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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

#281

Post by mirimir »

pault wrote: post #229
timerol wrote: post #158

Earlier quoted context omitted.

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.

True.

But you could also say that you shouldn't accept payment as the entity that will pay taxes. That's what Apple, for example, does for non-US revenue. And what Mirimir does, in a small way.

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

#282

Post by [deleted] »

navigatesol wrote: post #150
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…

> My effective tax rate is 2000%. Sounds like a pretty good reason not to get paid in Bitcoin, no? How is the ridiculous volatilty the government's problem?

[deleted]

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

#283

Post by [deleted] »

PKop wrote: post #69
zcrackerz wrote: post #61

Earlier quoted context omitted.

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 ye…

[deleted]

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

#284

Post by wpietri »

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?

This is true for any foreign currency, and it's exactly why a country tends to converge on exactly one currency, even when it's illegal. Dealing with multiple currencies on a daily basis is a giant pain in the ass.

Europe is an instructive example here. Most of a continent was sick enough of the hassle that they eliminated 19 currencies in favor of the Euro [1]

Another good example is Ecuador. In the 1980s, both currencies were in use, with dollars being used by wealthier people for larger transactions, including savings. That was due to financial instability that got worse; eventually Ecuador just gave up and adopted the dollar. [2]

So to answer your question, it probably doesn't make sense, which is why approximately nobody uses Bitcoin as digital money. In contrast, look at the digital money scheme M-Pesa, which started around the same time. It has many millions of users and has seen widespread adoption. [3]

[1] http://webs.schule.at/website/European_Currencies/old_eu_cur...

[2] https://en.wikipedia.org/wiki/Currency_of_Ecuador

[3] https://en.wikipedia.org/wiki/M-Pesa

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

#285

Post by thephyber »

xamuel wrote: post #213
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?

A serious answer that isn't just "lobbyists": Even if the IRS had perfect info about all your income and investments, there are decisions you can make which effectively make taxes non-deterministic. Suppose on two different dates, you bought shares of a company. Then on a later date, you sold one share. You get to choose which purchase date to count the sale as being against. This is important because you pay on the…

> Why cant the IRS just tell us every year if we owe or not and how much?

You can already contest how much the IRS claims you owe. Why would this hypothetical be any different?

Yes, it's probably impossible for the IRS to perfectly account for every American-person's income. They already make mistakes and it's not terribly difficult to show them how they got it wrong. Whether they are incentivized to adjust to your lower claimed liability is another question... but that's why we have independent courts.

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

#286

Post by tracker1 »

the_narrator wrote: post #269
berberous wrote: post #205

Earlier quoted context omitted.

IRS News release: http://src.bna.com/KeG Letter 6174-A: http://src.bna.com/KeH Letter 6173: http://src.bna.com/KeI Letter 6174: http://src.bna.com/KeJ

Basically, these all say the same thing and aren't _that_ scary aside from the fact they are from the IRS: Amend your prior returns if you owe money. I am curious if they expect the same if you lost money.

IANAL, I'm not a tax expert, but I believe you can deduct losses when converting to/from fiat currency (US dollars). Which is where taxation would take effect.

If you invested $10k in crypto mining equipment, you can deduct that investment (over 5 years or something similar), you then successfully mine 5 coins. These coins are/were worth whatever exchange rate you could get. Until you use/exchange them, you aren't taxed. If you buy something, you need to declare the value of what you bought and pay income taxes against it. If you exchange it for currency, you need to pay taxes on that currency.

If you bought $25k worth of BTC, and it fell from $25k to $6k, then you turn it back into USD, you can take a deduction on the losses too. This is how most interactions with futures/stocks works. However the tax rates, triggers and rules are more tightly regulated than straight/regular income. If you're operating under a corporation or llc, again the rules may be different still.

Having a tax lawyer and accountant is probaly prudent if you're talking about 5+ figure transactions over a given tax year.

edit: --- based on responses below, I'm probably wrong about mined coins, and you probably have to pay taxes on the value when mined. Again, I'm not a lawyer/accountant, so if you're in a position where you're talking about a significant amount of money, get professional advice.

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

#287

Post by jmspring »

yeezyseezy wrote: post #280
ddtaylor wrote: post #267

I don't think most people getting phone calls or letters from the IRS think any of them are real at this point.

Worth noting that the IRS will not call without having sent a letter first

And realistically, they send a letter. They then follow up with a certified letter. Then they may move on to other means.

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

#288

Post by flagfeedingusa1 »

yellowstuff wrote: post #117
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?

Two reasons: * H&R Block and Intuit have good lobbyists who prevent it from happening. * Republicans want to make filing taxes difficult so that people won't like taxes. In particular Grover Norquist has managed to get essentially all federal level Republican politicians to sign a pledge not to raise taxes, and Norquist considers making filing simpler to be effectively raising taxes. https://www.politico.com/agenda/s…

Ahh yes, I knew it was those evil republicans at it again!

Thank god for altruistic totally incorruptible democrats that are trying to save us from this menace!

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

#289

Post by linuxftw »

xamuel wrote: post #264
sowbug wrote: post #246

Earlier quoted context omitted.

Lot identification actually isn't a tax-time decision; it's a transaction-time decision. If you don't identify the specific lot you're selling (or more specifically if your broker isn't given or doesn't follow instructions which lot to sell), then in general sales are treated as FIFO, which might not be surprising because that characterization leads to maximum gain in a rising market. See Internal Revenue Service Pub…

Not a tax lawyer, but reporting of lot identification is a tax-time decision, at least for the things being discussed in this thread. If it's transaction-time then that's totally unenforceable since this discussion applies to things as diverse as trading physical goods for other physical goods in an ad hoc unrecorded environment. It would make no sense for it to automatically be FIFO anyway, for example a person with…

You've clearly never bought and sold stock in two different lots in the US before. Brokerages report cost-basis to the IRS, this basis will be calculated based on your selection when you initiate the trade.

You can't start talking about other capital gains in the same sentence as regulated securities as the reporting requirements are going to be different.

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

#290

Post by sowbug »

xamuel wrote: post #264
sowbug wrote: post #246

Earlier quoted context omitted.

Lot identification actually isn't a tax-time decision; it's a transaction-time decision. If you don't identify the specific lot you're selling (or more specifically if your broker isn't given or doesn't follow instructions which lot to sell), then in general sales are treated as FIFO, which might not be surprising because that characterization leads to maximum gain in a rising market. See Internal Revenue Service Pub…

Not a tax lawyer, but reporting of lot identification is a tax-time decision, at least for the things being discussed in this thread. If it's transaction-time then that's totally unenforceable since this discussion applies to things as diverse as trading physical goods for other physical goods in an ad hoc unrecorded environment. It would make no sense for it to automatically be FIFO anyway, for example a person with…

Interesting. I thought your original comment was explaining why the IRS doesn't have all the information it needs to determine tax due by itself, and your example was stock trading. In that case not only is there a documentary requirement at time of transaction, but there's a catch-all rule for cases where you turn out not to have such documentation. Amnesia or "ad hoc unrecorded environments" absolutely aren't exceptions to any of those rules.

Perhaps you're trying to make a different point now, or I misunderstood your original one.

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