U.S. bill to exempt small virtual currency transactions from CGT [pdf]
coincenter.org
coincenter.org
This bill would include digital currency under that rule, so buying a cup of coffee with Bitcoin would no longer trigger recognition of capital gains income.
I think the headline should be modified to make it clear that 95% of purchases of goods and services using digital currency would be exempt from gains, but that most crypto transactions are for trading and investing purposes anyway so gains would still be recognized.
The intention of the original law is exactly like the example I provided; we don’t want people to have to account for trivial gains and losses every time they travel overseas and spend in a foreign currency. The law is not intended to provide a loophole to recognize tax-free gains in currency trading, and if you tried that you would probably lose in court.
If I understand right, they could then use that without paying any taxes on all transactions under $200?
I assume you would still have to account for that somewhere? Even if only in your personal accounts, in case you do some larger transactions or trading. For example if you decide to sell $5,000 of your BTC for US dollars. That now becomes a capital gain tax. You need to list the date you purchased it (date in 2005) & the date you sold it (now).
Your accounting software or books would still need to keep record of when you bought/sold/lost/used BTC though to properly mark which ones are long term gains and which are short and which were used for small transactions.
Please correct me if I'm wrong.
My big question is how this will work for accounting purposes as far as which basis is used. When you sell, say, a stock, you have to designate exactly which stock you are selling to calculate gains. If this works the same, you can choose in ways that get you as close to that $200 line as possible.
100% yes. I've heard some arguments about needing to be consistent with a formula, FIFO or LIFO. Though I'm not sure how true that is. I'm also not sure how you would do that if you have currency split among different apps.
> transaction does not have to be less than $200; the gain needs to be less than $200
Thank you for this clarification.
If you bought 3 at 100 and sold them at 150, you would have a net capital gain of 3x(150-100) = 150 and wouldn't have to report it.
If you sold them at 1100 gain is 3x(1100-100) = 3000 and you would report as capital gain on your taxes. Right now you have to do this for any amount.
Structuring is a separate issue. Typically that would mean that you can't break up a large gain into a bunch of < 200 gains to take advantage of this.
Note that the language is pretty specific though, and I don't think it applies to any transaction.
What's still not clear to me is at what point does it become structuring. I've found plenty of obvious examples such as splitting two deposits of $8,000 into a bank after selling an item for $16,000.
But what about someone who just buys their groceries and fills their vehicle up with gas with BTC that is worth much more than they paid for it years ago? Is it structuring if you're spending this money in multiple transactions that only add up to $1,000/month every month for the rest of your life?
After reading up on a few structuring cases all, my conclusion is that there is no black & white rule on this & it is up to the prosecution to show that the accused knew that they were structuring & that it was illegal. If that's the case, I would assume the above example could be found guilty.
Side note, I'm in no way able to benefit on this. I just have an interest in IRS rules and politics.
You are right that it is all a bit fuzzy because real life use is complicated.
Exceptions on reporting like this are meant to make "normal life" transactions less burdensome. For example in general you have to report gains/losses made on foreign exchange, but typically countries have an allowance so that you don't have to calculate this every time you go on vacation.
The proposed amendment would add virtual "currency" transactions to that.
At the same time, I also think this is an incredibly difficult policy to get right.
I think structuring could become a common thing among those who have done well with digital currencies to either avoid taxes or purely out of convenience & without ill intent.
What would be problematic here is, say, buying a car with BTC in multiple "transactions", each of which is individually below the $200 gain threshold. It's really a single transaction taking place: BTC for a car. That could be interpreted as intentionally structuring the payments in a way that obviously works around the spirit of the proposed law.
It is separate from the rules about what you are legally obligated to pay in taxes, which generally apply to total amount transacted/gained and aren't affected by the size of individual transactions.
Yes, it’s a commodity, not currency.... yet, if ever.
IMO, there is still a huge opportunity for sub 1 cent transaction fees when buying a soda at a vending machine or at small shops.
The vast majority of people don't understand doing taxes for day trading.
There are plenty of cryptocurrencies with very low transaction fees. That doesn't fix the issue.
Well that's new. There was no "BCH attack" that drove up the fees.
BTC simply couldn't keep up with the demand and the fomo that made people pay ridiculous fees to not miss out on the crazy pump.
Don’t forget buying bitcoin’s also has transaction fees and you get real volatility, so it needs very low fees not just seemingly reasonable ones.
Anyway, a 10+cent transaction fee is not really a downside as long as it’s competitive, but it does reduce the incentives for adoption.
So if you gain $199, it‘s tax free. If you gain $201, the whole $201 is treated as gross income and hence taxable.
https://www.forbes.com/sites/robertwood/2017/04/05/91-of-irs...
Avoiding taxes is something that millionaires already do, I do not see why this should be any different.
Based on the verbiage of your question, I would simply say this isn't something you would try to structure without tax counsel/IRA counsel. Note, what I am referencing is known as a self-directed IRA LLC (sometimes called a special purpose LLC).
If structured properly the IRA LLC should not need to file a federal tax return (it should be a single member LLC, so it is considered a disregarded for tax purposes, with the IRA being the sole member). That said if you dip into a tax free retirement account, you will likely trigger significant taxes, so again this is where the tax counsel/IRA counsel would guide you to avoid those potential liabilities. There are some other potential issues with IRA LLCs concerning disqualified persons and prohibited transactions, to avoid triggering taxes (all pretty simple and navigable once you are informed and aware of the issues)
Self-directed IRA LLCs are nothing new, but using them for tax free crypto trading is (obviously)...though I welcome any specific concerns.
For the purposes of this calculation, your cap gain is added to your income to work out your bracket.
It's similar to our tax brackets. Going to a higher bracket doesn't suddenly mean that all the money fitting in the prior bracket is taxed at that higher rate.
If your income + capital gains is less than $40,000 this year, your long term capital gains rate is 0%.
Go 1% over, and you pay 15% on the whole thing. It's really silly (and also not progressive; as the vast majority of America falls under the $40k to $440k bracket).
You pay 0% up to $40K, and the 15% starts applying only to income greater than $40K. You absolutely do not pay 15% on the whole thing.
You can verify on the IRS worksheet itself line 11 "This amount is taxed at 0%":
https://apps.irs.gov/app/vita/content/globalmedia/capital_ga...
Here's a blog entry describing:
"Notably, because the 0% long-term capital gains rate only applies until crossing the threshold of... taxable income..., the reality is that the opportunity for 0% capital gains is inherently limited – as with other low tax brackets, it only applies until there’s enough income to cross out of that bracket, and any additional income falls in the next higher bracket."
https://www.kitces.com/blog/understanding-the-mechanics-of-t...
For instance, I'm married and I can make $120k (with no other income) of long term capital gains and pay $2.5k in federal taxes on it.
The cap gains bracket is progressive.
Source:https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
If something comes of this, we can discuss it then. On HN there's no harm in waiting.
I doubt compliance is high now, and the reporting burden exceeds any likely amount of races collected, especially as it would force filers to use differentirs forms.
‘virtual currency’ means a digital representation of value that is used as a medium of exchange and is not otherwise currency under section 988.
no court in the world is going to find that a bank account denominated in dollars is not "currency" just because you're not holding actual canvas bags with dollar signs on them.
"we see a lot of programmers here..." https://xkcd.com/1494/
Programmatic money has a blurring effect on the definition of a "transaction".
Is it really fair that a wealthy investor pays 15% tax, while a doctor pays 35%?
no. But then the wealthy's capital gains could come from gains in stock or a company, and those gains have already had company tax paid on them, e.g., if a company makes a profit of $100, they'd have to pay $21 in tax, and the company's equity gain is then $79. If you then charge a 35% tax on top of the $79, then that means you've taxed the $100 profit at 56%, which is a lot higher than the normal amount. So by reducing capital gains tax to 15%, you'd end up charging only 36% in total.
It makes sense.
However, why this doesn't apply to a bank's interest payment is beyond me. So may be it is rigged...
From a matter of tax form simplicity, it is much easier--and probably better for society--just to count everything as ordinary income and tax it as such. Fewer potential for loopholes that drive your effective tax rate down to 0; easier to actually do your taxes yourself; etc.
Unless the stock option gains value (which is capital gains), no, the option itself is treated the same as if they had been paid cash.
> In general, the tax treatment for stock received as compensation for your services -- that is, stock in lieu of pay -- is the same as for regular pay. You must pay income taxes on the fair market value of the stock you received. Say an employer gave you 100 shares of stock in lieu of pay, and on the day you received the shares, the stock was trading at a price of $40. You've received the equivalent of $4,000 in income, so you'll be responsible for paying taxes on $4,000 in income. How much that tax will be depends on your tax bracket.
This is just another example of the rich getting richer, leading to the massive income inequality that is destabilizing America.
Is his though? only seems to be getting easier for the top.
Income inequality causes auction-priced goods and sevcices (much to most spending, including housing) to be bid up in price, it also creates power imbalance that can lead to more wealth extraction from the poor.
35% of $79 is $27.65. Total tax according to your example would be $21 + $27.65 = $48.65.
They were being a bit pedantic, but their math is correct.
There are several arguments for a lower long term gains rate:
- It accounts the effect of inflation. Doctors don't receive their paychecks years after they perform the work, and they expect their salaries to keep up with inflation.
- Holding assets for long periods of time imposes risk that other forms of income don't have. Doctors don't typically risk having their paycheck cut in half suddenly.
- Progressive tax rates can be particularly harsh on investors, because sales typically come in big lump sums. Doctors get nice smooth paychecks that don't suddenly move them up and down income percentiles per year.
And also it incentivises things like employee shares which everyone agrees is a good thing, even the SWP Socialist Workers Party Grudgingly accepts this
imagine you make $35k salary and you make an investment that increases in value by $50k over ten years. we'll ignore inflation and tax bracket hikes for simplicity. assuming you live in the US, your salary places you in the 12% bracket, and the 22% bracket starts around $40k income. if you realize that gain in the last year and it counts as income, almost all of that $50k gets taxed at 22%, despite the fact that "on average" you only made $40k each year. this effect gets worse the longer you hold onto the asset.
First, I don't believe this is actually an issue for people with 35k salaries as a whole. The vast majority of Americans do not have savings in excess of $1k let alone the ability to make an investment in the ballpark you're talking about.
Secondly, if this is true - why is the "long term" tax capped at 1 year? And not 10? Or adjusted for the length of an investment? To me the answer is because it's not designed to fix this problem.
my point is that it doesn't make sense to naively tax gains as if they were income acquired in a single year. I'm not arguing for/against the specific implementation of cap gains we currently have.
This line of argumentation, whenever it comes up, has the feeling of a "pre canned response" that people somewhere are taught to offer up any time someone argues for higher capital gains taxes (though I'll admit I haven't thought about the issue in great enough detail to be completely firm on my assessment, or maybe I'm misunderstanding some important detail)
If you bought stock in January 1, 2019 and then sold the stock before the end of 2019 then you were double taxed. Your effective rate is still low in the history of the US but you were technically double taxed.
Where it gets tricky and fundamentally alters the equation is when you defer and don’t sell in the same year you bought. You’re still technically double taxed but the effective rate can become comically low.
I’m also just outright ignoring inflation but inflation is a huge aspect in this calculation.
Compare that to $100 of income taxed at 35%. You end up pretty much the same place of $65 retained earnings. Prior to the Trump corporate tax cuts (which no I don't agree with before I am downvoted again as a right-wing corporate shill) the difference of double taxation was more stark. At a 35% corporate tax rate and then a 20% short term gains tax the double taxation led to an effective tax rate around 50% on investment profits.
One can argue the tax code should disfavor capital income vs. labor income etc but that is a different matter.
But still, from an economic standpoint I think it's flawed to think of the $80 after tax profits as just "money owned by the company sitting in a bank account". The idea of "value investing" (in the original sense of the term as it was used in the 1920s-1940s, where people would value companies by just taking "cost of building"+"cost of desks"+"cost of chairs"+"money in bank") is no longer how the stock market works: Virtually all companies are now valued at more than the mere physical assets that they own, so clearly that $80 in the bank account of the company should be worth more than $80 in terms of stock market valuation. After all, the whole point of a corporation is to act as a machine that turns small amounts of money (i.e. capital) into larger sums of money- This is in large part what determines the price of a stock in the investment markets, i.e. how well this machine works... the $80 is merely (a small bit of) evidence that this machine is functioning properly.
In conclusion, stock valuation and raw revenue/assets/income are categorically different things and arguing that taxation of one category is equivalent to taxation of the other is a categorical mistake, in my opinion.
In reality the “double tax” is still significantly lower than the top tax rates in the US. And the top tax rates in the US are less than half of what they used to be during the years Donald Trump thought America was great.
That you're buying Litecoin from a stranger with your Bitcoin doesn't make it not personal.
It’s a novel interpretation, but sadly the Internal Revenue Code already defines “personal transaction”, and it includes all business transactions, or transactions made for the purposes of producing income. I guess you’re free to interpret the law any way you like, but i’d recommend that anybody who wants to avoid criminal charges should not base any decisions on your definition of a personal transaction.
Well of course
The line of reasoning that this somehow creates a loophole for avoiding tax on for-profit trading seemed to dominate this thread, and it is based on a complete misunderstanding of the existing tax code. If you just read the words “personal transaction” and knew nothing else about tax law, then I can see how you could come to that conclusion. But those words are already legally defined in this context. The 988e personal transaction does not allow for tax free forex or crypto trading, and any attempt to contrive it to mean that would have you laughed at in a criminal court.
Lastly, and I’m not 100% sure about this, but I’m reasonably confident that personal purchases made with crypto would already be covered by this exemption, given existing IRS guidance on how to handle crypto transactions. If that’s true then this is more of a legislative clarification than a change.
So, this is looking a lot like post-Maidan revolution Ukraine, a lot of the political class championed a ton of favourable legislation for Bitcoin. As it turned out later, a lot of them had accumulated BTC over that time. Surprise!
I think we should see that as a variable in the equation at this point, considering we've plateaued in adoption as all of the tech inclined have either already on-boarded or have dismissed it off entirely as a passing fad/ponzi scheme and are waiting for its constantly-touted 'demise.'
We need to focus on getting the curious and motivated, but not entirely tech-savvy, introduced to this tech and having the threat of yet another tax burden to deal with if they use it to buy their morning latte is and was always going to put them off.
Personally, I don't think crypto was ever intended to be used for such transactions, but this the standard by which everyone asks if/when they ask what can it buy.
In my opinion, given what we saw in Hong Kong with UBS stealing the crowd-sourced funds of protestors, focusing on on-boarding a movement like Extinction Rebellion would be a better fit, perhaps seeing a well-versed Greta Thunberg at Davos speaking about the pitfalls of fractional reserve banking, quantitative easing and rehypotheication (and that of War and the impacts it has on climate change and resource mismanagement) would do much more good than getting shaked down by every politician waiting for the crypto rich to get a law introduced.
Also worth noting, though I'm not sure if its positive, the ex-ceo of Bakkt is now a Senator for Georgia: https://www.newsbtc.com/2019/12/04/a-bitcoiner-in-the-senate...
A single Senator has no power. And, as the rest of the threat makes clear, this change does not allow anyone to save any sort of relevant money.
These everyone-is-corrupt-takes may (sometimes) make you look oh so smart, cynical, and contrarian. And I'm over asking people to bring evidence when accusing others.
But at least reserve them for the times where the scheme makes some sort of sense in theory.
The problem, otherwise, is that it stops making sense for politicians to be honest. Because why bother, when everyone is going to yell "liar" or "kill the corrupt bastard" at you, completely independent of any actual things you did?
No, that is the Nature of the profession and merely a perk of the job. I'll never understand what compels Humans to want to rule over other Humans, it seems altogether like a defect of Human Social Order; so, no I don't accept your politician-apologists position, if you don't like being seen as a corrupt crony of the State, then find a more honorable job, there are plenty more. These people are not the bastion of Social order, and are often exposed for their predatory behaviour, especially when they fall out of favor of the Media; but that is some how excused because its part of the 'legislative process.'
The world can do with less politicians, I'm sure we will cope.
As for the Bakkt CEO, I'm not sure what to make of it... I'm one of he few people in my social circle that is completely detached from the circus people call modern politics--it doesn't amuse me, it actually makes me despondent to think this is what modernity has afford us in order to maintain the illusion of civilization/society when we can and should do so much more as a Species in what is the Greatest period of Human existence.
It took me a moment to realize CGT was Capital Gains Tax.
Is this per country or summed over all countries? Is it per transaction? If per transaction, this is a pretty massive loophole.