Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan
bloomberg.com
bloomberg.com
Scenario:
1. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC.
2. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC.
Option 1: I’ve incurred a loss, because the sale is reported as first a sale of ETH for USD, then a purchase of BTC at whatever the cost basis between BTC/USD.
Option 2: I’ve incurred a gain, because I traded directly from ETH to BTC, and the relative value between ETH and BTC has gone up.
So in your scenario
Buy 1 ETH for say $500, your cost base is $500.
If then trade the 1 ETH for bitcoin, it only depends on what ETH is worth at that moment.
If 1 ETH is now worth $400, then you have a $100 loss, if ETH is worth $500 then no taxable gain or loss, if 1 ETH is wroth $600 then you owe tax on $100 of capital gains.
What bitcoin is worth is irrelevant until you sell the bitcoin.
EDIT Just assume that every transaction between crypto currencies has an implicit, convert to USD first and then buy the other Crypto with USD.
Also, There is always a USD price, what the price is, is a bit of an art, but its what ever price you can convince the IRS of.
This is wrong for cryptocurrency, at least for Bitcoin. Because bitcoin is an asset for tax purposes, each coin (meant here as any quantity of cryptocurrency, not a specific unit) is subject to an individual tax computation, so you must use the actual price paid for each coin as the basis for computing taxes. You must also compare each coin's basis against the actual selling price of that coin at the time sold.
Note that this is generally also how you calculate gains/losses related to foreign currencies.
Neither does buying pounds in euros, but you'll still calculate your taxes in USD.
Like an exchange I did just this morning: $10,000 VHDYX -> $10,000 VFIAX.
It creates two orders a sell and a buy. I'm taxed capital gains on the $10k sale (about $600 gain) and the buy has nothing to do with it, until I sell it in 5 years.
Let's not kid ourselves... Nobody is going to be reporting crypto-to-crypto exchanges.
Premeditated tax-negligence is fraud according to the IRS, but the thinking remains.
How many convictions will it take? Depends on how much is on the line.
[1] Currently that means excluding items individually or collectively worth more than 25% of the gross income actually stated on the return.
[2] If your omission of crypto-currency income is within 25% of your actual stated gross income, the IRS only has 6 years to audit you and assess penalties...unless they decide that the omission is a deliberate attempt to evade taxes, in which case the unlimited statute of limitations could apply.
If you are a holder, or HODL as the kids say, then you get the benefit of long term rates, if you are a short term trader then you pay the short term capital gains rates, just like any other currency/commodity. trade.
Concrete rules will bring in more conservative money.
This was the last loop hole that some people were concerned about wrt to taxes and virtual currency trading.
- bitcoin isn't usable as a transactional currency. it costs $30-40 per transaction. Plus other currencies are gaining steam, and offering other choices for people to transact
- bitcoin isn't rare to be a store of value.....everyday there's a new viable cryptocurrency springing up
- bitcoin isn't safer than dollar.....it can drop 90% in any day; no official entity is going to prop it up and make sure it doesn't crash. it can be banned by countries (and has been by a few)
- bitcoin isn't easy than square cash or visa or wires.....it can take several weeks to send money. plus the transaction fees are high
What makes bitcoin 'rare' isn't the fact that it's a cryptocurrency, just like what makes a dollar 'rare' isn't the fact that it's a piece of paper.
It's the network (i.e. hash power) behind it.
Can you please explain in clear terms how a wash trade pushes up the value of bitcoin?
I can see it increasing the volume but not the value.
This year, the case for 'in-kind' exchange might be best for Bitcoin and its baby Bitcoins (Bitcoin Cash and Bitcoin Gold) – the functional differences are initially miniscule, though likely to grow in time.
You could always play with fire and try this for your 2016 and 2017 transactions, but if you get audited, expect penalties.
> Investors in bitcoin and other virtual currencies would lose a lucrative tax break…"
It also reports, without caveats (or attribution to "some say") that the characterization has been used successfully, so far, in the absence of an explicit prohibition:
> Under current law, such trades have been protected under a provision that allows investors to defer capital gains taxes on so-called “like-kind exchanges”
Several of the tax attorneys quoted advance the interpretation that this treatment will only stop on January 1, 2018 under the new bill.
Of course, there's a risk given the ambiguities also mentioned in the article. But the fact that it required legislation, with a future-effective-date, to clarify may give more cover to those using the treatment before that date – and focus discretionary enforcement on clearer cases in 2018.
Overall I've been pretty dissappointed by the recommendations put out by the IRS - I ended up having to talk to pay to talk to a tax advisor due to the conflicting advice on the internet.
You can transfer your bitcoin to GDAX and withdraw it from there for free (they will eat the bitcoin fees)
https://bitinfocharts.com/comparison/bitcoin-transactionfees...
In the future when you are withdrawing from coinbase, you can transfer to gdax (their exchange platform) instantly, for free, and then transfer out to your wallet for free.
What I find stressful is calculating - not just the 'what was the USD price at the time of the exchange' that has to be manually entered and looked up into the exported CSV spreadsheet... BUT tying that to the movement of coin from Coinbase to the exchange. It's a pain.
I regret using Bittrex, as there's almost no tooling for this available.
My wife inherited a small amount of telecom stock from her grandmonther who worked for AT&T back in the early days. No records had been kept as to when the stocks were bought (they were part of her salary I think). Of course they were all acquired before the Bell breakup. So what she inherited was a big mess of baby bells and about once a year or so one of them will be bought out and they'll do a stock merger and automatically sell any fractional shares left after the merger so we have to pay the Capital Gains on that sale. I am still not sure how someone without a Lexus Nexus account is supposed to calculate the net profit on those shares.
Thus far most of them have been small and we've been calling the entire thing profit (purchase price of $0) but I know one of these days we're going to have to do it for real.
I can't for the life of me comprehend why people do their own taxes. A quality accountant costs maybe 400-500 bucks, which sounds a lot but depending on your salary, it can represents many thousands of dollars of savings. My theory is it's the do-it-yourself fix-the-house type mentality. But that mentality misses that the tax system is intentionally left complicated, requiring experts to help the rich save their riches.
Just get an accountant. :-)
Might be worth it if we ever had to do a big sale though.
I pay against my will because the government holds a monopoly on violence. They will lock me up for not paying.
A society built on top of the threat of violence is not one I endorse.
But while naughty, the alternatives to these governments are private individuals / militias / warlords doing far worse against your values and morals.
I can pay taxes without grousing about it too much, so long as they're just taking my money. It's when they start taking my time that I start to get bitchy about it.
If it takes me 20 times longer to calculate the taxes associated with doing something than it actually took for me to do the thing, then that tax is simply not reasonable, no matter how much or how little it costs in dollars.
The worst part of the entire US tax system is the requirement to self-report on taxable events. If the IRS really wants to dig down in such detail to find out what I owe them every time I move money from my left pocket to my right, they can damned well send me a pair of tax-compliant pants. Write wallet software for US users that makes the tax compliance automatic and seamless, don't bother trying to collect taxes that can't be fairly enforced solely through self-reporting, or FOAD.
It's like they think we exist only to do their paperwork and write them checks. Do they even realize how much more I'd be willing to pay in taxes if I didn't have to do an annual ritual humiliation of proving to them through the submission of forms and reports that I am not trying to cheat? If they just sent me a freaking bill, so long as it explained why my regular payroll withholding wasn't enough, and the amount seemed plausibly close to correct, I'd probably just pay it. There is no particular need for me to fill out 12 pages of forms, so that I can figure out what I think I should owe, based on my own understanding of the tax code. Likewise, if I were due a refund, they could just send out a check.
It's not just based on violence. It's also based on institutional bureaucratic displays of social dominance.
Isn't that the only way governments' have come and gone on this planet?
Well of course if people seriously think locking up your tax chattel so they can not be productive at all (assuming they were locked up on tax evasion, yet still contributing goods/services to someone/thing else) is a effective allocation of resources, then there is no way to argue against that.
Taxes used for ensuring murderers aren't free on the street is a lot different than taxes used to put people in prison for pot.
This is especially true since we are at a point where most people are taxed without representation, because their vote buys so little in comparison to lobbying or other factors (such as us having first past the poll system of election in the US).
Surely you also mind being the member of a civilized society.
I feel like I have been paying for them since I got my first job at 14. I'll probably still be paying for them when I am 80.
SEC treating ICO as a security. IRS needs to come out with more guidance, but doing taxes is going to be a pain with crypto to crypto. Not looking for trouble with IRS, especially when gains were plentiful for so many this year.
Pay your taxes, you don’t want to be the example the IRS makes. PR not going to look good for people in crypto, “majority of crypto owners refusing to pay taxes”.
"Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?"
"A-6: Yes." (quote continues, but there you go).
I have no idea how folks came to the conclusion that 1031 swaps were ever acceptable, but it's always been clear that the IRS did not think they were.
TL;DR Don't get your tax advice from Reddit. (Or random commenters on hacker news, for that matter.)
But they didn't, and thus the 'other' can easily be read as "other kind of property" – leaving 'virtual currency' to 'virtual currency' unaddressed.
They never clarified and now they'll never have to.
Like-kind treatment is given to property, with specific exemptions made by the IRS. If the IRS never made an exemption, but it did designate cryptocurrencies as property, then like-kind treatment applies.
Given that cryptographic hashes are the only thing trading in any distributed ledger technology, it doesn't matter what the name plastered on the network is, it would fit existing regulations and case law around like-kind exchange.
Now with the new law change from Congress, the agency or the courts will never have to deal with it if they don't challenge 2017 tax filings.
I thought the premise of these currencies was to avoid government and banking oversight/control... but with both the SEC and IRS putting controls around virtual currency (which I think we all expected to happen), how does that change the original inspiration? Do these virtual currencies become relegated to the same fate as all other currencies?
Was seeing this happen part of the experiment of crypto-currency as well? I keep trying to figure out the real motivation behind the basically unknown origins of the inventors (e.g. Satoshi Nakamoto).
- The fed does not exercise control over Bitcoin directly, so Bitcoin is still fundamentally different than fiat currencies
- All fiat onramps into crypto are controlled by governments, which is one way to regulate it (KYC, AML)
- You still have to follow the rules for your country, and if the government finds out you haven't, it can censure you; with crypto, it can be harder to see if someone followed the rules, but it's not impossible with the pseudonymous approaches used by most cryptocurrencies today
With mining now being cost prohibitive, it's not as reasonable of an avenue of gaining Bitcoin.. and "real" money has entered the game - and with that, comes regulation.
Naturally you are still supposed to pay your taxes if you do this.
Bitcoin was set up to disproportionally reward the early adopters. The early adopters were cyberpunks, cryptography enthusiasts, and darknet merchants. Since we can only speculate about the inventor(s), the motivation can range from a US-hostile government wanting to loosen the grip the US has on fiat and digital currency, to Libertarian Anarchists wanting to switch trust from bank-bailing-out governments to technology.
It seems one goal "to protect Bitcoin from the select few" is already close to impossible, as Bitcoin shows a highly skewed power distribution (a select few has thousands of Bitcoin).
Seeing as it's insanely easy to set up an alternate address in any coin, and that whatever the US government knows of my coins could just be a tiny percentage.. how would they know how much to tax me on?
It seems so difficult as to be almost useless. Makes me think they'd be better off just considering it a foreign coin, and only tax what goes into and out of USD. I dunno, clearly I'm out of my element haha.
If I make 50k/y and buy a 2.5m house with cash, the gov is going to ask me where it came from too. What's this have to do with my comment questioning the governments ability to track anonymous coins?
Anonymous coins _(if working properly)_ are effectively the same as cash. So the same concepts and limitations apply regarding the governments taxation on it. No?
I've seen some people blame the miners for the fees.. but when you have such a massive backlog, the variable fees are the only way it's even working at all right now. If not for that, it would be a lottery whose transactions actually got through.
The only policy lens by which this current congress's bill makes sense is on that "rewards existing businesses moving into new markets" as opposed to "new businesses competing with existing via new markets." And while I'm not a fan of the bill or its primary authors, I'm simply not able to accept the idea that they don't have a policy direction.
This is why every libertarian should be doing everything they can do to piss on this tax bill. It's MUCH worse than the status quo.
This article seems to have an agenda.
I'm American. I used to live in China. I bought some bitcoin in China. Later I changed some of that bitcoin for an altcoin. I now live in Japan and sometimes do more alt coin exchanges. How if at all am I taxed?
But according to the IRS, you are only taxed at time of disposal when capital gains were realized. I am not at all familiar with Chinese or Japanese tax law, so I couldn't tell you what your liabilities might be there.
This is the best resource I have found at a quick search. The answer is simply it depends on how you setup your cost basis.
https://www.investopedia.com/terms/a/averagecostbasismethod....
http://www.cnn.com/2014/07/18/politics/irs-scandal-fast-fact...
Maybe Equifax has some engineers working on this right now for them!
I can't see that ever happening especially because these protocols would have non currency uses as well.
That would work, I guess, but that is a huge step to make and governments aren't currently talking about how they plan in banning all of Bitcoin.
Node software developers could be at risk, though.
An example: https://www.bloomberg.com/news/features/2017-11-15/the-final...
Only about 1 in 200 individual taxpayers recieve comprehesive audits these days.
Taxes existed before credit cards, you know.
None of these things are present in your post. Most bitcoin folks are happy it's not "real currency", it's not clear what you even mean, there are already taxes and whatever "regulation" means, the SEC is starting to single out individuals for punishment.
An almost fricitionless, ubiquitous, audit-able marketplace. well, except for monero and zcash.
I get that buying something for USD and later selling something for USD you've made a gain.