So the real question is, what exchange can I use as an American that doesn't report to the IRS?
You could sell your crypto to someone for cash
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
#302I'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…
How practical is bitcoin as a currency for day to day use. I thought the transaction time was 10 to 30 minutes. I get frustrated at the checkout counter when my credit card takes longer than 10 seconds. 10 to 30 minutes seems a lot closer to how long it takes for a stock sale to go through on E-Trade so I can see why the IRS would classify it more like a stock than currency.
> How practical is bitcoin as a currency for day to day use. I thought the transaction time was 10 to 30 minutes. I get frustrated at the checkout counter when my credit card takes longer than 10 seconds.
It is, but there are additional technologies being built on top of it that get transaction times down to < 1 second (lightning network). It's definitely still rough around the edges, but it's at the point where it's usable for day to day use.
Re: IRS sends warning letters to more than 10k cryptocurrency holders
#303Earlier quoted context omitted.
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.
Oh yeah, for sure. If you can prove that all of your income was earned by a shell company in Ireland, you should definitely do that. :)
Re: IRS sends warning letters to more than 10k cryptocurrency holders
#304Crypto currencies have properties of a lot of different types of assets. The crypto tax scenario should reflect that it is different than any existing single class of asset and should be treated as uniquely as it is.
Re: IRS sends warning letters to more than 10k cryptocurrency holders
#305Earlier quoted context omitted.
Worth noting that the IRS will not call without having sent a letter first
New scams have been sending fake letters claiming to be from the irs.
I haven't seen the letters. Isn't that considered a federal crime since it's fraud via the US Postal Service?
Re: IRS sends warning letters to more than 10k cryptocurrency holders
#306So 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 applies to any forex. If you're in the US, but you buy a coffee using CAD somewhere near the border, you have to keep track of that transaction and report it as a cap gain (or loss if you want). Things get weird when you use a strange currency for any transaction.
Surely this is not true? It doesn't seem consistent with the IRS's guidance [1], anyway. You would simply value the expense in USD at the time of the transaction. There is no capital gain or loss.
[1]: https://www.irs.gov/individuals/international-taxpayers/fore...
Re: IRS sends warning letters to more than 10k cryptocurrency holders
#307Earlier quoted context omitted.
Never, ever talk to the authorities directly. Always hire an attorney. Exercise your fifth amendment rights.
This is so overkill. What if I am just moving and reporting my new address? What if I am 20 years old and never had any income?
This is a situation where the probability that you unintentionally violate a serious law is high, the probably of that law actually being enforced against you is low, but the consequences if it is are extremely bad.
From an expected value perspective the result has a negative sign but a small magnitude, so you avoid it whenever you can but not if doing so comes at a significant cost. But low probability events with large negative consequences are the category of thing that worries people a lot; other instances in this category are things like plane crashes, child abductions, forcible rape and terrorism. It's not strictly rational to be as afraid of them as many people are.
However, in this case there's also the consideration that the probability of the law being selectively enforced against you has a lot to do with whether the government doesn't like you, so if you're the sort of person the government (or some plausible future government) might try to stick something to, then the "low probability of enforcement" side of the equation changes and you're in entirely different territory.
And we also generally, as a pro-social activity in solidarity with those populations, might want to err on the side of encouraging everyone to behave in a way similar to what those vulnerable populations would have to, to normalize it and make that sort of selective prosecution more difficult. At least as long as we continue to have these disproportionate penalties for what are in practice honest mistakes and everyday behavior.
Re: IRS sends warning letters to more than 10k cryptocurrency holders
#308Earlier quoted context omitted.
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 ta…
> Until you use/exchange them, you aren't taxed.
As you're not a tax expert and neither am I, take my objection to this with a grain of salt, I think this is wrong though. When you have income from mining, that's income that should be reported at the market value of the coins at the time that they were income (when you received them.) AIUI they are taxed as income, and you should pay taxes for that income based on your regular (marginal) income tax rate. Once you've paid that income tax, you've established what's called a cost basis for capital gains. (This is also what you have when you have bought a coin rather than mining it. This is considered a "taxable event," even if the money you received in the exchange is never withdrawn from the exchange.)
If you buy something using your crypto asset as payment, or if you exchange them for currency, then you might also owe capital gains tax based on the difference between the cost basis, and the price/value you received for your sale. (If the price went down after your cost basis, then instead you have a loss, and so you don't owe capital gains.)
If you bought something, and the price went up between when you mined and when you made the purchase, then in addition to the income tax, and the capital gains, you will _also_ owe sales tax on the purchase, unless the seller collected the sales tax. (Although unless you are running a scheme to systematically undermine sales tax, and they have you with assets which can't be explained any other way I am not sure how they can ever prove that you owe that sales tax.)
When you are paying capital gains, the usual capital gains rules apply. If you have held the asset for longer than a year, you pay the long-term capital gains tax rate which is lower. The rules are (and this is the point where I'm talking way above my pay grade, but I think I've done my homework) first-in first-out, no like-for-like exchanges, which means if you sell some BTC and receive some ETH as payment, those are two taxable events. (The BTC sale is taxed at the capital gains rate for the USD value of BTC, and the ETH asset establishes a new cost basis at the USD price for ETH.)
If you have held the asset for less than a year before it is sold, then you pay the short-term capital gains rate. If you are not paying capital gains, and your aggregate transaction volume for the year on any given (compliant) exchange is above 10 or 20 thousand dollars, then you are very likely to be on their radar.
If you have losses over the whole year, and no corresponding gains to cancel them out fully, then you can take the excess loss against your income for a deduction in income taxes (subtract the taxable value lost from your income).
Please don't take my word for it though, I have someone that does my taxes for $200 or $300 and I use http://bitcoin.tax to extract the data from the exchange and provide them with the data in a form that they won't balk at. But you can take this as some free tax advice from someone who filed and paid their crypto taxes last year (and obv. also took the loss this year!)
Re: IRS sends warning letters to more than 10k cryptocurrency holders
#309Earlier quoted context omitted.
I'm sure those aren't the only reasons. Quite a lot of people get away with tax fraud. If the IRS really knew everything and filing taxes was just a pointless exercise, why is fraud so prevalent?
Massive social engineering mean the IRS would need every financial and legal transaction you've ever participated in. Which they clearly do not. For example, we don't have a simple tax system based on a percentage of salary. The amount they want as a tax depends on your marital status, how many kids, how much your spouse earns, and if you itemize deductions it gets even worse WRT every medical provider's bill you've…
It's not just a matter of the paperwork being too burdensome; free coffees at church are simply not income. Neither is $20 in a birthday card from your grandma. Of course, there are grey areas where it's much harder to draw the line, but it's wrong to suggest that the IRS would tax every transaction if it could.
Re: IRS sends warning letters to more than 10k cryptocurrency holders
#310Earlier quoted context omitted.
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 forwar…
Wait, the gain relative to USD is only reportable when you sell the pesos (to convert them back to USD, or to CHF or BTC or whatever). Is using a currency to purchase a good a "sale"? Would you incur capital gains tax on the USD-converted value of the car you had bought using the pesos?
Yes, I believe that's what they're saying. Calculating the gain when buying a car may be doable (dollar value relative to what the pesos cost originally). The part about all this that doesn't really work is if you convert to BTC and buy pizzas and beers throughout the year, it's not really possible to keep track of the gain relative to each of those transactions. I fear that this will break things.