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Comment by mdorazio | Hacker News Reader

As someone with a decent amount of money in crypto, I welcome this. I want to pay taxes on crypto capital gains in a way that makes sense instead of trying to guess my way through it, and I also want clear rules for exchanges, pools, etc. to follow to make reporting easy at tax time.

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Is this actually going to help with that though? It sounds like this is just going to force exchanges and businesses to report transfers that are >= $10k to the federal government. In some ways this might make it worse since the federal government will have incomplete information and might audit you because they think you owe taxes when you really don't.

That said, I'd also really like to have clearer guidance around different crypto tax situations. Buying, selling, and transferring are all pretty darn clear to me. Wrapping tokens, staking tokens, merging multiple tokens into one, etc are all extremely unclear and result in inefficient technical solutions right now. It's horribly frustrating.

To give a simple example, I'd love to stake my ETH via a decentralized staking pool. To do so I have to convert my ETH into another token that is convertible back into ETH when I go to withdraw. In theory that might be a taxable event. In my mind it really shouldn't be since it's still ETH, just deposited somewhere.

The infinitude of tokens creates an ocean of bid ask spreads and fees and other frictional costs. It is the trade off of endless horizontal expansion of new tokens each for a different purpose. It is like the 1900s when anyone who could issued their own notes or script.

Yea, what I don't understand is how something like using ETH to buy another coin should be taxed? I totally get converting it back to dollars and calling that capital gains but trying to tax conversions from one to another seems nutty to me.

I feel like it would get really complicated to determine cost basis and actual capital gains if you did not do this. But maybe it's easy and I am missing something.

Why? If you trade Apple stock for Tesla, it’s a taxable event. There isn’t any requirement that USD be involved.

You do not trade 1 stock for another, you have to sell it, wait t+2 days for it to clear, then use those proceeds to buy the other stock. It's not the same in any manner.

That is just a side effect about how certain exchanges work, you can still trade one good for another without using cash, and it's a taxable event because your 'liquidating' property. It's known as bartering income: https://www.irs.gov/taxtopics/tc420

Very true, it's mainly an exchange thing. Thanks for pointing that out.

If I have a stock certificate for AAPL, and you have a TSLA stock certificate (I’m talking about actual paper certificates), we can trade them and it is a taxable event.

Ahh man, you are indeed right. But I seriously haven't seen a paper stock certificate in person this century.

I have some Disney ones from the 90s. They are actually very very nice artwork.

Doesn't even have to be paper shares. You can call up your broker and ask them to transfer X shares of ABC company into someone else's account. It is useful and essential to be able to transfer shares from one person to another without having to hit the open market. Like, imaging transferring 10% of a publicly traded company you own to the account of your family office.

So if I could find someone who was willing to trade shares with me, for other shares, then I could just not have to pay taxes?

Sounds like an awesome financial strategy! Sounds like someone could make a whole bunch of money doing this.

But they aren't. Nobody is doing this. Even though, there would be a huge amount of money to make, from doing it.

The bigger problem is that the automation behind sufficient tracking to make it easier to report is missing - or was. I bought stuff from Bittrex years ago, and I was forced to buy BTC to convert it to buy something else, Bittrex went away (and never cared anyway), so now I have some headaches to report. I'm glad my holdings were small.

All this goes away if there's automation and agreement among the exchanges. Of course, for those with wallets, I'm not sure what the solution there is. I'm guessing there should be some software one can use to track transfer times + prices and aggregate that, based on address... or something.

This will be an opportunity for some middleman to insert themselves. It’s normal. Crypto isn’t replacing civilization it is just another tool and will be subject to the same economies.

If I were to swap some Apple shares for Microsoft shares , without selling one for cash first, that would still be a taxable event.

I know this because we did such a trade with another fund.

Swapping one crypto for another is the same thing, the fact that fiat isn't involved doesn't change much in this scenario.

No one offers swapping x shares for y shares, you have to sell and buy. You can swap currency and some people believe crypto is currency, so it is different.

the common analogy would be an FX pair (like GBPUSD)

And how are forex transactions taxed? Why don't we just apply that policy to crypto?

> Why don't we just apply that policy to crypto?

This is the core of the whole issue; IRS (and similar bodies) are deciding what crypto "is", at least for tax purposes (as is their purview). That has implication for how and when things are taxed.

in the UK it depends on the intent of the transaction

speculation is treated differently to full-time trading, which is in term treated differently to trying to make some money on the side

Then there's a loophole right? Create a stable coin, and never have to cashout.

It doesn't really matter if you make the analogy of asset or FX; you owe tax on gains in either case.

Even giving the stock to someone else can be a taxable event (e.g. in lieu of cash you owed).

This isn't actually true as companies routinely acquire each other using mostly or only stock. However, the IRS does not consider exchange of stock for stock in mergers and acquisitions to be a taxable event.

Different case than what we're talking about here. Your case would be the same if it was cash buying a company.

Here we're talking about something different, which is an individual trading one form of crypto for another and showing how the same trade donew ith stock would be taxed similarly if you just swapped stock with another trader.

You are also taxed if you use cryptocurrency to directly buy goods or services as well. Based on my understanding, that would include using cryptocurrency to buy a company.

All transfers are taxable unless they are "in-kind", which is a very limited carve-out (e.g. you exchange gold for other gold).

Forex is often subject to such taxes. If the USD and CAD were trading 1:1 then if I buy 1000 USD with 1000 CAD in cash I have right now, and then immediately buy 1000 CAD worth of products with those USD, there are no taxes due.

If I buy 1000 of USD with 1000 CAD, with the expectation CAD will fall, then since my taxes are due in CAD in my case, when I sell those USD for 1500 CAD I've realized a gain of 500 CAD that would be considered taxable income. But if CAD goes up and I have to sell those USD for only 500 CAD, then I've realized a loss of 500 CAD and I could deduct it on my taxes.

Seems reasonable enough to tax currencies like investments when they're used as investments. Any asset held in that manner usually would be taxed like that.

You just take the current fair market value of the assets in question. You realize the gains on the asset you are selling, and you start your cost basis on the asset you are buying. Now thats easy for liquid crypto markets, its harder for when you are trading a paperclip into a house. At the end of the day, you self declare and you do your best to justify yourself. If the irs has a problem, they will let you know.

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