Bitcoin Forum

So if crypto is based on capital gains tax then how does it work with alt coins. You need to change them over to lets say bitcoin to then exchange it for USD. That exchange would be taxable correct? Its not fair because wouldn't they then consider you not having the investment for a year when exchanging from BTC to USD? How have others done this? Also what if I am exchanging coin assets for another coin assets within that same structure such as Ethereum based platform assets?

Not a tax attorney but I have satisfied myself about the law on this point and this is what I do.

Cryptocurrency transactions are taxable when they are executed. If you have had the asset for > 1 year it is a long term gain/loss, otherwise a short term gain/loss.

If you trade one crypto for another you have to consider that you have sold one for cash, then bought the other for cash and calculate your taxable gain/loss on this basis. There is a lot of misinformation floating around to the effect that as long as you don't leave "crypto world" your gains are not taxable but this is (almost certainly) incorrect. It hinges on whether trading one crypto for another is a "like kind" transaction (which, by the way, you have to declare) and most tax attorneys seem to agree that it is not, any more than selling one stock and buying another which is fully taxable.

The IRS has not formally ruled on this but I'm pretty sure this is the way it will go.  If you have claimed "like kind" status on your crypto transactions you will have to pay back taxes and interest and possibly penalties. If you haven't declared them at all I wouldn't want to be you.

I havent declared anything yet. Just started these this year. Also how do you even go about declaring this? My initial trades were going from BTC to an altcoin. It was gain BTC then right away buy the altcoin. There was not gains in between to even report. How are we even able to report every small transfer since the crypto world is only done due to these exchanges. How can they treat this as normal taxes when its not normal in any way?

Every country has different rule about tax, so maybe you should ask that question in your local board?
By the way, you are not paying tax when you exchange bitcoin to altcoin and back to bitcoin and to USD, you are paying tax when you withdraw money to your bank account  ;)

imo important to understand your local laws, otherwise you could easily get bad advice and get screwed by the authorities.

Generally when dealing with private equity trading, the IRS depends on 1099s from the exchange. Presumably the trading platform you're using tracks all your transactions and reports it to the IRS. If they don't, they are probably in violation for that; and you would also be in violation for not reporting it yourself through a Schedule D form, though it seems at least remotely possible that your penalties might be waived due to the cloudy situation. Interest and late fees would probably still apply. If you're using Coinbase or most other legitimate BTC exchanges, they are regulated by the federal government and it seems most likely they're reporting transactions and issuing 1099s at the end of the year. If you haven't received one for your Bitcoin trading by mid-March you may want to contact them to see what's going on. 1099s and tax documents for investment income are not actually required to be sent out to consumers until the beginning of March, as far as I know.

Keep in mind I'm another newbie though, just one with investment experience in equities; I haven't even set up a wallet yet, in fact, much less started trading on the exchanges. I may be mistaken about their regulatory status. Another thing to research before I start, it seems. :)

n.b. All this is assuming you're in the US. I am not a tax preparer nor qualified to dispense tax advice in any way other than recounting my private experiences.

before regulation is never pay tax
in exchanger fee withdraw and fee trading only revenue and profit exchanger, but if pay tax, only company, not person pay tax

What if you lost money trading up until this year and never filed? Would there be an issue? I would assume if you were audited it would show your loss and there would be no tax penalty?  A lot of accountants CPA's don't understand crypto and don't want anything to do with it. There needs to be more crypto CPA's out there for sure.

If you've lost money trading so far you would probably be eligible to claim that as a capital loss, which you would be able to apply as a credit to next year's taxes. If you're lucky and you've lost 900 million dollars of someone else's money that you're legally qualified to claim as your own through shifty accounting practices and exploitation of badly codified laws, you could even avoid your taxes for decades. :P

Is that true about not paying any tax until I withdraw actual USD. I am fine with paying tax and all, but I do not want to have to worry about every little exchange when I have no physical money in my account. Everything I have is still in crypto assets. Going to be a long time before I take out any actual money from them.

when you exchange for usd or euro you need to declare your income based on what your country do with taxes and regulation of bitcoin, if your country don't regulate bitcoin don't do anything, it's not taxable, otherwise just declare as you declare every income in usd or euro

A lot of misinformation here.

It is simply not true that you don't have to pay tax on crypto transactions until you actually cash something out. If you exchange Bitcoin for (say) Monero, you have to  consider that you have sold Bitcoin for whatever its market value was that day, and declare the gain/loss. That value becomes the basis for your Monero purchase. If you want to try for the like kind exemption, good luck, but you still have to declare it.

If you have lost money in crypto in prior years but haven't declared it, you can refile for those years. If you haven't declared gains you should also refile. You will have to pay interest but at least you will be in the clear.

I have never received a 1099 from Coinbase or anyone else. If Coinbase filed 1099s they wouldn't be embroiled with the IRS now in the dispute in which the IRS wants all of Coinbase's records for all of its clients, and which Coinbase is contesting. But the fact that they don't do this doesn't let anyone off the hook.

These are not popular opinions and practically nobody does this right but that is irrelevant. The only thing that is relevant is how the IRS views it.

Again I am not a tax professional but I have reviewed the issue thoroughly and I am quite convinced that this is the way it is.

You earlier compared altcoin trading to stocks and that the taxes would work the same way, but crypto currencies are classified as commodities from what I understand, where as stocks are equities.  So buying an altcoin with bitcoin would be more akin to trading gold for silver, rather than trading stocks, still not sure what that does to the tax law, but they are definitely different.

My concerns come with stuff like NXT. Lets say I want to exchange my NXT to ardor. Why would that be taxed? I didnt gain yet off of that trade. Also Ardor is NXT and is not even officially released. How can they tax on something that is the same and not existent? I just want to get these taxes right and have no clue how to do it. Even my amazing tax guy doesnt understand any of this crypto. How can the IRS expect us to get this right when noone has any clue how to do it. Also why do I need to pay money when I never actually gained any money? It good if coinbase send forms, but what about all this other side coin stuff. This all feels a bit impossible to keep straight.

I have no idea what I traded for what because the exchanges I traded on disappeared with all my money. I did not keep detailed records because I'm just some punk kid. They can send me a bill if they think I owe them something.

That's correct, because in Philedelphia, there is a income tax depending in your income level. Doesn't matter whether you're earning from a real job or crypto coin trade. It's a taft income tax law here.

Got a question on this as someone mentioned this many times.  So if you have bitcoin and exchange it for ETH for example.  Let say the btc you got was around 1500.  Then btc is around 2000.  You swap it for eth and do this with about 10 of them.  Thus if you cash it out via bank... well you would profit 500 x 10 btc = 5000 profit.  But because you swapped it for ETH... let say for that 20000 in BTC you swapped for ETH... let say you traded everything.  You only get around 19500 in ETH.  So say you lost 200 dollars in converting btc to eth at the market rate.  First off, is that about right?  Or is 2.5 percent way too high or low?


Does anyone know how much in fees sites like shapeshift takes if you convert 20000 btc to ETH for example?


So let say 20k btc gets you 19500 ETH.  So you made 5000 profit but you lose 500 due to conversion fees.  So your capital gains here are 5000 -500 = 4500 right? 


But then let say the ETH you had.... thats worth 19500 usd.  It drops all the way to 10000 usd.  So now you lose 9500 in ETH.  But if this happened in the same year... obviously you have a net loss of 4500 -9500 = 5000 dollars.


But what if your profit for the year was 4500 with bitcoin.  But next year you lose 9500 with ETH and decide to just cash it out.  So with that 4500 in btc profit, you probably pay im assuming 30 percent tax and pay around 1350 in taxes.  But next year you lose 9500 with ETH.  So do you get a refund back on that 1350 in taxes you paid on previous year with bitcoin profit? 


Heres another thing im curious about.  I read that Bitcoin uses a first in first out method is that true?  If so, does anyone find this ridiculous?  I will give an example.  Let say you holding btc for a while.  But then you need to get some bitcoin from a site and then immediately convert it to cash or ETH.  Well from what i read... say you have 10 btc.  Let say you got them at 1000 each.  Now btc is 2000.  You request 1 btc from a site so you can cashout it out to your bank.  However according to what i read, you profited 1000 here because the btc you requested right now isn't the one you cashed out?  And you have to go to the first btc you got?  If so, how in the world would that even be fair?  Let say you bet sports or gamble with bitcoin.  The site only allows btc to deposit/withdraw etc.  Well you want to cash your btc out now.  But any btc you cashout now, it has go to the original btc for capital gains?  That is ridiculous because wouldn't that mean you are taking all the risk on btc at the rate now which is high?


I give a good example.  Let say you got 10 btc.  You got them when they were at 800 each.  You havent cashed anything yet.  But on a site where you gamble on, you use btc.  So whenever you withdraw btc from there, then sell it to someone for example... let say you request 2 btc from a site and say its 2k each.  You then sell it immediately to someone or a site those 2 btc where you got it at 2k each.  But apparently if you do this, you have capital gain of 2000 -800 = 1200 each for 2400?  Now your 10 btc you have... well 8 of them are at 800 each and 2 of them are at 2000 each?  So let say you request more btc from sites, then couldnt it be possible well all your btc is then acquired at a 2k + rate which is just ridiculous? 


For anyone that uses btc to bet sports or play poker, i think this is beyond ridiculous because btc is great in the sense that you use it to cashout and deposit into sites etc.  But if you keep depositing/withdrawing, then if they do that first in, first out method, how is even possible to calculate how much btc you have at each price?  Example you could have 10 btc.  1 btc was acquired at 800.  2.3 btc was acquired at 820.  0.002 btc was acquired at 830.  Could you imagine how ridiculous this would get when you send/receive like 0.00002 and 0.02903 btc etc? 

It would make no sense for tax organizations to require an accounting of each switch from one altcoin to another, along with tax consideration for each switch. It would be like taxing a bean seller by each bean, and making that person fill out paper for each bean.

As long as fiat is the main currency, and until altcoins and bitcoin are widely used, it seems like common sense that the tax consideration involves "How much fiat went in" and "how much fiat came out". '

The last time I made money in Crypto was 2013 and I did not make enough to be taxed, by the standard of overall profit. In this current and upcoming bull run I probably will, and plan to pay taxes on the amount of dollar profit I actually made at the end of the day. Calculating transactions from different exchanges, each transaction in each currency, would take so much time, aside from making no sense, that it's only purpose would be to provoke more problems.

add
Also, I'm not sure but I believe your comment about stocks is inaccurate. At least with regard to certain derivatives, there is something called 'basis cost', which is the total amount of money you spent on x countless number of trades, and you simply subtract the basis from what you have. Spend 10,000 on 500 trades, get 15,000 from those trades then basis cost is 10,000 subtracted from 15,000 equals 5000 taxable.

Where I think the problem will arise is in people who start businesses like localbitcoin. It is easily predictable that some petty bureaucrat will decide to spend 10s of millions of dollars hiring law enforcers to snoop through small businesses like that. America is already the heaviest "law enforcement" country in the world, meaning the most people in jail and the widest divide in accountability between those who go to jail and those who put others in jail.  Along with law enforcement also will come a vast surge in thefts of coins by law enforcers. It is very safe to say that before too long most large thefts of coins will be by so called "law enforcers", and a pretty strong proof could be constructed to demonstrate why that is certain.   :P

Further reading..

http://www.coindesk.com/irs-bitcoin-tax-guidelines-mean/
http://www.coindesk.com/canada-revenue-agency-tax-rules-apply-bitcoin/

I am no expert on this so i will just leave that there for ya.
An interesting related read regardless ;)

I think the basics of it was..
In North America you are SUPPOSE to "claim" your profits from exchanges yearly on your return.

I'm so glad I found your topic. I've recently been wondering what regulations the governments have placed on these online investments. Since I've been regularly trading and selling/withdrawing from Coinbase recently I need to know about any documents that should be filed with local or federal government.
Not long ago I saw a comment on Coinbase turning over information to the government on Bitcoin transactions along with a warning that users had to file a document before or after doing Bitcoin transactions. Needless to say, this is all a confusing mixture of what you should or should not do when it comes to crypto-coins

I'll continue to monitor topics such as this one for more informed information about where to go or google for information updates.

See thats what I thought, but others are saying differently. My concern always comes back to all the small exchanges. There is literally no other way to get certain alts without doing and exchange. How could they tax on each exchange when its the only way. I am hoping it would be as simple as how much I put in and then taxed on how much I take out. I mean keeping an asset sit there is making me no physical money. I just dont want to get screwed when I do a huge cash out in a year or two. My amazing tax guy even doesnt know anything about crypto stuff. How do I even find someone who can do my taxes properly with these issues?

It's sort of like when transportation shifted from horses to cars a century ago. There might have been laws on the books that people were required to feed and water their horses at least twice a day, a sensible law if necessary. When cars first came out there might well have been people who wanted to make a law that you had to gas your car up at least twice a day, people who didn't really understand the requirement to feed horses, but wanted to still get their payoff among the automobile crowd, maintain their power.

Unfortunately there are still a lot of very petty types who could not succeed as criminals so they gravitated to government and try to turn others into criminals. These bureaucratic filth ruin vast numbers of lives and cost every country a lot in waste. Historically there is always a price to be paid by progressives in order to clean out the parasites and predators who form gangs, bureaucracies etc.

We'll have to wait and see if these desk jockeys in various countries will use crypto to help their respective places or if their focus will remain on their job security. Coins are not property, they are not strictly 'income', their use in a particular area will generally benefit the population in that area in ways that can be encouraged or stifled. So wait and see what the governments' bureaucratic types push.

Hey guys question about converting btc to eth/litecoin and other similar coins.  I would like to know from people who filed taxes on bitcoin gains to give me their thoughts on this.  Or if their accountant told them what is preferred.


I have btc and i receive them through sites where i can cashout btc. So the bitcoins that i have that i am holding is because of that. However many times i would withdraw btc and then send btc immediately to another site. For example i might withdraw 1 btc here and then immediately deposit 1 btc to another site as a way of moving funds.


So assuming i have around 10 btc that i got when btc was say 800. Then let say btc is 2300 now to make it simple. Now i withdraw from a site of 1 btc... then immediately deposit that 1 btc to another betting site. These sites they allow you to use btc to deposit/withdraw etc. So let say when i do this, i receive 1 btc when it was 2300 at the time. But by the time i receive btc in my wallet, let say its worth 2250. Then i send the exact amount of bitcoins to another site. Lets say that amount of btc is converted and it comes to only 2225. So essentially here, you lose 75 dollars in this process right.
Now if somehow you withdraw 1 btc and you get around 2300... then deposit that amount of btc in another site and say you have roughly 2300 which is not going to happen since these numbers change every minute etc, then you should have no gain or losses.


However this is what confuses me. But because you have 10 btc already in your wallet that you are holding, you receiving 1 btc and then immediately sending that 1 btc to another site as a way to move funds, is it true that you now have a capital gain of 1500 dollars? The reason being lets just say the 10 btc you have in your wallet, lets just say you got them all at 800 dollars each. Of course this is not possible usually because you might get 3 btc at 800, 2 btc at 805.50, 0.03 btc at 830.25 and stuff like that. But basically its almost ridiculous tedious and impossible to record every single thing. Because when you receive btc, well you could receive any time during the day. So then you have to make sure you check your wallet to see what is the btc you received is when actually received?

But back to the example. You got 10 btc in your wallet and they all were acquired at 800 dollars each. You withdraw 1 btc from a site and then deposit that 1 btc in another site as a way to move funds. Say btc is at 2300 at the time. But i heard this is a capital gain of 1500 because the btc you receive is at 2300. But the btc that you deposit into another site has to be the first btc in your wallet? First off, is that true or not? Because if thats the case, then wouldn't that mean you are essentially getting btc at a high price which you would not do? For example, ppl need to move funds online a lot. So imagine you withdraw 1 btc and 0.5 btc many times from a site and then move it to another site and do this back and forth. Obviously if you do this a few times, well thats 10 btc you moved. So after say 20 transactions of you moving money from sites via btc, well wouldn't that mean the 10 btc still in your original wallet which was acquired at 800 each... well they are now 2300 each? Thus you have capital gains of 1500 each and you have 10 btc which is 15000 in capital gains? I mean isn't it obvious that the btc you are receiving and then sending to another site at that price what you should be counting as? For example i receive 1 btc at 2300 dollars from a site.. now i immediately send it to another site to get funds there. Thus my original 10 btc in my wallet at 800 dollars each should stay the same right?



My other question is when you convert btc to eth or any other currency. So say you got 10 btc at 800 each originally in my example. Now you want to convert 1 btc to ETH. So say 2300 dollars of 1 btc you receive 2250 of ETH. So you lost 50 dollars here in the transaction. However, theres also a capital gain here because you acquired btc at 800 and sold it off at 2300. So you have a capital gain of 2300-800 = 1500 - 50 dollar = 1450. Is that how it works? Because that seems to work against you when ETH goes down. I read others mention that seems ridiculous that there is any gain/losses if you go from coin to coin. Thoughts on this? I mean assuming you have 15k in gains from btc, then ETH drops and you lose 15k in a different year, what happens then? So instead of being breakeven, you actually am down money? This would seem ridiculous.



The other example i want to know is this. Same example You have 10 btc at 800 each. You want to convert btc to ETH. Instead of converting a btc from your 10 btc in your wallet, you withdraw 1 btc from a site. Let say its 2300 again to make it simple. You then convert THAT 1 btc to ETH. However, the 1 btc you are converting to ETH, is it the 1st btc you received? If so, that would be ridiculous because its obvious the btc you want to convert to ETH would be the one you are withdrawing from a site right? So when you withdraw 1 btc from a site and say its 2300 dollars. You then convert that 1 btc to ETH. Well shouldn't there be not much a capital gain or loss besides the fee it cost to convert to ETH since you are withdrawing a btc from a site sole for this purpose even though that btc is of course going into your btc wallet first? BTC is a way to move funds and it should be obvious the reason you are doing this. Because here like in the previous example then wouldnt you eventually have most of your btc acquired at 2300 each etc? Because when i think you dont touch your btc and hold them, my thoughts are the original coins. Not the coins you receive and want to convert immediately as a way to move funds. Would like people thoughts on this because ppl use btc as a way to move funds.

Someone else on a forum posted this

If you were using FIFO as your reporting method then yes, when you withdraw from a site and immediately deposit to another, that would be considered a gain of $1500.

Same thing with the other examples as long as you're using FIFO. There has been some discussion around coin to coin transfers being considered a like-kind exchange, but there's no clear guidance on it so I wouldn't treat it that way on my taxes.

However, the IRS hasn't specified that you are required to use FIFO, although it is the default/preferred method. I agree with you where in a lot of cases, FIFO doesn't accurately reflect what happened in a transaction. You can look into the possibility of using other methods, LIFO, or specific identification.


Another poster posted this

After you convert coins to fiat, pay your taxes with the gains, if any. Until then, there are no realized gains.





My thoughts are it would make no sense to do FIFO at all.  Does anyone agree here?  I mean if you do FIFO, its like you cant even use btc as way to transfer funds through sites etc.  I mean just imagine if you were transferring funds from a btc sportsbook to another book and do this several times.  Well if you do that, then if you use FIFO, well aren't all your original bitcoins sold then?  Does anyone know if its true FIFO is preferred/default method but you can use another method?  FIFO clearly does not benefit to anyone with bitcoin. 

This is the current situation - if you are a company coinbase does a 1099 if an individual, no. That is why the irs wants coinbase info.
Basically, nearly nobody is reporting crypto transactions or profits. Even among those cashing out to their bank accounts the percentage is low, forget those who keep it all in crypto. To suggest someone needs to report every single shitcoin they buy and sell, every bitcoin panic sell then rebuy, or every single trade they make trying to come up a percent or 2 is simply ludicrous. The irs actually expects people to report every single purchase used with bitcoin - you are supposed to report any increase in price from when you bought that bitcoin until you used it for your purchase and report that as capital gains.
The whole thing is impossible to follow or regulate in the current state of things. The irs would have to hire thousands of employees to successfully audit every crypto offender, because every person here is an offender and we are talking about millions upon millions of transactions.
I don't know what is going to come of all of this, but they don't have enough jail cells to hold the big winners forget the idiot traders that basically do a thousand trades only to come even in the end. If you are a bad trader and weak holder it could be of benefit if the shit does hit the fan, because surely they will go after those who have done the best first. That's probably the only plus for being a shit trader lol.

I'm pretty sure that the way you're suppose to declare taxes is through realized gain/loss for each transaction including crypto->crypto transaction based on the fair market value. You can not just pass on the cost from one coin to the next. I've been in BTC for a while so I've made a lot of money, but this will be the first year I have capital gains and this is how I intend to declare taxes next year. This is not an efficient tax system, I know, but what choice do we have? Until congress removes taxes on cryptocurrencies the way Japan has, this is the way it's going to be. If you make enough money per quarter, you are supposed to pay this tax in quarterly increments. High frequency stock trading companies probably have millions or billions of trades a year to be reported. One guy I saw on a slack channel said he had over 10,000 transactions last year and he reported them all to the IRS. He probably had a lot of money moving around though, which is the kind of people that the IRS is going to audit. Here's a link you might want to read:

https://news.bitcoin.com/807-people-declared-bitcoin-tax-purposes-according-irs/

Obviously many people are not reporting their bitcoin transactions, but the hammer is going to come down on us all sooner or later.....don't want it to be on me.

So imagine some normal person not into crypto happens along a btc atm and says wth they will buy $100 worth, a month later they spend it on a nice dinner and the price has risen 5%. Are you fucking serious this is an IRS capital gains tax event? who would dick around with crypto under these circumstances? how on earth could the IRS even begin to regulate such a massive amount of transactions?
Think about it: every single transaction has a different tax consequence depending on the price it was bought at vs the price it was spent.
Either the IRS is trying to kill bitcoin and crypto with this nonsense or they truly have no idea what they are dealing with. I'm thinking the latter, for sure.

Any updates on the tax situation?

Good discussions here, will be interesting to see how this plays out in the US