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The IRS collects data on Coinbase account holders

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Re: The IRS collects data on Coinbase account holders

#61

Post by mathgeek »

sp332 wrote: post #52
bpicolo wrote: post #49

Earlier quoted context omitted.

> I would be worried that the IRS would claim you should have recognized a tax gain with every trade They explicitly do consider crypto-to-crypto transactions as a taxable event now, as of the recent tax bill. You are required to pay taxes on it.

But that's new with the new tax bill. It wouldn't apply to 2017 taxes.

1031 exchanges are indeed explicitly only for real estate starting in 2018. For 2017, it's best to consult a tax professional as the rules are somewhat unclear.

Re: The IRS collects data on Coinbase account holders

#62

Post by hackerman12345 »

patio11 wrote: post #14
jmngomes wrote: post #4

Earlier quoted context omitted.

Maybe it's different where you live, but my experience is that the only people that can afford to not fear the IRS are precisely the "politicians and their buddies"...it wouldn't surprise me at all to see task forces being formed just to identify under-reporting via Bitcoin and issue threatening letters (e.g. pay what is due or say goodbye to any assets you have) to whoever comes up on that list.

As HN has a lot of people who have complicated financial situations and will eventually get one, I'd like to point folks in the direction of what the IRS' typical first play is if they think you underpaid taxes. They do not send you a threatening letter. They do not throw you in prison. They send you a bill; more formally, a CP3219A. (The IRS says it is not a bill, it is a proposal. In practice, it's a bill you can a…

Why would Joe pay taxes when he didn't make any profit off the 600k?

Re: The IRS collects data on Coinbase account holders

#63

Post by patio11 »

arbie wrote: post #58
patio11 wrote: post #51

Earlier quoted context omitted.

For the limited purpose of helping another entrepreneur sleep easy, and not to offer accounting advice: The IRS has to recover ~$1k per IRSian hour to make it worth their time, for reasons which fall fairly straightforwardly from consulting math that you're very familiar with. Consider the set of all companies in the economy which spent $15k last year on "computer hardware." How many IRS hours would be required to re…

The Automated Under-Reporter program does this on-the-fly with no recurring cost, and provides corroborating evidence to the auditor. In fact, an analysis of AUR showed that the IRS is too-lenient in prosecuting claims with automatically-trawled evidence! https://www.treasury.gov/tigta/auditreports/2015reports/2015...

The Automated Under-Reporter Program is not a "sufficiently advanced compiler" for tax returns. It does simple match: did your brokerage account say you made $30k in dividends on a 1099-DIV to the IRS last year? Cool. Do you show a line item which matches $30k in dividend income on your 1040? No? Add an item to a work queue.

It doesn't (and can't) divine "Did the expense on this business return factually happen? Was it for the operation of the business? Is it standard and ordinary?"

Re: The IRS collects data on Coinbase account holders

#64

Post by dragonwriter »

hackerman12345 wrote: post #62
patio11 wrote: post #14

Earlier quoted context omitted.

As HN has a lot of people who have complicated financial situations and will eventually get one, I'd like to point folks in the direction of what the IRS' typical first play is if they think you underpaid taxes. They do not send you a threatening letter. They do not throw you in prison. They send you a bill; more formally, a CP3219A. (The IRS says it is not a bill, it is a proposal. In practice, it's a bill you can a…

Why would Joe pay taxes when he didn't make any profit off the 600k?

He claimed the $600k as a (deductible) business expense; a false deduction has the same effect as concealing taxable income.

Re: The IRS collects data on Coinbase account holders

#65

Post by hackerman12345 »

dragonwriter wrote: post #64
hackerman12345 wrote: post #62

Earlier quoted context omitted.

Why would Joe pay taxes when he didn't make any profit off the 600k?

He claimed the $600k as a (deductible) business expense; a false deduction has the same effect as concealing taxable income.

I see.

Re: The IRS collects data on Coinbase account holders

#66

Post by notheguyouthink »

davidgh wrote: post #27

One of the tax implications I’ve often thought about is those that heavily trade among different cryptos. If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain. Now, perhaps one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade. The IRS generally doesn’t l…

> If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain.

For someone who knows nothing about tax law, if I draw the $15k back from Google to USD, would I pay taxes on the full 15k?

This gains growth tax thing seems to make sense, if there is no taxes when converting it to USD. Eg, if I take 10k and make an additional 10k converting from BTC->ETH and pay taxes on that new 10k, that's reasonable to me if I only pay taxes once on those gains. If however, I withdraw the 20k ETH to USD, and pay taxes on the 20k, then effectively I've paid double taxes on the gained $10k.

Is there a way to handle that in tax law? Or are trades among stocks/etc supposed to be double taxed like that?

Re: The IRS collects data on Coinbase account holders

#67

Post by ISL »

notheguyouthink wrote: post #66
davidgh wrote: post #27

One of the tax implications I’ve often thought about is those that heavily trade among different cryptos. If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain. Now, perhaps one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade. The IRS generally doesn’t l…

> If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain. For someone who knows nothing about tax law, if I draw the $15k back from Google to USD, would I pay taxes on the full 15k? This gains growth tax thing seems to make sense, if there is no taxes when converting it to USD. Eg, if I take 10k and make an additional 10k converting from BTC->ETH and pay taxes on that…

Capital gains taxes are paid only upon the gains, not the principal.

Re: The IRS collects data on Coinbase account holders

#68

Post by otoburb »

lkbm wrote: post #56

Could the IRS do me a solid and send me what the capital gains on my crypto currency are? I'll pay the taxes--I just don't want to have to calculate the taxes. I know, I know. Intuit and H&R Block refuse to allow that to happen, but if we could stop prioritizing entrenched industries, that'd be really nice.

>>Could the IRS do me a solid and send me what the capital gains on my crypto currency are? I'll pay the taxes--I just don't want to have to calculate the taxes.

Unlike stocks which seem to be entirely traded on exchanges, bitcoin could have been obtained through mining (unlikely, but possible) or a true person-to-person trade/barter. In order to calculate capital gains, one needs to know the cost-basis (i.e. the price you paid to acquire the asset). If bitcoins are deposited into your Coinbase BTC account, there's no way for Coinbase to know what you paid for them, hence difficult/impossible for them to calculate the capital gains.

Re: The IRS collects data on Coinbase account holders

#69

Post by maxerickson »

davidgh wrote: post #27

One of the tax implications I’ve often thought about is those that heavily trade among different cryptos. If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain. Now, perhaps one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade. The IRS generally doesn’t l…

Traders in stocks get different tax treatment than investors:

https://www.irs.gov/taxtopics/tc429

Are cybercurrencies not considered securities in that same sense? Has anyone seen tax advice about how the day trader rules apply?

Re: The IRS collects data on Coinbase account holders

#70

Post by daveguy »

davidgh wrote: post #27

One of the tax implications I’ve often thought about is those that heavily trade among different cryptos. If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain. Now, perhaps one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade. The IRS generally doesn’t l…

Not an accountant, but I think you should recognize gains with every trade just like Intel and Google trades that liquidate or forex trades.

Key point here is that you also recognize every loss. Which means in effect you are only paying tax on the amount your wealth increased over the tax period.

It could still be huge, but only proportional to huge overall gains.

Not sure about the trading fees for frequent traders. That's definitely a CPA question.

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