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IRS sends warning letters to more than 10k cryptocurrency holders

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

#151

Post by jffhkiu »

crypto_throwa wrote: post #142
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.

Here's one situation where it is very different. Say I get paid 100 BTC for doing a job worth $100/BTC at the time or $10000. Now, say BTC drops to $1/BTC. I owe income tax on the $10000. Let's say I owe $2000 (20%) in taxes. However, I only have $100 now. My effective tax rate is 2000%. This does allow for a small deduction of capital gains each year. However you can only deduct $3000 a year in capital gains. In a l…

How is this different from any other sort of security that drops in value? You make a conscious decision to hold a volatile security. You could have just as well sold it and put it into An index fund.

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

#152

Post by nostrademons »

nradov wrote: post #31
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…

From a legal standpoint, it's a commodity not a currency. And US citizens who trade foreign currencies are subject to tax on their gains.

From a legal standpoint, it's muddled. The CFTC claims jurisdiction over Bitcoin and Ethereum as commodities. The IRS claims that cryptocurrency is "property" and doesn't elaborate further, except to say that it falls under existing capital gains rules. The SEC claims that most other tokens are securities and fall under its jurisdiction, but does not claim jurisdiction over Bitcoin and Ethereum because the CFTC has already claimed it, but also claims that Ethereum "was a security" but is no longer, and sets out a process for adjudicating similar claims that other cryptocurrencies might've been securities when launched but are not anymore. The SEC's jurisdiction is being challenged in court by Kik, claiming that its Kin token is a utility token and should be considered a product feature, exempt from regulation at all. Bipartisan H.R. 2144 (the "Token Taxonomy Act") [1] is currently making its way through Congress and explicitly exempts cryptocurrencies from securities regulation and crypto/crypto transactions from taxation.

Pretty much the only thing that all branches of government agree on is that cryptocurrencies are not currency. It's hard to see how they could declare otherwise, given that the U.S. Constitution grants the government the sole power to coin money, but there's a growing international economy that exists outside the nation-state framework and disagrees.

[1] https://www.congress.gov/bill/116th-congress/house-bill/2144...

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

#153

Post by favorited »

crypto_throwa wrote: post #142
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.

Here's one situation where it is very different. Say I get paid 100 BTC for doing a job worth $100/BTC at the time or $10000. Now, say BTC drops to $1/BTC. I owe income tax on the $10000. Let's say I owe $2000 (20%) in taxes. However, I only have $100 now. My effective tax rate is 2000%. This does allow for a small deduction of capital gains each year. However you can only deduct $3000 a year in capital gains. In a l…

But that's no different than if you got paid in a foreign currency, or shares of stock.

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

#154

Post by Proven »

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 makes sense if you don't report or aren't a US taxpayer.

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

#155

Post by [deleted] »

crypto_throwa wrote: post #142
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.

Here's one situation where it is very different. Say I get paid 100 BTC for doing a job worth $100/BTC at the time or $10000. Now, say BTC drops to $1/BTC. I owe income tax on the $10000. Let's say I owe $2000 (20%) in taxes. However, I only have $100 now. My effective tax rate is 2000%. This does allow for a small deduction of capital gains each year. However you can only deduct $3000 a year in capital gains. In a l…

[deleted]

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

#156

Post by PeterisP »

donclark wrote: post #64

So why do we have to file? Why cant the IRS just tell us every year if we owe or not and how much?

No matter what the IRS does, "tell us every year if we owe or not and how much" can only apply for standard sources of income (e.g. salaries) which get fully reported to IRS by someone else - even in countries where "tell us every year if we owe or not and how much" is the main system, if you'd get some nonstandard income (like getting paid for some goods in bitcoin) you have a duty to file that.

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

#157

Post by kadendogthing »

crypto_throwa wrote: post #142
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.

Here's one situation where it is very different. Say I get paid 100 BTC for doing a job worth $100/BTC at the time or $10000. Now, say BTC drops to $1/BTC. I owe income tax on the $10000. Let's say I owe $2000 (20%) in taxes. However, I only have $100 now. My effective tax rate is 2000%. This does allow for a small deduction of capital gains each year. However you can only deduct $3000 a year in capital gains. In a l…

>Here's one situation where it is very different.

It's not.

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

#158

Post by timerol »

crypto_throwa wrote: post #142
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.

Here's one situation where it is very different. Say I get paid 100 BTC for doing a job worth $100/BTC at the time or $10000. Now, say BTC drops to $1/BTC. I owe income tax on the $10000. Let's say I owe $2000 (20%) in taxes. However, I only have $100 now. My effective tax rate is 2000%. This does allow for a small deduction of capital gains each year. However you can only deduct $3000 a year in capital gains. In a l…

This situation is treated the same as the following:

Say I get paid $10,000 for doing a job, and buy bitcoin at $100/BTC. Now, say BTC drops to $1/BTC. I owe income tax on the $10000. Let's say I owe $2000 (20%) in taxes. However, I only have $100 now.

The smart way to handle that would be to deduct approximate income taxes "immediately" and convert to USD. This scenario is part of why income taxes are deducted per-paycheck instead of just once at the end of the year.

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

#159

Post by banachtarski »

a_bitcoin wrote: post #115

Sure, it makes sense to tax earnings from cryptocurrency trading. But aren't there bigger fish to fry, richer people more flagrantly evading taxes? Let's sort that out first, k

There are two separate matters here. Defining the law and enforcing the law. Misreporting capital gains on crypto violates existing law and is illegal today. Tax evasion by legitimate means (401ks, IRAs, writing off losses) is perfectly legal, and if you or I have complaints, this should be taken up with policy makers and at voting booths.

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

#160

Post by PeterisP »

lgeorget wrote: post #10
ilovecaching wrote: post #5

So under the current laws does a person only pay taxes when converting to and from fiat to crypto, or does it apply to crypto transactions of any kind?

At least, if I understood correctly the article, it's considered like stocks. What's the law on that?

The law on stocks is that if you'd barter one stock for another, then that's a taxable event and you'd have to declare capital gains on the stock you traded away - which is the same for a BTC->ETH trade.
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