Well, not all traders live in the US. Some countries tax laws may be more relaxed or more strict. Good traders keep track of all their trades and probably figure in what they will owe for tax. From what I understand trading BTC for any alt is going to count as a taxable event. I’m no tax expert, but perhaps @Peter_Rehm can chime in. If you just bought BTC on coinbase and didn’t trade for anything, I THINK that isn’t taxable.
The question applies to those living in the U.S
This is just a young kid that was playing a game he didn’t know the rules too. There are many stories like this maybe not to this extreme but same circumstances.
The implications for your taxes due would be significant, depending upon the choice (either FIFO or LIFO methods) you make. So I would suggest to try LIFO and FIFO calculators to decide which method is better for you. Here are the links for very easy-to-use handy Excel sheet for calculating the gains (after commissions) in bitcoin (or other cryptocurrency) trading using FIFO and LIFO methods.
Bitcoin Cryptocurrency LIFO (Last In First Out) Gain Calculator for Taxation https://www.eloquens.com/tool/3B4lfy9X/engineering/cryptocurrency-excel-templates/bitcoin-cryptocurrency-lifo-last-in-first-out-gain-calculator-for-taxation
Bitcoin Cryptocurrency FIFO Gain Calculator for Taxation https://www.eloquens.com/tool/3MdIAv/engineering/cryptocurrency-excel-templates/bitcoin-cryptocurrency-fifo-gain-calculator-for-taxation
It could be just me but something is just not adding up with this article which makes me think it is FUD or advertisement for accounting services.
However there are some key takeaways that everyone investing in crypto should be looking at to build and safeguard their wealth.
Investing in crypto is a game of business and there are other players out there that have been playing longer, like the IRS, that are waiting and watching for noobs to make bank on. Just like learning the rules of crypto and investing, learn the rules of business and wealth building. A good start would be to read Rich Dad Poor Dad by Robert Kiyosaki I HIGHLY recommend covering your backside with at least an LLC if not S corp (depending on what your wealth building plan is).
When doing ANYTHING that is business or investing related do it under an EIN (Employer Identification number aka master) and NOT a SSN (personal identification number aka slave) in the USA or the equivalent in a different country. There is a HUGE difference between the benefits of a master and a slave. Learn and know the difference!
Get a CPA or accountant that is fluent in crypto tax laws and wealth building strategies on your team of advisors. Building wealth is a team sport so get your team together to make it happen!
Put on the big kid pants and prepare that your going to pay taxes. Those thinking that they are going to hide their wealth and not pay taxes are just fooling themselves. Better be prepared than to be hit by the government machine, tax roadkill isn’t pretty. I HIGHLY recommend reading Profit First by Mike Michalowicz on how to plan and prepare for your profit, investing and taxes.
Just some of my suggestions but like everything you do, you have to do your own research and educate yourself.
I am curious how he grew his portfolio from $5K to $800K in coinbase in less than a year.
That’s 16,000% return. He must be a investing/trading genius.
I’ve talked to traders that were active in the great run up. They were working 20 hour days and in some cases they felt that they could not lose on a transaction. Some of the young guys who came from nothing and had nothing to lose would come in and push all of their money on one or just a few trades. Humongous risk and reward.
Sorry but this is probably a trap. Yeah, I thought a year ago that you could use any inventory method with the IRS.
Recently the IRS has been saying that they’ll only take FIFO. Be careful here.
If you just bought BTC on coinbase and didn’t trade for anything, I THINK that isn’t taxable.
You are correct Ravindram. If you do not trade you owe no taxes (presuming also that you have no airdrop or fork income to deal with).
Re: Your picture of a 1099 from coinbase:
Is this his actual 1099??
In any event, just look at the number of “payment transactions” (Box 3) that he was involved in during the year. This shows that he was trading as a professional. Looking at boxes 5k and 5L he was trading pretty big in November and December.
Yep, you’ve got to pay your taxes. It’s a common problem for professional traders.