Taxes: Altcoin airdrops (not fork coins)

[squatter]

There was a recent thread with a lot of good information about US taxes as they relate to fork coins (like Bitcoin Cash).

For tax purposes, is there any difference between the Bitcoin Cash "airdrop" and an airdrop of native coins? For example, BitSend has a weekly airdrop to forum posters of 10 BSD. Are we supposed to use the USD cost basis of that 10 BSD each week (last week = $13.50) and call it "other income" on our tax return? That means that even if we opt to hodl the coins long term, we have to pay taxes on receipt, right?

The forks feel more like "stock splits." This feels more like a giveaway or something. Is there any way that these could be deemed "gifts" under the tax code?

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[LeGaulois]

You will need to report as another income only when you sell your coins. As long as you hold you have nothing to report. When you decide to sell the coins, on the next report for your annual taxes you will consider the sale using the US dollar (the price you sold)

[chaoscoinz]

You will need to report as another income only when you sell your coins. As long as you hold you have nothing to report. When you decide to sell the coins, on the next report for your annual taxes you will consider the sale using the US dollar (the price you sold)

So for clarification, (hypothetically speaking) If a person were to participate in an airdrop that gave out free altcoins, which has $0 value at the time it was received (due to unavailable markets), if they were to hold onto the coins without spending, or moving them, they wouldn't occur a tax liability?
 The waters are a bit murky when it comes to legalities, and taxes on crypto currencies, so any feedback from this post is greatly appreciated!

[error08]

Correct, as IRS stated cryptocurrency as property for the US Federal tax purposes, you will always have to pay the taxes every time you sell cryptocurrency as long as you gain profits, even if it start from an airdrop coin that worth $0 at the time of distribution.
A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was greater than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. https://en.wikipedia.org/wiki/Capital_gains_tax

[exstasie]

So for clarification, (hypothetically speaking) If a person were to participate in an airdrop that gave out free altcoins, which has $0 value at the time it was received (due to unavailable markets), if they were to hold onto the coins without spending, or moving them, they wouldn't occur a tax liability?

That might be the case when you receive them, because the altcoins in question have no convertibility at the time they are received. But when does "constructive receipt" take place?

The IRS says:

“Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitation or restrictions.”

So if you can't exchange the altcoin for USD, or at least something that is easily convertible like BTC, that seems like a "substantial limitations or restriction." But I wonder if the IRS would argue that once the coin is listed on an exchange (with enough liquidity to cash you out) that constructive receipt has taken place. I guess it would be better for holders if they can take the $0 cost basis and then just declare everything 100% capital gains when they sell.

[Hamphser]

There was a recent thread with a lot of good information about US taxes as they relate to fork coins (like Bitcoin Cash).

For tax purposes, is there any difference between the Bitcoin Cash "airdrop" and an airdrop of native coins? For example, BitSend has a weekly airdrop to forum posters of 10 BSD. Are we supposed to use the USD cost basis of that 10 BSD each week (last week = $13.50) and call it "other income" on our tax return? That means that even if we opt to hodl the coins long term, we have to pay taxes on receipt, right?

The forks feel more like "stock splits." This feels more like a giveaway or something. Is there any way that these could be deemed "gifts" under the tax code?

BCH isn't really considered to be in the area or considered be part of Airdrops since that coin is forked one. Unlike on usual airdrops which can really be claimed freely without any need for you to have not like on BCH that you would able to obtain such coin if you do have BTC itself. Regarding on tax matters I do believe that those airdrop thingy wont really be considered to be taxed since they are just free things not totally be part of your income.

[Anceliga]

Hello. Im new  here.

[iamTom123]

You will need to report as another income only when you sell your coins. As long as you hold you have nothing to report. When you decide to sell the coins, on the next report for your annual taxes you will consider the sale using the US dollar (the price you sold)

So for clarification, (hypothetically speaking) If a person were to participate in an airdrop that gave out free altcoins, which has $0 value at the time it was received (due to unavailable markets), if they were to hold onto the coins without spending, or moving them, they wouldn't occur a tax liability?  The waters are a bit murky when it comes to legalities, and taxes on crypto currencies, so any feedback from this post is greatly appreciated!

Quite murky, indeed! Now, based on what you posted, since the value at the time when the airdrop coins are received is zero then it would be the basis for the capital and when a person would be selling the coin later and the value is already $10 then the tax would be levied on that $10. I think it would be simple to compute using this method. generally, we would only be paying the capital gains tax once we convert our coins or tokens into the fiat money. We just record them religiously which can be tedious especially to someone (like me) who has no much love for numbers.

[bryant.coleman]

Altcoins are not recognized either as a currency or as an asset in the United States. So only when you involve fiat cash in the transactions, they become taxable. So my guess is that we don't need to pay any taxes on our airdropped coins. The situation can change however, if the senate passes a law making crypto-coin airdrops taxable.

[carlfebz2]

Altcoins are not recognized either as a currency or as an asset in the United States. So only when you involve fiat cash in the transactions, they become taxable. So my guess is that we don't need to pay any taxes on our airdropped coins. The situation can change however, if the senate passes a law making crypto-coin airdrops taxable.

And this law would still need time for it to be passed since there would be still a long debate regarding on crypto. If a certain state would decide up then its possible for those airdropped coins to be taxed but I'm wondering how authorities would traced each one of them?. The only thing they can do is to taxed on the transactions involved specially on exchanges but on individual distributions or selling out on p2p then its not possible.

[squatter]

Altcoins are not recognized either as a currency or as an asset in the United States. So only when you involve fiat cash in the transactions, they become taxable.

I don't think that's true. The recent tax overhaul highlights why:

After December 31, 2017, it is clear that only real estate can be the subject of a tax-free 1031 exchange. A 1031 exchange is a swap of one like kind business or investment asset for another. The IRS treats most swaps are taxable as sales, so 1031 is an exception to the normal rule.

So my guess is that we don't need to pay any taxes on our airdropped coins. The situation can change however, if the senate passes a law making crypto-coin airdrops taxable.

It doesn't matter whether altcoins are recognized as a currency or legal tender. The IRS made clear last year that "virtual currency [such as bitcoin] is treated as property for U.S. federal tax purposes." That means that Bitcoin and altcoins face the same tax procedures. The question for me is: At the time of of receipt, is it income? If I were being paid BTC or ETH, I would say yes. For many of the smaller altcoins, I'm not so sure. You can't easily liquidate them for USD without significant slippage (if at all).

[yojodojo21]

Airdrops is totally free so why wasting time asking if they needed to be taxed? if the coin is listed in any exchange sites then that is the time when they need to put and implement tax on that coin, because they use their specific blockchain into that specific coin into different places, and will be converted into fiat currency, i don't know if you get what i mean. In short if a business is running and gaining profit then that's how government should ask for paying tax. VICE VERSA.

[audaciousbeing]

There was a recent thread with a lot of good information about US taxes as they relate to fork coins (like Bitcoin Cash).

For tax purposes, is there any difference between the Bitcoin Cash "airdrop" and an airdrop of native coins? For example, BitSend has a weekly airdrop to forum posters of 10 BSD. Are we supposed to use the USD cost basis of that 10 BSD each week (last week = $13.50) and call it "other income" on our tax return? That means that even if we opt to hodl the coins long term, we have to pay taxes on receipt, right?

The forks feel more like "stock splits." This feels more like a giveaway or something. Is there any way that these could be deemed "gifts" under the tax code?

The short answer to this question is yes but on a more explanatory note based on my understanding of the tax laws of the country I am residing is that so far you are getting some income for the disposal of anything, then its subjected to tax except it is expressly exempted from tax by the applicable tax law. Here, the only thing not subjected to tax is what you acquire by way of gift and disposed by way of gift aside that nothing else and in the case of airdrop, it can be interpreted to be acquired by way of gift but surely not disposed by way of gift because some form of returns is coming in by exchanging it on an exchange site but only at the point of sale and not at the point of valuation.

[chaoscoinz]

Airdrops is totally free so why wasting time asking if they needed to be taxed? if the coin is listed in any exchange sites then that is the time when they need to put and implement tax on that coin, because they use their specific blockchain into that specific coin into different places, and will be converted into fiat currency, i don't know if you get what i mean. In short if a business is running and gaining profit then that's how government should ask for paying tax. VICE VERSA.

Airdrops are not totally free  , it really depends upon the jurisdiction you live in.
Here within the U.S, if you recieve airdrops, you inherit the cost basis of the gift (fair market value) at the time of reception. Most air dropped coins have little to no value, but there are some that do!
 You are only allowed to receive up to $14,000 in free gifts before you incur a tax liability,  and your airdrop is considered part of your income.

[squatter]

Airdrops are not totally free  , it really depends upon the jurisdiction you live in.
Here within the U.S, if you recieve airdrops, you inherit the cost basis of the gift (fair market value) at the time of reception. Most air dropped coins have little to no value, but there are some that do!

The details still aren't entirely clear to me. But it seems like, under US tax law, that airdrops would follow the commonly held logic for taxing Bitcoin forks. That would mean they aren't "gifts." Rather, the cost basis (fair market value) counts as ordinary income. Any gains thereafter are capital gains.

So it's possible for many of these airdrop tokens that no taxable income is received when the airdrop occurs. There are no markets and no price discovery when the airdrop occurs. So all gains would be capital gains.

This is different than the OP, though, which considers a weekly airdrop of an established, liquid coin. It seems like each weekly airdrop received is taxable income.

You are only allowed to receive up to $14,000 in free gifts before you incur a tax liability,  and your airdrop is considered part of your income.

Actually, I believe that receiving gifts is tax-free:

The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

The $14,000 figure is about something else. That's the annual threshold for gifts in 2017. You can give someone $14,000 a year and it won't affect your "lifetime exemption." The law allows individuals to give away up to $5.34 million over their lifetime without having to pay gift taxes. If you pass the limit, you (or your heirs) have to pay up to 40% tax.

[hashcoinusa]

IRS treat Altcoin as asset.  Asset tax provision applied .

[dokie987]

There was a recent thread with a lot of good information about US taxes as they relate to fork coins (like Bitcoin Cash).

For tax purposes, is there any difference between the Bitcoin Cash "airdrop" and an airdrop of native coins? For example, BitSend has a weekly airdrop to forum posters of 10 BSD. Are we supposed to use the USD cost basis of that 10 BSD each week (last week = $13.50) and call it "other income" on our tax return? That means that even if we opt to hodl the coins long term, we have to pay taxes on receipt, right?

The forks feel more like "stock splits." This feels more like a giveaway or something. Is there any way that these could be deemed "gifts" under the tax code?

i did not received any airdrops of bitcoin but i did in some other altcoins and i never pay for a tax in my airdrops.

[hous26]

An interesting consideration [for my American brothers] is that you can claim crypto profits as capital gains after you hold the coins for 1 or more years.  Capital gains are favored for tax purposes as they are taxed at something like 15% flat as opposed to your standard income tax rate, which is generally in excess of 30%.  If you don't claim any airdrops the year you receive them, will you be able to claim capital gains treatment when it comes time to sell?

[jerry0]

When you say airdrops, you mean coins for holding coins right?  Like imagine you have NEO or waves or reddcoin?  Yes what happens there because every week they would give you like 0.00002 something coin etc.  I can't imagine you have to do anything until you convert it to btc right?