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Comment by derekp7 | Hacker News Reader

What's worse than losing your life savings, is those that made a huge profit on one coin, then traded that directly for another coin that then lost everything. The IRS considers that trade to be a liquidity event, and you owe taxes on the value difference (of the first coin) from when you bought to when you sold (even if it wasn't sold for cash). Now you could claim a loss on the second coin, but only if you sold it during the same year. If you sold it the next year, you can still claim it as a loss against future profits, but you still owe taxes on the original coin sale.

So now that you've lost everything, you still end up owing the IRS possibly hundreds of thousands of dollars.

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> those that made a huge profit on one coin, then traded that directly for another coin that then lost everything.

It sounds like the article is mostly about those people: if you crunch the number the examples they give of people who are now wreaked purchased bitcoin at ~$3000. It's currently trading at over $10000.

(I suppose technically they could have just been day trading bitcoin, but given the price history it would have been somewhat difficult to lose money starting from a $3k price just by trading BTC/USD without additional leverage, except via taxes)

This is why anyone trading digital assets should use a tax tracker to understand the implications of each trade before they make it. I've spent some time building software for exactly this (https://cryptotax.tools).

Whats worse is that those who said, "maybe that's not a good idea" at the time were attacked six ways from Sunday and the same thing will happen the next time.

And even once they get burned, they don't understand what they did wrong. Instead of cashing out part of their stash for taxes (equiv. to the taxes owed on the coins they traded, plus the taxes owed on what they cashed out), they effectively went gambling with the government's money.

I though the whol point of these currencies was anonymity? If you never cashed out gains into a currency tied to you how would anyone know anything beyond the purhase?

Surely blockchain currencies are the opposite of anonymous? All your transactions are publicly visible if you know where to look?

There are some projects, most notably Monero, which obscures transaction info.

But yes almost all cryptocurrencies are pseudo-anonymous, including Bitcoin.

Many exchanges report user's activity to the IRS.

Moreover, even if your tax authority wouldn't currently have a way to know-- the penalties for cheating can be very serious so it's in your best interest to comply with your obligations.

This is essentially how all income/gains tax works in the west: Governments have very limited ability to catch people, but they scale the penalties so that the risk from audits and whistle-blowing are enough so that most voluntarily comply. After all, cash is quite anonymous especially for small amounts.

If you're constrained to spend your money only in ways that could never be found in an audit or revealed by a spurned lover, did you ever really have that money in the first place?

These people are dead broke with hundreds of thousands in back taxes. Jail might look like room and board at that point. Given the only use they made of the gains was to purchase something that no longer exists, the risk v reward in their specific instance seems well tilted towards crime.

Not necessarily, some claim more anonymity than others.

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