Can someone clear up some questions on taxes?

[chaosfourever]

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?

[sp_skeptic]

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.

[chaosfourever]

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?

[spngebob]

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?

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 

[ranreichman]

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?

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.

[Cormoran]

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?

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.

[ArdiPrabowo]

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

[Sumo]

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.

[Cormoran]

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.

[chaosfourever]

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?

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 

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.

[Ayers]

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?

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

[sp_skeptic]

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.

[John Titor]

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.

[chaosfourever]

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.

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.

[brokedummy]

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.

[pressureonme]

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?

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.

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.

[viking02]

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? 

[PeterTheGrape]

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.

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.   

[Spoetnik]

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.

[biter66]

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.