Tax filing and Cryptocurrency Earnings in US

[crptowiz]

As the tax season starts soon in United States, how is cryptocurrency earnings reported and taxed? Are there any new mechanisms/notifications issued that tax filers need to be aware of? Wonder if service providers like Turbotax or H&R Block are going to factor in the fact that many individuals would have already made a windfall from the winter Bitcoin rally.

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[codewench]

As the tax season starts soon in United States, how is cryptocurrency earnings reported and taxed?

Individual buyers and sellers enter details on Form 8949 (Sales and Other Dispositions of Capital Assets) which then feeds a summary to Schedule D (Capital Gains and Losses). Short term net gain is taxed at 0%, 10%, 15%, 25%, 28%, 33%, 35%, or 39.6%, and long term net gain is taxed at 0%, 15%, or 20%, both depending upon one's income. Individual miners use Schedule C (Profit or Loss From Business) and Schedule SE (Self-Employment Tax) for their mining rewards and mining expenses. The net profit is taxed at 0%, 10%, 15%, 25%, 28%, 33%, 35%, or 39.6% depending upon one's income, while self employment tax could be as high as an additional 18.2%.

Businesses I'm sure have different forms.

[crptowiz]

Individual buyers and sellers enter details on Form 8949 (Sales and Other Dispositions of Capital Assets) which then feeds a summary to Schedule D (Capital Gains and Losses). Short term net gain is taxed ....

Thanks, very helpful indeed !

[AlexInTheOcean]

As I can recall the same rules applies to US citizens who live abroad?

[jlspartz]

There are a few software programs that will import your trade data and figure it all out.  Read the FAQ at one of the sites here.  It's very informative.  https://bitcoin.tax/faq  Also, the IRS tax guide here:  https://ww w.irs.gov/pub/irs-drop/n-14-21.pdf - broke the link on purpose.  Knowing the amount I'll have to pay makes me sick.  I know I'll be reported otherwise.

[Awnar]

As I can recall the same rules applies to US citizens who live abroad?

Well as long as they transact money by dollar and not by the money of their country then i think it is ok. But off course if that certain country is not allowing it, then they must a  good reason where their money would come from and not just carelessly state cryptocurrency.

[crptowiz]

the very thought of the capital gain tax involved scares you off the moment you think of cashing out. One can only hope that it was a good deterrent so far, if the predictions for 2018 stay true

[pixel8or]

I'm just getting started in this and the earnings/tax thing has me feeling very apprehensive. Apparently, now as of 2018, every single crypto transaction will be a taxable event.

https://www.youtube.com/watch?v=q5VCq3pX3ys

I also have the additional concern of being on Social Security Disability. I don't "work" in the sense of holding down a job, but I'm obligated to report any extra income I might earn above certain amounts. I have no idea how mining, which I'm getting into, would have to be accounted for. To me, mining is simply making some extra money from a hobby.

[squatter]

I'm just getting started in this and the earnings/tax thing has me feeling very apprehensive. Apparently, now as of 2018, every single crypto transaction will be a taxable event.

This isn't new. It's just a clarification of the tax code that any competent CPA already understood. Like-kind exchanges for altcoins were never allowed under the tax code. If you've been neglecting to report income because you were deriving that income from altcoins rather than bitcoins, you better hope you're not audited.

I also have the additional concern of being on Social Security Disability. I don't "work" in the sense of holding down a job, but I'm obligated to report any extra income I might earn above certain amounts. I have no idea how mining, which I'm getting into, would have to be accounted for. To me, mining is simply making some extra money from a hobby.

SSI are real assholes. Personally, I wouldn't let it keep me from mining. But they definitely consider mining income to be "additional income received" that would cause your SSI check to be docked. Technically, you're supposed to report it.

[pixel8or]

If you've been neglecting to report income because you were deriving that income from altcoins rather than bitcoins, you better hope you're not audited.

Like I said, just getting started. I cashed in a whopping $20 at Coinbase last month from ZEC>LTC>Cash. I'm not going to worry about anyone coming after me for that.

SSI are real assholes. Personally, I wouldn't let it keep me from mining. But they definitely consider mining income to be "additional income received" that would cause your SSI check to be docked. Technically, you're supposed to report it.

Hmmm... I guess I'm going to have to dig into this and give it some more thought. Any idea of when mined coins counts as "earned income"? Is it when the coins show up on your pool account, or deposited into a wallet, or when you actually cash it into dollars?

[CrYpToChRi$]

I've been hearing a lot of buzz about this clarification. Yes, it does essentially state that every crypto trade is a taxable event and needs to be recorded. For example, BTC to LTC is a taxable event and that gain needs to be taxed according to your bracket. I'm just curious what does this mean for this previous year of 2017? I was under the impression that every crypto trade has always been taxed when gains are realized. That was how I was going to pay my 2017 taxes. Some people say you only get taxed when you convert the crypto back into fiat. Can anyone clarify this for me?

[squatter]

If you've been neglecting to report income because you were deriving that income from altcoins rather than bitcoins, you better hope you're not audited.

Like I said, just getting started. I cashed in a whopping $20 at Coinbase last month from ZEC>LTC>Cash. I'm not going to worry about anyone coming after me for that.

Yeah, I wouldn't worry about that. Just saying, because I know people who have made millions of dollars trading altcoins and always thought they didn't have to pay taxes just because USD wasn't involved. BTC-denominated futures traders too. Lots of people are probably shitting their pants now that like-kind exchanges definitely don't apply to cryptocurrencies. I've always treated every trade as a taxable event (as horrible as that's been) and now I can breathe a sigh of relief that my taxes are still in order for the past few years.

SSI are real assholes. Personally, I wouldn't let it keep me from mining. But they definitely consider mining income to be "additional income received" that would cause your SSI check to be docked. Technically, you're supposed to report it.

Hmmm... I guess I'm going to have to dig into this and give it some more thought. Any idea of when mined coins counts as "earned income"? Is it when the coins show up on your pool account, or deposited into a wallet, or when you actually cash it into dollars?

This all depends on how you structure things. I think a lot of people incorporate and do their taxes on mining income as a business. Not a lawyer/accountant, but I'm assuming that income is "received" when coins are deposited into your pool account. The fair market value of those coins at the time of deposit would be the cost basis.

[pixel8or]

I think a lot of people incorporate and do their taxes on mining income as a business.

Doesn't seem like that would be worth the trouble for a 6 GPU rig or two running in a spare bedroom. Unless... it's really not that much trouble and you could write off expenses for the equipment?

Not a lawyer/accountant, but I'm assuming that income is "received" when coins are deposited into your pool account. The fair market value of those coins at the time of deposit would be the cost basis.

How in the world could anyone possibly keep track of that? The balance updates every few minutes and the value of coins can be a roller coaster ride throughout any given day.

[expert4knowledge]

I'm just getting started in this and the earnings/tax thing has me feeling very apprehensive. Apparently, now as of 2018, every single crypto transaction will be a taxable event.

https://www.youtube.com/watch?v=q5VCq3pX3ys

I also have the additional concern of being on Social Security Disability. I don't "work" in the sense of holding down a job, but I'm obligated to report any extra income I might earn above certain amounts. I have no idea how mining, which I'm getting into, would have to be accounted for. To me, mining is simply making some extra money from a hobby.

This is not possible, as much as stockmarket isn't taxed when you did not cash out yet, it will be the same for cryptos

[thomasjonestaxman]

As the tax season starts soon in United States, how is cryptocurrency earnings reported and taxed? Are there any new mechanisms/notifications issued that tax filers need to be aware of? Wonder if service providers like Turbotax or H&R Block are going to factor in the fact that many individuals would have already made a windfall from the winter Bitcoin rally.

Of course, I'm biased in my response since I work for a CPA firm and provide tax advice, but if taxes are your #1 expense and if you just had a windfall from the winter Bitcoin rally, doesn't it make sense to invest in someone who can really help you minimize your tax situation?  TurboTax and H&R Block are not necessarily known for their incredible tax planning capabilities.

IRS Notice 2014-21 was the first big interpretation the IRS offered on virtual currency transactions.
https://www.irs.gov/pub/irs-drop/n-14-21.pdf

Cryptocurrency is taxed depending on how it used.  For most, that would be as investment property subject to capital gains treatment.  Bitcoin futures received special Sec. 1256 60/40 LT/ST treatment.  Mined, staked, forked, found, won, earned coins are ordinary, but depending on the activity could possibly be self-employment income subject to 15.3% self-employment tax.  Just make sure you're taking allowable expenses (computer equipment, home office, subscriptions, etc.)

But if it is self-employment income (for example, you are in the business of mining) then it opens up options to create retirement accounts.  Why is that important?  Because any crypto investing or mining you do in a self-directed retirement account is tax deferred (or tax free if Roth).

Corporate entities provide some planning opportunities with the 21% flat rate.  Again, lots of fringe benefits are available here too.

I'm just saying, if a great CPA or Enrolled Agent can save you $20,000+ with strategic tax planning while keeping you out of trouble, why would you skimp on their $2,000+ bill?  Seems like a decent ROI.