Tax Discussion

[Bloomie]

This thread is for Bitcoin and other cryptocurrency users and investors to discuss the tax implications of transacting with and holding coins. The discussion should be particularly useful to users who live in jurisdictions with rigid tax regimes, such as the United States and much of Europe.

Feel free to share news articles, research, theory, arguments, and use cases related to cryptocurrencies and tax in this thread.

While information provided here should not be construed as tax advice, we welcome your ideas, observations, and strategies, and look forward to working together in developing a bank of knowledge in this field.

 

[chriswilmer]

Perhaps a day or two too late for the US right? Watching this thread!

 

[JVWVU]

For US buy sell - simply use 8949 form

https://bitcoin.tax/blog/print-pdf-attachment-schedule-d-form-8949/

My wife is my accountant, I don't mine.

Talk to an accountant based on mining.

 

[Bloomie]

@chriswilmer Hey, it's still April 16. We have 48 hours!

 

[lunar]

 

[Joel Dalais]

It probably won't stay like this forever, but for now it's a good reference point, the UK view on taxation/crypto.

https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies

 

[Bloomie]

IRS Tries Again To Make Coinbase Turn Over Customer Account Data

The Internal Revenue Service (IRS) has taken another step towards its efforts to access to United States Coinbase customer accounts. This week, the IRS filed new documents in federal court to compel Coinbase, a California-based company which facilitates transactions of digital currencies like Bitcoin and Ethereum, to comply with a request to turn over those records. The newest round of court filings suggests that there might be wide-scale tax evasion related to virtual currency. More

 

[T Singh]

Views are welcome on the below scenario. I was not able to find any document/article over the internet regarding the same.

Scenario: A person buys bitcoin in US and transfers the same to another country Bitcoin wallet but does not sell it. The person has already paid tax on the money he/she used to buy Bitcoins in US. The person is not a US resident.

Will there be any tax implications in the US in the above scenario?

 

[79b79aa8]

@albin @JVWVU @go1111111

have you decided on how to deal with reporting BTG proceeds to the IRS? it's a headache; i am inclined to pretend the USD i made on their sale comes from the sale of BTC. so i would simply report a BTC sale, FIFO, and pay long term capital gains tax.

also, given the recent appreciation, it really does not make much of a difference what pre-april 2013 price one bought in at: i could pay 20% tax on the full sale price (without deducting purchase price) and the difference would be academic.

 

[albin]

I'm not sure yet, I was actually thinking the same thing, if your gains are so huge relative to your cost basis, is it a possible strategy just to not subtract the cost basis and slightly overpay?

 

[go1111111]

I haven't looked into it yet.

 

[Tax Lawyer]

The IRS is chomping at the bit(coin) with the recent run. Same tax strategies are available for BTC as for any other highly appreciated asset. I don't want to spam services, but if folks are interested in options I can point in some direction. May not be a bad move to think about locking in some gains for some people.

 

[79b79aa8]

Hello @Tax Lawyer, thanks for posting. A question has been floating around here, maybe you have given it some thought. The issue is how to report gains from forks. Here is an example of the puzzling case:

1) Let's say Bob bought 1 BTC on June 14 2013 for USD$100. Bob sold that BTC on Dec. 11 2017 for USD$17,000. His tax bracket is on the $37,951 to $91,900 range so he pays 15% long-term capital gains tax. So the tax owed for the sale of 1 BTC is 0.15*(17,000-100) = USD $2,535.

2) Except on November 15, 2017, Bob split 1 BTG from his 1 BTC (this is how forks work), took that BTG to an offshore exchange, traded it for 0.025 BTC, which he sent to his US exchange and sold for $250 USD. How does he report that windfall?

3) Suppose he didn't sell the original 1 BTC, just the windfall coming from BTG (the extra 0.025 BTC). So Bob is selling something he didn't explicitly buy. Also, later on, he may wish to sell the original 1 BTC, and he can't have reported selling it when he got his BTG windfall.

The feeling is that rules have not been made up for this kind of situation. We are in uncharted territory, which the IRS can be excused for not having yet begun to understand, much less regulate. But Bob wants to report in good faith and avoid any issues.

Any thoughts?

 

[Bloomie]

Does the tax bracket that determines your long-term capital gains tax rate depend just on your ordinary income or all your income (including capital gains)? If the former, would that mean an unemployed person with no income would pay zero tax on large crypto appreciation?

 

[79b79aa8]

@Bloomie, I am asking myself the same question. I'll talk to an accountant by end of January and post here what I've found out on all these matters.

 

[Zangelbert Bingledack]

@79b79aa8 You bought the BTG in 2013. Basically it's like a stock split where a portion of the split shares have different names and trade independently. I'm not a tax expert and this isn't tax advice, but that's the argument I'm considering. It comes down to what the IRS deems defensible.

The big semantic trick here is that the asset-formerly-known-as-BTC is now known as BTC+BCH+BTG. The name "BTC" no longer refers to the same asset as it did. "BTC" only refers to a shard of it, a portion of the "shares in the stock split." This semantic oddity could be lawyered for or against you, but being aware of it and having it clear in your mind can only help.

 

[79b79aa8]

Mr. @Zangelbert Bingledack
Chairman of the Board
Bitcoin Cash

That makes some sense, but how does it work?

Take the example above, Case 3. Bob kept the BTC, sold the BTG. What's his tax? Weigh how much BTG price is of BTC+BCH+BTG on nov. 15/2017, (say 2%), then do 0.15*(250-(0.02*100)) ?

If so:
- Will the IRS understand what you are talking about?
- Who says how many forks existed at a given point that need to be weighted?
- Why would the BTG be long term capital gains, if it just sprung up in 2017?
- Suppose Bob sold the BTG, and flipped the BTC for more BCH. At which point do you lose track of what is going on?

Which is why I may just report all windfall as sale of BTC, FIFO, and if/when I have deducted from every BTC I bought, I'll just report I acquired whatever I am selling for $0 and overpay. The difference will in the end not be that great.

 

[Zangelbert Bingledack]

@79b79aa8 Again, I'm not a tax authority and this isn't tax advice, but I could see the ledger being treated as one undifferentiated whole. If you sold your BTG (for fiat) at a time when it constituted 2% of the ledger, you sold 2% of your bitcoin ledger claim. If you then flipped your BTC entirely into BCH, nothing happened. If you flipped back when BTC was on a dip, then flipped back again to BCH when BTC did its final deadcat bounce and ended up with much more of the Bitcoin ledger than you started with - good for you. I would still want to say that that is just the ledger stake you bought in 2013.

In that way, Bitcoin would be a kind of asset you can grow if you play your cards right. Like stock in a company you run. You can increase the value of your shares by doing a good job, and in the process your shares may split, but no new assets have really been created.

Trading among them might be considered a like-kind trade, but I don't really know. Seems fairly simple to do accounting for, though, and if I were the IRS I'd care foremost about if there is any way to cheat the system. I don't see one here.

In fact, doing the opposite - that is, treating a spinoff as an asset you purchased on the spinoff date - seems to lead to oddities. If the spinoff dies, is that now a tax writeoff? If you buy a stock and it goes to zero, that loss is normally allowed to cancel out some of your taxable capital gains, right? If anything, treating a spinoff as a purchase seems to open the door to cheating. This seems to reinforce the idea that it should be treated like a stock split.

One additional major problem with the "trades between spinoffs are taxable" theory is that most exchanges don't even have BCH-fiat trading pairs yet. If they still don't have them by August, it will have been impossible for many people to sell their BCH for fiat as a long-term gain even after a year has passed, because they'll have to go through BTC first. And if, say, the ratio hasn't changed there is no gain on the long term (no tax incurred there?), and all the tax will be incurred on the short-term BTC holding? Seems quite unfair. (Though this seems to apply to every cryptocurrency without a direct fiat trading pair.)

The simplest analogy would be that of a casino as if all the cryptocoins are one big casino: you go in and buy $1000 worth of tokens and gamble them (by trading them around with other tokens, or just by holding the tokens). If you end up with $1500 worth of tokens after a year and then redeem the tokens with the house, is that not just $500 of long-term capital gains?

 

[79b79aa8]

yaa . . . except we are years before lawmakers or accountants understand any of this, and some of us do have to report by april. for the time being a solution seems to be to do what i said in the last paragraph of my last post.

 

[Bloomie]

Not just report by April. You technically owe capital gains taxes quarterly, as you earn them.