US Taxes and Crypto

[MysticMelody]

Hi all, Question, how taxes are calculated for Crypto? As far as I know it is capital gain taxes, correct? Is it exactly like with real estate property? What I mean is Short-Term/ Long term also applicable to Crypto?
Chart is below
Income                       Tax bracket   Short-term capital gains rate   Long-term capital gains rate
Up to $13,600                     10%           10%                             0%
$13,601 to $51,700             12%           12%                            0%
$51,701 to $51,800             12%           12%                            15%
$51,801 to $82,500             22%           22%                                   15%
$82,501 to $157,500             24%           24%                                   15%
$157,501 to $200,000     32%           32%                            15%
$200,001 to $452,400     35%           35%                            15%
$452,401 to $500,000     35%           35%                                   20%
$500,001and over             37%           37%                            20%

[1715610892]

1715610892

[1715610892]

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[bitChipper]

Yes, short term and long term capital gains are applicable to crypto. But if you moved your crypto or traded it into another crypto that will determine if it's short or long term.

The IRS has made it extremely difficult if not impossible for most crypto traders in the US to declare responsibly and honestly.

If you just bought bitcoin and held it in the same place and never traded it then you are in good shape and it shouldn't be very hard but if you moved it or traded it for other altcoins then your situation becomes very difficult.

The overall consensus seems to be that you should pay your taxes on what you sell into Fiat.

[RodeoX]

You got it! Tax on the gains you made. Short or long term depending on how long you hold.

It is also a good idea to keep yourself in the lowest tax bracket. For example the tax on $51,800 is 12%. But add $1 and it jumps to 22%!

[MysticMelody]

Thank you Guys
please correct me if I am wrong. Assume I have couple of LTC and I want to  exchange it.. to lets say NEO or EOS you are telling me it is taxable event? Meaning, I will be taxed twice even though it is just 1 investment (assume, I bought 2 LTC , then I exchanged LTC to NEO and sell NEO lets say in the same fiscal year -- bought, exchange and sell  ? What about Like for Like? is it applicable here?

[MysticMelody]

"It is also a good idea to keep yourself in the lowest tax bracket. For example the tax on $51,800 is 12%. But add $1 and it jumps to 22%!"
I am not a trader I have a 9-6 job. so Tax brackets are set for me (well If I do not loose my job)

[MysticMelody]

Actually I found the  article for beginners (like me) . i am posting the link, so if anybody has the same questions they can look it up

https://medium.com/@chanfest22/a-guide-to-common-us-crypto-tax-scenarios-8174e2ec3e44

[bitChipper]

From the medium article:

"Additionally, in 2018, the IRS has clarified that like-kind exchanges only apply to real estate (i.e. not cryptocurrency)."

Bitcoin was released in 2009, Litecoin in 2011. It took the IRS 7 years to finally say "Oh ya and those other currencies you have been trading to and from, those are taxable events too".

I don't see how they are going to enforce it though, so many exchanges have gone under, so many records lost.....then people could just claim they got hacked or something.

[audaciousbeing]

"It is also a good idea to keep yourself in the lowest tax bracket. For example the tax on $51,800 is 12%. But add $1 and it jumps to 22%!"
I am not a trader I have a 9-6 job. so Tax brackets are set for me (well If I do not loose my job)

This is the most ridiculous tax situations I have seen as $1 could change the whole situation. The confusing part of it is the trading of coins which should be under another type of tax maybe VAT and when there is a final disposal to fiat, Capital Gains Tax can be applied.

Personally, capital gains tax should not be applied exclusively on crypto because of its nature. For buildings and other properties, its pretty straightforward. You build a house for certain amount till completion, you know your costs. The moment you sell, the value is determined and you know your capital gains which tax will be applied. For crypto, its different and cumbersome as the 1btc you have might have been acquired over time at different rate and now that its being sold, which exact cost will be the cost of purchase.

[avikz]

"It is also a good idea to keep yourself in the lowest tax bracket. For example the tax on $51,800 is 12%. But add $1 and it jumps to 22%!"
I am not a trader I have a 9-6 job. so Tax brackets are set for me (well If I do not loose my job)

This is the most ridiculous tax situations I have seen as $1 could change the whole situation. The confusing part of it is the trading of coins which should be under another type of tax maybe VAT and when there is a final disposal to fiat, Capital Gains Tax can be applied.

Personally, capital gains tax should not be applied exclusively on crypto because of its nature. For buildings and other properties, its pretty straightforward. You build a house for certain amount till completion, you know your costs. The moment you sell, the value is determined and you know your capital gains which tax will be applied. For crypto, its different and cumbersome as the 1btc you have might have been acquired over time at different rate and now that its being sold, which exact cost will be the cost of purchase.

The problem you have stated is actually true! However, the exchanges are providing P&L statement to help you calculate the capital gains. THe only thing you need is your trading history. The more exchanges you will use, the more confusing and complicated it will become. Otherwise, it is pretty straight forward in nature. The P&L statements will have all details like time of buying, buying amount and buying price.

Also capital gains tax are not exclusive to cryptos only. It is applicable on mutual fund, properties and equity as well. If you haven't seen any P&L statement, try to see one and you will understand that it is not difficult at all. Just need to know the right things!

[gayletot]

I do not know that the US will give the btc a tax. but a bitcoin may actually give tax any country can take it. but I think that this tax will only be used if it is only used to pay like buy bills pay to crab car etc. I just saw tax deductions in btc.

[ulhaq]

I disagree that crypto to crypto is a taxable event. Neither the article linked above, nor the article it is based on gives any source or reason why they think it is taxable.

Yes, like-kind rules do not apply to crypto. This was obvious even for 2017 if you look at the language and documentation of like-kind. But that has no bearing on taxable status of crypto-crypto.

The only guidance the IRS gave was in 2014 and it uses the term "virtual currency" and exchange of "virtual currency" to goods or other things. Those are taxable, but it did not address "virtual currency" to "virtual currency".

Everything anyone states about this is speculation because the IRS has not specifically addressed it.

None of the above address forks. Here are my thoughts on that:
https://bitcointalk.org/index.php?topic=2622458.msg41378827#msg41378827

Also it has been pointed out that many aspects of the tax code do not make sense. It's easy to have an impact, just vote for candidates who want to simplify the tax code. There are plenty every election cycle, but they never seem to get any traction or votes.

[Theb]

Thank you Guys
please correct me if I am wrong. Assume I have couple of LTC and I want to  exchange it.. to lets say NEO or EOS you are telling me it is taxable event? Meaning, I will be taxed twice even though it is just 1 investment (assume, I bought 2 LTC , then I exchanged LTC to NEO and sell NEO lets say in the same fiscal year -- bought, exchange and sell  ? What about Like for Like? is it applicable here?

Nope, capital gains tax does not apply on each of your transactions/trade, just like how income tax works capital gains is recorded annually and it is based on the increase/decrease on your capital from the start to the end of that year. The only difference in rate would be your tax bracket you are under and if it belongs to a short term or long term capital gains tax. In the example you gave us this will be classified as short term capital gains as the buy and sell happened within the one fiscal year. Anything above 1 year after selling will then be classified it to a long term capital gains tax.

[MysticMelody]

Thank you. It does make sense,  exchange crypto to crypto . I assume you already experienced this type of scenario (exchange) , so will be like barter , correct? And  The capital gain taxes calculated on in and out usd amount, based on tax bracket and term of holding .

[Harlot]

Thank you. It does make sense,  exchange crypto to crypto . I assume you already experienced this type of scenario (exchange) , so will be like barter , correct? And  The capital gain taxes calculated on in and out usd amount, based on tax bracket and term of holding .

Don't think of it as a "barter system" as it is too much different from it. Look at stocks even if you buy and sell them you always in the process of having fiat currency in your account every time you sell a stock, but does that mean you are going to pay capital gains tax every time  you obtain fiat currency when you sell? Of course not just like what others have earlier said you pay your capital gains tax at the end of each fiscal year. Don't make it too much complicated in your situation, just think of it as your income you only file it annually.

[squatter]

Thank you Guys
please correct me if I am wrong. Assume I have couple of LTC and I want to  exchange it.. to lets say NEO or EOS you are telling me it is taxable event? Meaning, I will be taxed twice even though it is just 1 investment (assume, I bought 2 LTC , then I exchanged LTC to NEO and sell NEO lets say in the same fiscal year -- bought, exchange and sell  ? What about Like for Like? is it applicable here?

Nope, capital gains tax does not apply on each of your transactions/trade, just like how income tax works capital gains is recorded annually and it is based on the increase/decrease on your capital from the start to the end of that year.

This is not necessarily true, and I would be very careful treating altcoin trades as like-kind exchanges. Consult a tax advisor.

After the 2017 tax year, crypto-to-crypto trades definitely don't qualify for the Section 1031 exception:

Buried deep in the massive tax bill enacted at the end of 2017 was a provision that limits like-kind exchanges to real estate transactions, effective after December 31, 2017.

As a result, there seems to be zero ability for crypto traders to claim that their coin trades undertaken after 2017 qualify as Section 1031 like-kind exchanges.

Whether such trades completed prior to 2018 can be considered like-kind exchanges is a bit more of a grey area. My personal take, based on an open-faced reading of the law, is that crypto-to-crypto trades may never have qualified to begin with. Some others seem to agree:

The IRS could rule they are not like-kind property. It’s interesting to see how the IRS ruled on like-kind exchanges between coins and bullion. In some cases, exchanges of gold for gold coins or silver for silver coins may qualify as like-kind property, but gold for silver coins is not like-kind property.

With a lack of IRS guidance, using Section 1031 on cryptocurrency trades is uncertain, and I suggest wrong in almost all facts and circumstances. There is no “substantial authority” for its use, which would be required to avoid tax penalties.