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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

#221

Post by thomaslangston »

Rychard wrote: post #217
kazinator wrote: post #113

Earlier quoted context omitted.

Come on; if you do Forex trading, you will pay taxes on your gains. If you earn a dollar for your labor, and then hold on to it while its purchasing power increases before making a purchase, that increase is not taxable of course. It's not even quantifiable. Purchasing power can increase faster relative to a specific commodity that gets cheaper faster than other goods. If you buy a currency and sell it later at a pro…

Where can I obtain these magical dollars whose purchasing power increases over time? The purchasing power of all my dollars seems to go down the longer I hold onto them.

At one time (maybe still), purchasing power for computer components went up much faster than inflation. If your goal was to buy a faster processor, then waiting effectively generated a rate of return based on falling prices.

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

#222

Post by defen »

Scoundreller wrote: post #89

So how does BitCoin Cash distribution get handled in USA? Is it like a dividend? A stock split? A spin-off? What about all of these airdropped tokens? Are they dividends, with tax payable even if you didn’t “collect” them in some way? Or splits? Can you deduct the Day1 value of the new token from the capital gain on the first token? Or do you assume the cost of the new token was $0 and any sale is a total capital gai…

Not a tax professional, and you should get professional advice if you're in this situation; but the way I handled it was by treating it as regular income (since the IRS defines "gross income" as "all income from whatever source derived"). So pay regular income tax on it, using the initial trading price to determine how much. Thenceforth it's a regular capital asset with a cost basis of whatever you used as the initial price.

Essentially, it's like you found X dollars and used all of it to purchase the newly forked coin. You have to pay income tax on the found money.

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

#223

Post by uwuhn »

verdverm wrote: post #208
171243 wrote: post #187

Earlier quoted context omitted.

I believe prior to 2018 this was not the case with crypto.

Weren't they treated more like property then?

I think Like-Kind is the term. Someone please correct me if I'm wrong, but IIRC any crypto-for-crypto was a Like-Kind exchange prior to Jan 1, 2018.

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

#224

Post by pault »

Rychard wrote: post #217
kazinator wrote: post #113

Earlier quoted context omitted.

Come on; if you do Forex trading, you will pay taxes on your gains. If you earn a dollar for your labor, and then hold on to it while its purchasing power increases before making a purchase, that increase is not taxable of course. It's not even quantifiable. Purchasing power can increase faster relative to a specific commodity that gets cheaper faster than other goods. If you buy a currency and sell it later at a pro…

Where can I obtain these magical dollars whose purchasing power increases over time? The purchasing power of all my dollars seems to go down the longer I hold onto them.

If the dollars depreciated then you wouldn't owe taxes on them and it wouldn't be a good metaphor.

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

#225

Post by notyourwork »

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 is the risk of dealing with crypto, it is not different and the same as anything else. Volatility doesn't change the taxation premise.

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

#226

Post by pault »

JumpCrisscross wrote: post #201
jpmattia wrote: post #194

Earlier quoted context omitted.

> Here's one situation where it is very different. Good god, no it is not different. When the internet bubble collapsed in 2000, it literally bankrupted some people who had been compensated with stock options because of taxes. Exercising the options not only had resulted in greater income, but it caused AMT to kick in. Moreover, some of the exercised options yielded stock that was still in lock-up due to IPO agreemen…

> When the internet bubble collapsed in 2000, it literally bankrupted people who had been compensated with stock options Best practice is to sell stock sufficient to pay for taxes when exercising options. (Same for workers subject to U.S. taxation being paid in a foreign currency.)

Isn't the whole point of the story that they weren't allowed to sell when they exercised their options?

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

#227

Post by JumpCrisscross »

msandford wrote: post #183
arcticbull wrote: post #58

Earlier quoted context omitted.

1 USD always equals 1 USD and you pay taxes on gains relative to the USD as a US person. It's not possible for your USD to be an appreciating asset relative to the USD and that's how capital gains are defined. However, if you go to a store in America (and hypothetically) they give you change in Euros, then you take that to another store, and redeem the Euros there, you do in fact owe taxes on the increase in value of…

So that's why we can't ever have some deflation here in the modern US, it would reduce tax revenue! I always wondered about that. In this light it makes perfect sense.

> that's why we can't ever have some deflation here in the modern US, it would reduce tax revenue

Deflation also increases the buying power of that tax revenue.

We avoid deflation because it incentivises hoarding currency over productive activity. We also know how to stop inflation--raise rates. We don't have reliable tools for fighting deflation (see: Japan).

(Also, it's not true that we've never seen deflation. Around the financial crisis, we saw negative CPI.)

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

#228

Post by kazinator »

Rychard wrote: post #217
kazinator wrote: post #113

Earlier quoted context omitted.

Come on; if you do Forex trading, you will pay taxes on your gains. If you earn a dollar for your labor, and then hold on to it while its purchasing power increases before making a purchase, that increase is not taxable of course. It's not even quantifiable. Purchasing power can increase faster relative to a specific commodity that gets cheaper faster than other goods. If you buy a currency and sell it later at a pro…

Where can I obtain these magical dollars whose purchasing power increases over time? The purchasing power of all my dollars seems to go down the longer I hold onto them.

> Where can I obtain these magical dollars whose purchasing power increases over time?

In the enchanted land of the grandparent comment. :)

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

#229

Post by pault »

timerol wrote: post #158
crypto_throwa wrote: post #142

Earlier quoted context omitted.

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-p…

This is why you shouldn't accept payment in any currency other than the one you pay your taxes with. It's effectively investing 100% of your income in a single asset.

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

#230

Post by JumpCrisscross »

pault wrote: post #226
JumpCrisscross wrote: post #201

Earlier quoted context omitted.

> When the internet bubble collapsed in 2000, it literally bankrupted people who had been compensated with stock options Best practice is to sell stock sufficient to pay for taxes when exercising options. (Same for workers subject to U.S. taxation being paid in a foreign currency.)

Isn't the whole point of the story that they weren't allowed to sell when they exercised their options?

> Isn't the whole point of the story that they weren't allowed to sell when they exercised their options?

The story most applicable to cryptocurrencies is the one where the stock was publicly traded [1]. Those exercisers chose not to sell.

(With respect to ISOs for private stock, yes, it's different. Best practice is not to exercise until you have a plan for paying taxes. This could be lining up a loan or a secondary sale, or only exercising what you can pay for.)

[1] https://www.chicagotribune.com/sns-tech-taxes-story.html

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