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Author Topic: US taxes when cashing out BTC acquired gradually  (Read 89 times)
r01k
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January 27, 2018, 09:40:14 PM
Merited by chaoscoinz (1)
 #1

In US when crypto is sold for fiat you are taxed on the gains. What time frame is taken into account when calculating the gain (or loss)? Let's say that I exchange for USD 20% of my BTC holdings acquired gradually over the past 5 years. How is the gain or loss of that amount calculated?
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chaoscoinz
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January 28, 2018, 09:27:11 AM
Last edit: January 28, 2018, 10:20:22 AM by chaoscoinz
 #2

In US when crypto is sold for fiat you are taxed on the gains. What time frame is taken into account when calculating the gain (or loss)? Let's say that I exchange for USD 20% of my BTC holdings acquired gradually over the past 5 years. How is the gain or loss of that amount calculated?
***Disclaimer***

"I am not an attorney,  or financial advisor, please seek a professional in your jurisdiction regaurding financial, or legal advice."

Heres my two cents, from the best of my understanding...

In the U.S

A short-term gain occurs anytime "before" an approximate year of the realization of the gain/loss.

A long-term gain occurs anytime "after" an aproximate year (365 days) of the realization of a gain/loss.
  
The realization of a gain/loss occurs when you decide to make a conversion of cryptocoins, either buy trading, making a purchase for goods and services, or selling. The moment you make a transaction reguarding one of these three, you incure a tax liability.

If you within the jurisdiction of the United States, you must pay taxes for state and federal.
Check your tax bracket to determine your percentage you owe when a gain/loss is realized.

I think assets such as cryptocoins are considered investment income.

Be sure to keep detailed records of any transaction history for every single transaction, including wallet to wallet. It's better to have a clean organized ledger prepared before cashing out.
 Also request an appoimtment at your bank or credit union to discuss the process, and ask if they're ok with crypto investments, because you don't want to transfer a large amount of money and it gets frozen, nor do you want to draw any suspicious activity to you account on large transfers.
Speak with a professional at your financial institution before transfering anything, alert them yourself, becuase crypto is still new to some institutions, and possibly signal red flags for laundering.
 
 If all goes well, you should be in the clear, just be honest!

botany
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January 28, 2018, 03:20:10 PM
 #3

In US when crypto is sold for fiat you are taxed on the gains. What time frame is taken into account when calculating the gain (or loss)? Let's say that I exchange for USD 20% of my BTC holdings acquired gradually over the past 5 years. How is the gain or loss of that amount calculated?

There is no specific guidance on the method you can use to calculate (for tax purpose) the cost of bitcoins you have sold - whether you can use methods like FIFO, LIFO, average cost or specific identification. In the absence of specific guidance, the default (and most conservative) method to use is FIFO - First In First Out. So in your specific example, you have to consider the cost of acquisition of the earliest 20% of your Bitcoin portfolio (say in 2013).

As far as short-term/long-term capital gains is concerned, gains on assets held for more than 1 year qualify as long-term capital gains. In your case, since you started acquiring bitcoins more than 5 years ago, gains on the 20% you sold would probably be long-term capital gains.

For examples on calculations, you can refer to this article in Forbes
r01k
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January 29, 2018, 04:39:15 AM
 #4

That's clarifying. Thank you!
Kronos21
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January 29, 2018, 12:50:41 PM
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Strange approach. Why the estimated period is only a year? What if you bought coins 2 years ago? Then the whole amount of bitcoins will be sold from your income? How to prove that is not true if the price in 2 years will be reduced and you will get a loss? When the company maintains its accounting records everything is clear. They have an article of losses of previous periods. What to do individuals?
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January 30, 2018, 02:10:14 AM
 #6

The realization of a gain/loss occurs when you decide to make a conversion of cryptocoins, either buy trading, making a purchase for goods and services, or selling. The moment you make a transaction reguarding one of these three, you incure a tax liability.

True for 2018. It's crystal clear.
But the no-like-kind exchange qualification for cryptos is yet to be confirmed for 2017.


Some people say that the 2018 law, which allow like-kind only for "REAL property", clarified the panorama regarding "Property" taxation for 2017, thus suggesting that like-kind would be OK for 2017. (because they HAD TO change the law for 2018)

http://fortune.com/2017/12/21/bitcoin-tax/

https://www.forbes.com/sites/robertwood/2017/12/28/loophole-allows-tax-free-bitcoin-exchanges-into-2018/#4ddf204612fa
<<Some say the fact that Congress changed the law (prospectively) makes it clear that before the change in the law, crypto swaps were OK. Others say the reverse. It is not clear what the IRS will say.>>

Only one thing is certain: Everybody agrees that "IT'S NOT CLEAR".
Your CPA is clueless here, you have to see with a TAX ATTORNEY...


Gonna be a wild mess. If anybody has info... greatly appreciated.

r01k
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February 03, 2018, 04:19:05 AM
 #7

Only one thing is certain: Everybody agrees that "IT'S NOT CLEAR".

Gonna be a wild mess. If anybody has info... greatly appreciated.


That's the sense I've got in my investigation of this. Even with the new law for 2018 it's unclear how you are supposed to keep track of gains and losses of every crypto-crypto transaction when these occur in a short timespan and even across several coins.
Druiz287
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February 03, 2018, 04:59:23 AM
 #8

Check with an accountant.  But personally, I claim BTC when it is earned, not when it is cashed out.  I gained revenue from mining when BTC was $19k.  Now, when BTC is at $9.5k, if I decide to sell it I can claim half of that as a loss expense thereby lowering my taxable income.  And I still claim all of my operating expenses as normal.

Edit: Law is funny, particularly with finance.  The legislators write it with one intent, but the judicial system decides what it truly means with finality by case law.  So regardless of what is written, until courts interpret it we are all guessing....... god bless america lol.
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