Hacker News Reader

Comment by bobyfyfy | Hacker News Reader

Is that a problem?

It's one of those things that gets complicated pretty quickly. Essentially, for every transaction you make you have to determine if you made a profit or a loss with your crypto. The purchase date of the crypto you're converting into USD matters because you need that for short-term vs long-term capital gains. This problem also gets worse if you buy crypto at regular intervals, like I often do, because now you have different gain/loss potentials in the same transaction.

Sure, a program can calculate this for you, but it does make filing more complicated. You'll probably have a very long list of items on your 1099.

Look at the crypto trader's tax return and its 99 pages of forms and 999 pages of trade history. The government demands it!

It's easier to forget about it and wait for them to fine you. Unless you're buying lambos, it probably won't happen.

For anyone in the USA, do not take this advice. IRS is relentless and they go for the balls to make examples of people. Not a clever strategy.

I day traded for a while, and got an IRS fine. If you simply accept they are right, then pay nothing will happen.

Their fines aren’t extra ordinary, and they are very much willing to help you come into compliance.

For example, if you do have software that can output all your crypto trades, they will accept that in an audit, and likely only fine you for what you got wrong and not merely not following procedure.

They take the interpretation of tax laws and your personal situation that is most favorable to the IRS, though. This can amount to tens of thousands of dollars that you pay them needlessly.

I missed the back of a capital gains worksheet once when reporting my taxes. Got a bill for $11,000+, between the missing stock sales and an education credit my wife took that the IRS was suspicious of. After actually tracking down the stock sales in question, reporting their cost basis (the IRS had assumed $0, because they don't have it so why not assume the value most favorable to them?), and refiguring the taxes, the ~$7K in tax liability had declined to $60. Then because that was so low, I got the ~$2K penalty waived. Then I produced documentation to show my wife was eligible for the education tax credit, and there went another $2K. By the time I had a full amended 1040, the $11K was down to $60, so I sent them a check for $60 along with all my documentation and got back a nice letter saying the matter was closed and no further tax was due.

Also be very wary of the CA FTB. They don't send you notices if you owe money; instead, they just record it as a debt, charge interest and penalties on it, and then send you a bill for the full total when the statute of limitations is about to expire. If you're aware of any problems in your federal tax return and you owe anything to California (which may occur even if you're not a CA resident - they tax stock granted at a CA job even if you later move out of state), make sure to pro-actively get in touch with them with an amended return and any money owed.

> They take the interpretation of tax laws and your personal situation that is most favorable to the IRS, though. This can amount to tens of thousands of dollars that you pay them needlessly.

I agree 100%.

Though, I think that most people hear stories about a multi-thousand dollar tax notice, and become terrified that the IRS will force them to pay that money.

However, as your story illustrates, the notice they give is the worst case scenario. If you have any kind of documentation, you can add that amend your return and it'll be accepted by the IRS drastically reducing your tax bill.

This is made easier, because you're working with a real live human being on the other end---one who at least in my case, I could call and ask questions like 'what do documentation do you specifically need to see for X?' instead of guessing as is the norm for non accountants working within the complex tax code.

But if they find posts like this, they won't be as kind. They care a lot about intent. And intent to flaunt rules is quite different than accidental noncompliance.

I think they are lenient if you try to comply, but fail because of the complexity of the rules. Even if you make a post that essentially says "I won't try harder, because the rules are difficult to understand" isn't Mal intent; but an admission that your actions weren't accidental.

I think you meant 'flout'.

This is actually reassuring, even if from a rando internet commenter. I have tens of thousands of crypto trades from the last few years, most of which are legs of complicated straddle positions. Spent dozens of hours trying to get the data straight for reporting but in the end I just put a single line item on my Form 6781 which captured the correct PnL (which was a very, very modest number). If I do get audited I can produce all of the trade data, so I’m thinking I’ll be okay.

For a few thousand bucks, they're not going to make an example of you. It's not worth it to them. If you're cashing in 6 figures to buy luxury cars, they might, I agree. You go after the big fish, not the small fries.

It’s actually the other way around surprisingly. The big fish tend to have resources to fight the IRS in court; which becomes expensive for the IRS. Hence the IRS goes after the not so rich since they rarely put up a fight.

e.g. https://www.propublica.org/article/irs-sorry-but-its-just-ea...

That article describes lower income people taking an earned income tax credit. That sort of thing sounds very simple to find and is low hanging fruit. Most of it is probably a simple mismatch.

Your casual bitcoin spender is not going to be like that at all. Their under reported transactions will be difficult to even find. If you do find them, their true cost basis will be difficult to determine.

It sounds like a big hassle for you or your accountant.

Yes. They're hampering the adoption of cryptocurrencies.

Reply on news.ycombinator.com