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Comment by purple-again | Hacker News Reader

Another point everyone should remember because I’ve seen the attitude a lot recently.

If the reporting requirements seem to be literally impossible to comply with, this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you should conclude “I have to pay the maximum taxes possible under the worst case scenario because I don’t have the records to prove my version of events”.

It has nothing to do with crypto, lose basis in your stock and you assume no basis (obviously you make best guess and hope To not get audited, but once audited, you take no basis).

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I work as a tax auditor and this is completely false.

Taxpayers only need to pay the MINIMUM amount of tax required by law, not the maximum. If you are audited then we will tell you why you owe additional tax. No, you will not go to jail for paying less tax but upon audit you will be required to pay the deficiency or provide additional explanations/documents etc. Then you can introduce any counter arguments like you didn't know such a law exists, the tax code is ambiguous etc. Making these types of claims will help to provide case law to clarify it for others as well as for auditors.

I agree that the taxation of crypto related transaction is quite ambiguous when you start getting into the theoretical nature of how the transaction is conducted.

I have two questions:

1) If one had used bitcoin as a currency (bought pizza, bubblegum, etc.), are these new "treatments" of cryptocurrency implying one has to report each of these purchases and the tax implication there in?

2) Lets say you are a miner and mine a bitcoin a month (I know not realistic but helps simplify question). Now, lets say you buy pizza with bitcoins from your wallet every month. What is the cost basis to use? The price is pretty volatile .. so what the heck are you supposed to do?

Of course you need to report them. If you used AMZN stock to buy bubble gum or shoes, you'd have to report it too. Just because it is named crypto "currency" doesn't actually make it a currency...

You can’t possibly buy bubblegum using stock. Having the properties of a currency makes them currencies!

I'll sell you all the bubblegum you can chew for some stock. I don't even care _what_ stock.

Have you seen any stock certificates, on paper, recently? I can’t name a broker that doesn’t use completely digital books. Either way, that’s meaningless. We could barter wood instead, but that doesn’t make it a currency (until it does!).

Not an accountant and not your accountant but as someone who ran a small business:

If you run a small business which grosses $X,000 per month, you will a) find that that is not that rare and b) benefit from keeping appropriate records of your expenses, including electricity and depreciation of expensive equipment, such that you can claim them on the tax return for your business each year.

You might choose to swap assets of the business directly for pizza but this is, in general, not a good decision relative to swapping them for money and money for pizza.

Your cost basis in intellectual property is typically the marginal cost to produce it. You can run the question of how exactly to bookkeep it past your accountant, but the profit of a mining businesses with $8k gross revenue and $2k of expenses per month should be $6k.

If you believe your mining business to have insurmountable challenges in bookkeeping at the scale you’re operating it at then maaaaaybe you should hire professional help or exit the business.

If you're making enough money to make it reasonable to pay the fees, I have found that a tax accountant has been incredibly helpful, even if you have things pretty much under control. If you have everything well documented, having someone look over it will not be very expensive and could save you a lot. Of course, YMMV.

Apart from patio11's good advice I would add that it may be important (depending on your tax laws) to record the value of the asset (i.e. BTC or whatever) when you received it and the value when you sold it. The difference may be capital gains/losses and might be taxed differently. You also need to understand if the accounting is LIFO (the last BTC you received are sold first), FIFO (the first BTC you received are sold first) or cost averaged. Some countries require that you declare which system you are using before you do any transactions, so some caution is warranted. I don't know how the tax system works in your country so this is not advice. See paragraph 1 :-)

P.S. I've never bought nor sold crypto currencies, but my small consulting business is primarily overseas work, so I have to do a lot of FOREX.

Thx for your comment. I must admit I just learned about FIFO/LIFO for stocks. Seems in the US, the regime is FIFO on stocks unless you declare otherwise .. but you have the option to change it (as I understood from a few hours of reading online). Forex is still mystifying me because one can also spend forex for goods. I assume you have expenses overseas too ... do you just average out the value of the forex account or account for individual transactions. I think I read somewhere that forex and equities are treated differently in some ways.

Wish there was a dummies book on this. I do have an accountant btw but want to learn myself.

Yeah, when we go to the UK we have to keep all of the receipts. Then you basically "sell" the currency for whatever it is trading at then. We use the price at the end of the trading day and I think we use London prices (but I would have to check with my accountant). I assume for crypto currencies you would have to specify the exchange you are quoting against and not change it, but I'm not sure.

The government needs to fix the problem that it's so difficult to know what you're required to pay without just paying the maximum guess (and then pay more ahead of time to avoid penalties). I've reported an instance of 2 conflicting statements in 2 separate IRS forms to the IRS, and rather than clarifying what was required they referred me to a tax advisor, who also didn't know the answer to the question. So we took the more liberal guess, and filed. And then had to rework it anyway because the law for how much tax I was required to pay in 2017 changed in 2018 anyway. The principles that we consider "rule of law" don't seem to apply to tax law.

It's not the government's fault you lost track of your records.

I'm not even talking about that - parent comment talks about requirements that are literally impossible to comply with, and I talk about laws that are put into place after a tax year ends and apply retroactively, and official documents that contradict one another and the inability to get an official explanation from the government prior to the filing deadline. How is any of that even remotely "losing track of my records"?

edit: Let me be even more detailed. I had to have my accountant rework my taxes 3 times. Once because of a retroactive law change after the end of the tax year. Once because of the inconsistency I discovered in official documents. And once because ETrade's documents and my employer's conflicted. Both of the latter were prepared by professionals. That's pretty typical of my filings. If it's so complex that all of that is fairly routine, that IS the government's problem. I have no problem keeping track of my own records; in fact my own record keeping and fastidiousness led to the discovery of all 3 of those problems.

> in fact my own record keeping and fastidiousness led to the discovery of all 3 of those problems.

Does that mean it might be safer to be less fastidious so that no-one can uncover records that never existed?

The records exist in all these cases. I operate under the assumption that the IRS is better at noticing these discrepancies than I am and that the cost of reworking it with my accountant is less than the cost of getting audited by an agency that gets off on this.

This is a direct consequence of productizing things that should be rights. i.e. justice, education, accounting, health care, infrastructure. Making justice a product rather than a right means if you can afford a better lawyer, you get better justice. If you can afford a better accountant and tax layers, you can pay less tax. If you can make yourself not black or brown, or not show up in court and just have lawyers fight for you, you get better justice.

Republicans absolutely, unequivocally, believe in class. Better people have more money. Period. They can buy better products with that money - otherwise there's no point in being wealthier than others. Democrats are kinda sorta sometimes maybe occasionally OK with this but then abruptly not OK when the political winds change a bit. The party of ambiguous ethics are the Democrats. The aristocrats' party is the Republicans.

Directly asked, both party types lie. But if you look at a few dozen policy positions an individual policians has, with emphasis on the less conventional (the ones with ready talking points) ones, it's really easy to triangulate their positions and contradictions - for a political scientist.

Not maximum possible. This isn't that difficult to compute. Not so long ago, 1099-B only showed the sale price of stocks (funds, etc) and you had to go back and compute basis yourself from the confirmations, even if the asset purchase was 50 years ago. It's no different for a house sale.

Having a CPA doesn't help at all whatsoever to compensate for bad record keeping.

There are other ways to do this that would be simpler, e.g. tax equals 1-2% of the asset value per year, rather than taxing the income. This isn't fundamentally different from property tax computation.

> tax equals 1-2% of the asset value per year, rather than taxing the income

So penalize everyone in down years when their stocks lose money, plus wipe out a ton of potential growth in 401k accounts? At least, that's what it sounds like to me.

Lack of imagination. First, the biggest complaint sould be that it's regressive. Second, no one would accept 1-2% tax on retirement assets, even though this would actually benefit them over a long haul: grow tax free for 40 years, and then pay a n% asset tax, where n=asset pool (your retirement account) age?

Almost everyone does better with Roth versions of IRAs and 401(k)'s anyway. Pay the tax up front, no tax at the back end, and thus basis and record keeping isn't even relevant.

There's a bunch of ways to simplify this while also making it fair if it weren't for the greedy rich people who want regressive taxes, i.e. flat tax.

There are also tools like www.cointracker.io out there to simplify the complexity of these crypto taxation rules

Oh, that looks useful. Thanks!

Also https://bitcoin.tax, does everything for you pretty much.

Worked well for me. I imagine when most people import their trades they will be very surprised by what they owe. I had no idea (but it makes sense) that when I gave some bitcoin gifts it followed the FIFO rules despite the fact that I had just purchased some to gift.

> If the reporting requirements seem to be literally impossible to comply with, this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you should conclude “I have to pay the maximum taxes possible under the worst case scenario because I don’t have the records to prove my version of events”.

Shouldn't that be "pay the minimum amount that (1) you can reasonably argue you believe is what you owe, and (2) is close enough to the maximum possible under the worst case scenario that you will not be subject to underpayment penalties if you are audited and they determine you owe the maximum"?

Why do people put up with that extortion?

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