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Comment by tldrthelaw | Hacker News Reader

Hate to be this guy all the time, but if your case is anything other than straightforward, and there are large amounts at stake, talk to a tax attorney (grain of salt: I am one).

Form websites and tutorials are all well and good, and will probably work out for more people than they don't, but you super don't want to screw up your taxes. When the bill comes due, it'll be years down the line, and for an unrecognizable sum.

Your state bar can put you in touch with one. Avoid folks marketing themselves as something like "tHe CrYpTo LaWyER."

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In your opinion, does the IRS give leniency towards people who make their best effort by either hiring a tax person, paying for software or both?

Cryptocurrency taxes are insanely awful, even if you're not talking big money. Just trying to be accurate is near impossible if you've moved your money around exchanges a few times & spent some on goods. Unless you have lots of money in Crypto it seems like trying to do honest taxes on it costs more than any money you would have made over the past few years.

IMO, not legal advice, the investigators are human beings. Good faith efforts to comply with the law will net you better results than avoidance. This is also reflected in the tax code which is replete with examples of higher fines for, say, undeclared income as against under-declared income.

As one who probably should hire an accountant more often than I do, I've underpaid the IRS a few times. Look, despite whatever image popular media might want to portray, the IRS just wants what's owed and not to anally violate you. You'll get a letter in the mail stating "here's how much you owed" (sidenote: then WTF didn't you tell me that to begin with? Could have saved both of us a lot of trouble.) You write the IRS a check, along with some extra for penalty, and you never hear from them again. My anecdata relate to stock trades, so kinda relevant to your question. Do the best you can (and really, hire an accountant), and it'll be fine.

Now, if one is blatantly practicing quasi-legal "tax avoidance" then you're on your own. But my experience, as a person who did the best they could and still screwed it up, is that the IRS is not nearly the scary monster it is made out to be.

Mostly agreed, with the exception that if you're construed to have been engaging in tax avoidance -- regardless of whether you are or not -- you'll just as soon be on your own.

This has always been my biggest fear. I don't purposely do it, but I worry that a mistake I make could be seen as large enough of a hassle to where all other parties would say you're on your own to fix & figure this out. Which could then cost a large amount of my time plus fees, which then correlates to lost revenue.

Out of curiosity, what's your recommendation on how to differentiate a very competent tax lawyer from one that's merely good? Also, what's wrong with "crypto lawyer" people?

Domain-specific knowledge. You can't go point to point with even a marginally competent lawyer on the law (probably), but you know a lot about your issue. Can they hang? In the case of crypto, do their eyes glaze over if you refer to an altcoin? Do they use "bitcoin" and "blockchain" interchangeably? Use same process for whatever your issue is -- SaaS contracts, tech trans, etc.

The crypto lawyer folks are, by and large, claiming to be experts in a practice that is so new and so without firm guidance as to be practically the tax wild west. Right now we are in the metaphor stage, we're defining everything involved with cryptocurrency (from a tax perspective) with metaphors to other things: currency, stock, digital goods, etc. The cases that will be cited forever to define crypto for tax purposes are going to be litigated in the next few years, don't be one of them.

TLDR: Look for a tax attorney that knows the tech behind cryptocurrency well enough and doesn't make any promises or guarantees.

Edit: One additional point, merely competent attorneys won't be published in their field. If you're looking for an expert find someone who is contributing to the discussion in their area.

TL;DR: Find a good crypto lawyer

Yeah dont listen to this guy unless you want to spend 15 hours telling a licensed professional that digital assets have price charts and are extremely liquid for the needs of 99% of people and easily convertible to fiat, all while they keep deflecting to some old irrelevant headline that has nothing to do with you paying taxes on assets received and traded.

Find a lawyer that is advertising competency in this field, is willing to look at the nature of transactions instead of just assuming everything is capital gains or losses.

I’ve handheld many financial professionals on crypto topics over the last 5 years. It is a godsend that so many have moved to fill in a niche now.

None of this means anything. "Nature of the transaction" is not a thing. Like-kind exchanges no longer exist. Transacting in crypto, to buy something or to sell it, is a taxable transaction of a capital asset and results in a capital gain or capital loss.

As for the "licensed professional" dig, they're the only people who are going to represent you in front of the IRS when bad advice gets you in trouble. Do with that information what you will.

So FWIW, look out for ^ these guys too. Talk to your state or the federal bar taxation section.

This is uninspired, the nature of the transaction includes vesting schedules, 83(b) elections, 83(i) elections, donations to tax exempt organizations, and much much more. Nobody said anything about like-kind nonsense but for some reason thats the entire universe of your meta considerations.

Yeah, I’m not really responding to you at this point, everyone else that makes it this far in The thread, the point is clear: find someone inspired enough and willing enough to look at the nature of a transaction and its associated tax compliance even if they are unfamiliar with the assets used in the transaction but ideally are familiar with crypto assets being used instead of cash or securities. On this point, both of us are saying the same thing, except that the other person thinks that someone advertising domain expertise will give bad guidance. There is no way of gauging that from that assumption alone.

Lot of BS buzz words in this reply. IRS does not recognize crypto as cash. Please folks, disregard this inspired (read: bad) advice.

there wasnt a single buzz word or marketing term used.

you are obsessed with being right to attract business to your dinosaur accounting/legal firm thats losing business in a high growth sector, under the guise of better compliance and denigrating firms that you have no idea what they file

I think a lawyer without an extra computer science degree is utterly worthless in that case. Just too much technical knowledge required. Most lawyers can't tell a bit from a byte.

What are your thoughts on the various Crypto-tax services? For the first time in a while I'm going to have to deal with Crypto on my 2021 returns and my plan was to use on of the SaaS' out there for it. We are talking <100 (probably <40) trades max for my use-case and they seemed to be a good choice (as they import trades from major exchanges and spit out the needed IRS form) to use in addition to my normal tax preparing software.

Also, if it's not too much to ask, how should one handle crypto that they mined 6+ years ago, never declared (it was worth <$100 at the time of mining), and now want to cash out? My understanding is I was supposed to declare it as income way back then and now I would just pay capital gains (long term in my case) taxes on it. I'm happy to file some kind of an addendum but is it needed for <$100?

I have been dealing with a similar problem: Very old holdings that I first traded for back in 2013. It's unfeasible to record what I traded then since it goes through a trail of dead exchanges. I've been filing them as capital gains as I trade them now, dating their purchase time back to the year I originally traded for them(thus making them long-term), and their acquisition price as $0.

Marking acquisition price on trades to $0 is consistent with how I've seen the IRS behave in the past when I failed to report stock trades accurately($1mm volume = $1mm taxable when this occurs), and since the prices have increased 1000% in most instances(I buy and hold for years, and while I traded in 2017-2019, I did not trade at all in 2020) the initial cost is easy for me to write off.

I plan to use Cointracker's reports going forward.

This tracks. Being transparent if you're audited will be key. You're trying to keep track of things, and trying to pay what you owe based on the information you have.

Just as a heads up for other folks reading this, having a basis of $0 isn't the same as paying tax on the mined value at ordinary income rates (cap gains rate differs from ordinary income rates). Mined coins and bought coins are treated differently owing to how they're acquired.

Happy to help in general terms here.

Generally speaking, risk of audit and high fines and fees go up as the amounts you're dealing with go up. I don't know what kinds of values we're dealing with with 40-100 trades, so I'll just give you broad strokes. Having an accountant or a tax attorney review your numbers will, in almost all cases, cost you less than $1,000. If you're talking about $2,000 in income/gains, then obviously that's a non-starter and I'd just go the route you're considering (SaaS), having done good due diligence on the service as you seem to have. If, however, you're looking at $100k in OI or capital gains, I'd say a 1% investment to not owe all of your back taxes + potentially 100% or more in fines in 5-7 years when, potentially, you don't even have that money anymore.

As for your second question, I would just say there is no statute of limitations on undeclared income. The logic there is that you aren't incentivized to hide your income for 3 (or 7) years and then get off the hook, and it is difficult for the IRS or state taxing authorities to discover undeclared (as against under-declared) income -- i.e. how would they know about it? Thus, there is no amount of time that can pass such that you are truly free and clear.

You can file amended returns for ordinary income you failed to declare with Form 1040X: https://www.irs.gov/pub/irs-pdf/f1040x.pdf

Thank you for response, I really appreciate it. I’ll take a look at that form and get it filed out, I have no intention of hiding anything, I just didn’t know any better back in 2014.

As of now I’ve made zero trades but I want to pull out the max you can for long term capital gains without getting taxed by that ($40K) and I figured it’d probably spread out the cash-outs to even out the risk. I asked the person that manages my retirement fund about help with Crypto taxes and got the equivalent of a blank stare so I’ll probably need to look online for someone to hire since I don’t know how many people around me specialize in something like that.

Thank you again for your feedback.

EDIT: As shown in the replies below I misunderstood how long term capital gains were taxed. I though the brackets were based on how much you made off the trade, not based on your income. The $40K number I mention above doesn't have any significance for me in reality. If you make between $40K-$500K you pay 15% on long-term gains.

Happy to help. Best of luck, you’ve got the right approach.

> I want to pull out the max you can for long term capital gains without getting taxed by that ($40K)

Will this be your only income? If not, you'll still owe taxes. Capital gains aren't separate from the rest of your income; they're just taxed at different rates.

If this will be your only income, don't forget about the standard deduction. That gives you another $12.4K toward the 0% long-term capital gains rate, so $52.4K total.

And this is why I need to just pay someone else to handle this for me. I've read a bunch on this but I was under the (mistaken) assumption that the brackets for capital gains taxes were based on how much you made in gains (ie. up to $40K in /gains/ is taxed at 0%). Ok, well that sucks a little bit but really what that means is I'm going to get taxed at 15%, I knew 0% was too good to be true, even for long term capital gains.

EDIT: Thank you for calling that out, it will have saved me from an unpleasant surprise next April.

I highly recommend TokenTax. It's the only service that supported importing a cost basis report I already had from a different service.

Support at a few other places didn't even know what I was talking about, and didn't see the difference between uploading cost basis and simply reimporting old trades...

And I highly advise caution with TokenTax. I chose them because I had ~2k transactions on Deribit, and they promised they can digest them. They don't give out refunds specifically because their website claims they will work with you until you're satisfied.

Well, it was clear from the 5th minute they don't have "Deribit support", and I had many email exchanges with them spelling out in detail how their engine misunderstands my transactions (cost basis etc.). I gave them every opportunity to improve, and instead they eventually just ghosted me.

I understand it may be unrealistic to expect they will build this capability in three weeks. It's a shame they weren't able to level with me, and talk about the complexity of this. I ended up writing a taxable gains calculator for Deribit myself and would be happy to share it with them.

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