Bitcoin is worth $20000 and Ripple is worth $3. I have $19000 in gains because that is a taxable event. Fast forward to April and my $20000 of Ripple is now $3500 and I owe about $9000 in capital gains taxes.

Even if I sold everything I can't cover what I owe because the losses on Ripple are in the next tax year and not offsetting. This is obviously a worst case scenario but you can see how this could get you in trouble

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#34

Post by daxorid »

antisthenes wrote: post #22
personlurking wrote: post #13

Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…

That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals). You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go? The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoin…

> it means he has a realized gain of ~$333,000. Where did that money go?

Generally, the way this works is this:

1. You realize your gain in 2017 by exchanging for, say, ETH, at BTC $19k.

2. BTC falls to $7k, and ETH falls in accordance due to arbitrage desks.

3. You owe taxes on the 2017 gain. You could liquidate your much smaller ETH position in 2018, but you could only deduct $10k per year for 10 years on the large(r than 100k) loss you took.

My guess for how the OP has no assets left to pay the $50k liability is that they rode BTC down to $7k on margin. Buffett has a few things to say on the topic of leverage vs volatile assets.

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#35

Post by SideburnsOfDoom »

lilactown wrote: post #29
SideburnsOfDoom wrote: post #26

Earlier quoted context omitted.

That's a good question, and I too would like to know why people consider Cryptocurrencies to be "not fiat" ? Currencies either have value from 1) Being made of a commodity (e.g. gold coin) or exchangeable for the commodity. 2) Because someone says so. This is "Fiat". Usually this is a government, not not necessarily so. See "company scrip" for another example. Lack of an issuing government does not magically create a…

Because I can't actually buy anything with them, outside of a few niche markets.

I'm not following?

Being unable to use a banknote (e.g. a 2008 Zimbabwe 1 Trillion Dollars Banknote) doesn't make it any less Fiat - no commodity has appeared; it makes it low-quality fiat money.

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#36

Post by tom_ »

antisthenes wrote: post #22
personlurking wrote: post #13

Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…

That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals). You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go? The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoin…

Short-term CGT in the US is around the 40-50% mark, something like that. Our hero bought 8 BTC for $7,200, or so goes their story, then sold it for $120,000-worth of altcoins, making a taxable gain of $113,800. 45% of that taxable gain = ~$50,000.

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#37

Post by trophycase »

simias wrote: post #5

I'm not familiar with this person so I followed the link to his previous prediction of BTC reaching "$25,000 by the end of 2018" from January: https://altcoinreport.co/tom-lee-predicts-bitcoin-price/ > “We expect bitcoin’s major low to be $9,000, and we would be aggressive buyers around that level … We view this $9,000 as the biggest buying opportunity in 2018.” BTC is currently trading at about $6,500. At this point…

Or they are just bad at predicting it

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#38

Post by twblalock »

SideburnsOfDoom wrote: post #26
_0ffh wrote: post #12

How come the wording? Cryptocurrencies are inherently no less fiat currencies than government mandated ones.

That's a good question, and I too would like to know why people consider Cryptocurrencies to be "not fiat" ? Currencies either have value from 1) Being made of a commodity (e.g. gold coin) or exchangeable for the commodity. 2) Because someone says so. This is "Fiat". Usually this is a government, not not necessarily so. See "company scrip" for another example. Lack of an issuing government does not magically create a…

Fiat in the case of currency involves more than "someone says so". It generally means that a government makes a law or a regulation that says the money is legal tender, and also that the value of the currency is derived solely from that law and is not "backed" by any physical goods.

No government or other monetary authority has said that cryptocurrencies are legal tender in their country, or has required that anything to be paid in cryptocurrencies. In fact, many governments say it is a commodity.

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#39

Post by dustingetz »

antisthenes wrote: post #22
personlurking wrote: post #13

Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…

That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals). You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go? The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoin…

1/ Short term, so 50k tax is 150k gains

2/ Your possibility is correct - the IRS computes tax on USD-equivalent as of trades completed Dec 31; but the USD price crashed in 2018'Q1, and he can't pay his tax bill in crypto. He can deduct the USD-equivalent losses next year but only against capital gains, not his W2 income, and the tax is due now in USD.

Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day

#40

Post by SideburnsOfDoom »

twblalock wrote: post #38
SideburnsOfDoom wrote: post #26

Earlier quoted context omitted.

That's a good question, and I too would like to know why people consider Cryptocurrencies to be "not fiat" ? Currencies either have value from 1) Being made of a commodity (e.g. gold coin) or exchangeable for the commodity. 2) Because someone says so. This is "Fiat". Usually this is a government, not not necessarily so. See "company scrip" for another example. Lack of an issuing government does not magically create a…

Fiat in the case of currency involves more than "someone says so". It generally means that a government makes a law or a regulation that says the money is legal tender, and also that the value of the currency is derived solely from that law and is not "backed" by any physical goods. No government or other monetary authority has said that cryptocurrencies are legal tender in their country, or has required that anythin…

I have already read the wikipedia page, and it says "often by government regulation." So not necessarily so then. See here for an example of non-governmental fiat monies: https://en.wikipedia.org/wiki/Company_scrip

of course "because someone says so" is an oversimplification of fiat; they need to do so believably which is why the United States of America has the resources to do it but I would not be able to.

Company Script is generally illegal these days, which is instructive - you need to distinguish between "it's impossible to have fiat money without government regulation" (false) and "it's illegal to have your own fiat money because of government regulation" (generally true). Nation-states even sometimes fail at fiat money, so regulation is understandable.

Bitcoin looks like something that has value only because people agree that it does. Saying that "bitcoin is a commodity" means what exactly? This trivially copied pattern of bits is a scarce resource? Proof of work is valuable in itself?

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