US IRS tax reporting for cryptocurrencies


#81

10/01/17 I bought 1 btc at 100$ on Coinbase (assume 1 btc = $100)
11/01/17 I transferred 1 btc from coinbase to bittrex
11/15/17 1 btc = $120, then I used 1 btc and bought 6 OMG ( assume 1 OMG = $20) on bittrex, and hold OMG

Do I need to pay tax?


#82

Need to ask a accountant. From my understanding yes you would need to pay taxes on the $20 that BTC grew. The way it was explained to me and I have another meeting with a CPA next friday so I will ask.

Why do I say you need to pay taxes on the $20 because in the US when you convert to a different currency you essentially need to treat it as if you cashed out to USD and then bought back in as that is how commodities and capital property are done. To take this scenario a bit further if OMG price doubled and you bought back into BTC and those were the only trades you made. You would owe taxes on the $20 that BTC grew and then owe taxes on the $120 that OMG grew.

Like I said this is just my understanding of how the taxes work on a non-business level. If you are trading under a business umbrella I am told things are different just not sure how they are.


#83

Yeah it is a taxable event if you buy any altcoin with either BTC/ETH.
You will pay taxes on any profits just like capital gains/losses.


#84

Yes, that is a $20.00 taxable conversion from one currency to an other.


#85

Oh boy…https://www.theverge.com/2017/11/29/16717416/us-coinbase-irs-records


#86

Great post. Looks like IRS is catching up with the coinbase users as I suspected!


#87

Yep it was going to happen. Tax man is going to get his money.


#88

Makes you laugh though how they are clamping down on crypto, yet large corporations and the rich are at it all the time.


#89

Sorry. Didn’t see this had been answered like a hundred times. Deleting my original post. :slight_smile:


#90

Just wanted to pass on some info as I just got back from meeting with an accountant. Surprisingly he has about 15 other clients that are mining and/or investing so he was well aware of the situation.

This of course is US taxes primarily hence for posting it where I am but may be relavent for your jurisdiction if your laws are similar. Not much of this is new as it is outlined in the IRS guidance paper

  1. Mining of coins is income and need to be recorded at the date and time that they were recieved
  2. Every trade counts as a sale or as if you cashing it out for FIAT and then that FIAT is moved into another coin/asset. So meticulouse records are needed. He stated he has only turned one crypto client away because they said it was too hard to get the info that he needed to file that persons taxes
  3. Definitly use a site like Bitcoin tax or Cointracking.info. He was extremely impressed with the reports generated from Cointracking.info.
  4. This was new to me in that you do not need a business to claim your mining hardware. Again keep records don’t try and just make stuff up. This include electric and if you happen to have a dedicated room for this you can claim it also.
  5. I got clarification for me on the whole do I owe taxes if I just hold and do not trade or sell the short answer is No but see item 2 above. He also stated this is where you can get into strategies of First in First out (FIFO) or last in first out (Lifo), but he said the will not come into play for me until next years taxes.

This is not a post to drum up debate on whether or not you should be paying taxes but those that plan on it, hopefully this will help clarify some things for you. If you do plan on paying your taxes I highly recommend you work with an accountant so that you are not over paying and two you know you have the right documentation. Currently the IRS is working off of a self reporting and good faith intentions. He said he only had one client that was questioned and it was quickly cleared up with no penalties.

If you have some questions and they are not answered here and I cannot I will try to get the answered, but I am not an accountant and do not know your details so they will be answered to the best of my ability.


#91

Thanks Nekko. Reading this it would seem you would not pay taxes on transferring btc to an alt coin unless you sold one for fiat. Cointracking.info treats those events as taxable gains, so the reports would not be accurate.

I thought it had to be FIFO so I am curious if you know any more about the FIFO, LIFO strategy?


#92

You are incorrect the sale of the BTC is first converted to USD and then you purchase the alt with USD. That is how it is seen from a reporting perspective. Hence items 5 and 2 go together. Because that is how all stocks and commodities work. At least for the time being it is this way.


#93

Ok, so they are saying that I sold my btc for cash and bought an alt even though I only transferred to the alt. Damn they are better than the mafia.

As I posted in another thread, my accountant is looking into treating buying alts as a like-kind exchange since, according to her, the last report from the IRS in 2014 was it was to be treated like property. She was going to reach out to the company’s tax attorney for more information.


#94

So this is the example that I have given and verified with my accountant.
You buy $100 dollars of BTC and it rises in value before you trade it to an alt say $120
Then you buy $120 worth of said alt. You now have capital gains tax on the $20 that BTC grew. The actual exchange is like for like.
A day goes by and your alt doubles in USD value cause you are good at calling the markets. You now have $240 of said alt and you want to cash that out and back into BTC. You now owe capital gains tax on the $120 that your alt grew.
You say i am good for the rest of the year and you leave your $240 worth of BTC in a hardware wallet. When it comes to the IRS you now owe taxes on $140 worth of capital gains.

You will not owe again until you either cash out that BTC or make another trade.

Does that make sense. The trade of link for like is a taxable event or that is how the accountant I went to interpreted it and it is how I interpreted it prior to seeing him. But if your accountant knows some work arounds it is on her to plead those on your behalf.

Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for
other property?
A-6: Yes. If the fair market value of property received in exchange for virtual currency
exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable
gain. The taxpayer has a loss if the fair market value of the property received is less
than the adjusted basis of the virtual currency. See Publication 544, Sales and Other
Dispositions of Assets, for information about the tax treatment of sales and exchanges,
such as whether a loss is deductible.
Q-7: What type of gain or loss does a taxpayer realize on the sale or exchange of
virtual currency?
A-7: The character of the gain or loss generally depends on whether the virtual
currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes
capital gain or loss on the sale or exchange of virtual currency that is a capital asset in
the hands of the taxpayer. For example, stocks, bonds, and other investment property
are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the
sale or exchange of virtual currency that is not a capital asset in the hands of the
_taxpayer. Inventory and other property held mainly for sale to customers in a trade or _
4
business are examples of property that is not a capital asset. See Publication 544 for
more information about capital assets and the character of gain or loss.

Those are theo sections that pertain to what we are talking about.


#95

I’ve done research too and finding that trading ABC for XYZ coin is not like kind. It is a taxable event.

Trading ABC to ABC as in the case of moving coins from coinbase to Exodus or a ledger nano is not taxable since it’s a transfer of like kind.

Also Transferring ABC from me to anyone not me, that is a sale or gift. Reach had its own tax rule.

I’m getting a Tax LAWYER (Not a CPA… Disclaimer, I work at a big CPA firm) as a tax lawyer has extra advantages.


#96

Yes I agree but but depending on the definition that the accountant uses for Like kind is a bit vague as I brought this up. One could argue since the IRS put a blanket name to alts as in calling all of the convertible currencies you could argue it is like for like. Its think and the accountant and I both agreed that was not the route I wanted to take.


#97

See my edited point about a tax lawyer. CPAs are good accountants who must disclose suspicious activity. Lawyers are expert advisors who are bound by attorney client priveledge


#98

For the time being i really do not have the funds for a lawyer hehe. The CPA has been dealing with Cryptos for a couple of years so for me and the amount that I have to cover his expertise will do. Maybe if next year if I make a lot more I will think about the lawyer and see if their advice or advantage out weigh the cost.

Let us know if his advice goes against anything we have stated thus far.


#99

Yes, I can share my experience with my lawyer as it is not anything illegal anyway. I’ll share what I can when I can to help others in the same scenarios as me.

I buy, sell, transfer, buy again, sell again.
No mining.


#100

You probably gave me the answer I will get from my CPA as she was going to check with a tax attorney and I have not heard back. She was having an issue finding any statement by the money collectors since 2014.

I am glad about the transfer as tone vays was calling that taxable in a video and that would just be a tax on a tax if you went gdax to nano to exchange for a myst pump.

Do you know about this FIFO vs LIFO strategy Nikko’s CPA mentioned?