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IRS sends warning letters to more than 10k cryptocurrency holders

wsj.com

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Re: IRS sends warning letters to more than 10k cryptocurrency holders

#61

Post by zcrackerz »

dawhizkid wrote: post #46

So long as this is the case how can it possibly make sense to use bitcoin to actually transact e.g. fulfill the vision of bitcoin as "digital money" if every time you buy a cup of coffee with bitcoin the expectation is that you'd have to calculate capital gains and report every year?

It's not buying a cup of coffee that's the issue. The issue is in converting between currencies, which is no different than investing in foreign currencies. If you exchange USD for EUR, wait a while, then exchange back to USD and you've made a profit, it's taxable.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#62

Post by jandrese »

umvi wrote: post #45
fortran77 wrote: post #4

This is no different from any other profit or gain. The Government isn't specifically targeting these people; it just wants them to make sure they realize it's like any other investment.

I hate that people treat currencies as an "investment". In my mind, crypto concurrency is the perfect value-store (like gold used to be), not an appreciating asset. Yet because people treat it like stocks, it behaves like stocks.

Isn't the idea of gold as a good store of value that it's price doesn't change rapidly over time, allowing you to ride out downturns by converting your money into something that can't be dragged down as quickly as other forms of investment.

Cryptocurrencies seem to offer the exact opposite experience. Wild swings in value that are extremely difficult to predict and may or may not follow other markets.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#63

Post by hcurtiss »

mikeash wrote: post #22
hcurtiss wrote: post #13

I'm sure there's a lot to know about this topic, but it's odd to me that they'd treat a "currency" as an appreciating asset. If I'm given a dollar (or peso) as change, and if between the time I receive the dollar and the time I spend it the currency purchasing power increases, I do not pay taxes on that gain. I can just buy more stuff with that dollar (including other currencies). In this instance, where it's increas…

Regular foreign currency also gets taxed if you make a profit trading it.

Fair enough, but if I convert a bunch of dollars to pesos and then the value of a peso increases and it allows me to buy a nicer car (in pesos) than I could have when I received the peso, is that taxable? If it is, is the dollar the only exception to this rule? Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#65

Post by dsfyu404ed »

Kalium wrote: post #50
dsfyu404ed wrote: post #42

Earlier quoted context omitted.

How does that change anything about what I said? The people intentionally not paying taxes know full well that it's a crime.

The IRS doesn't need to show intent to show you failed to pay substantial taxes you owe.

Unless you're a crypomillionare with little other income (most of whom are probably smart enough not to risk it) the paying up part shouldn't be too hard.

I can't stress how common this is with cash only side gigs. People hope they don't get caught and if they get caught they play dumb and agree to pay X per month to settle the bill.

They need to show intent or get you to lie to them if they want to put you in prison (which they don't because they want your money instead).

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#66

Post by dawhizkid »

zcrackerz wrote: post #61
dawhizkid wrote: post #46

So long as this is the case how can it possibly make sense to use bitcoin to actually transact e.g. fulfill the vision of bitcoin as "digital money" if every time you buy a cup of coffee with bitcoin the expectation is that you'd have to calculate capital gains and report every year?

It's not buying a cup of coffee that's the issue. The issue is in converting between currencies, which is no different than investing in foreign currencies. If you exchange USD for EUR, wait a while, then exchange back to USD and you've made a profit, it's taxable.

It is, though. Transacting with bitcoin is a taxable event just like converting between bitcoin and fiat. It's no different from the IRS's perspective.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#67

Post by bb88 »

harlanji wrote: post #15
dev_dull wrote: post #2

The math behind crypto doesn’t magically make you immune to government oversight. All they have to do is ask, and you better not lie.

Exactly. I am happy to say I’ve 0 crypto currency. Waiting until that is more tested. Meanwhile other investments are under-valued.

It's not the current holdings -- it's the past sales of crypto-currency that will get you.

You don't typically pay taxes on stocks you currently own. You pay taxes on capital gains from the sales.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#68

Post by arcticbull »

hcurtiss wrote: post #63
mikeash wrote: post #22

Earlier quoted context omitted.

Regular foreign currency also gets taxed if you make a profit trading it.

Fair enough, but if I convert a bunch of dollars to pesos and then the value of a peso increases and it allows me to buy a nicer car (in pesos) than I could have when I received the peso, is that taxable? If it is, is the dollar the only exception to this rule? Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars.

Yes, because you as a US person track your gains/losses relative to the USD so if you buy Pesos and the value of the Peso changes relative to the US Dollar over the time period you held them that is in fact a capital gain and reportable to the IRS for tax purposes. Every country that taxes capital gains operates the same way to the best of my knowledge.

> Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars.

Increased purchasing power of the cash relative to their home currency is what's taxable, and reportable at disposition.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#69

Post by PKop »

zcrackerz wrote: post #61
dawhizkid wrote: post #46

So long as this is the case how can it possibly make sense to use bitcoin to actually transact e.g. fulfill the vision of bitcoin as "digital money" if every time you buy a cup of coffee with bitcoin the expectation is that you'd have to calculate capital gains and report every year?

It's not buying a cup of coffee that's the issue. The issue is in converting between currencies, which is no different than investing in foreign currencies. If you exchange USD for EUR, wait a while, then exchange back to USD and you've made a profit, it's taxable.

Every taxable event is something you have to keep track of.

And spending appreciated crypto, even on coffee, or anything else, is a taxable event.

So the point stands that using crypto as "spending money" vs purposefully saving it as store of value is going to be a real pain, for all of the technical reasons but also the tax complexity.

To see why this is the case, imagine someone saved BTC as store of value, then years later exchanged it for a house.

They didn't sell if for $. But they used its appreciated value to buy something. There is a capital gain involved, and so taxes as well.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#70

Post by jandrese »

habosa wrote: post #39
keltex wrote: post #7

Earlier quoted context omitted.

The U.S. works the same way. You are taxed on the net short or long term capital gains not on every transaction. So if you made $1000 on one trade and lost $500 on another you would only be taxes on the net $500 profit.

That's actually not true right now. Every time you trade it's a taxable event. So if you went USD --> BTC --> ETH --> BTC --> USD you would need to show 4 transactions to the IRS. The total tax burden will look a lot like (Final USD - Total USD) * (Short Term Cap Gains Rate) but you can't just report it that way. In 2017 I mucked around with Crypto and accumulated about 50 transactions over ~5 currencies. Reporting w…

Given the libertarian bent of some people who are most attracted to Cryptocurrencies I'm guessing many don't report anything to the IRS voluntarily.

Even regular capital gains are kind of a pain to report, especially when you've inherited the stocks from a deceased relative who kept no records about them.

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