BTC taxes - Unknown cost basis

[bioparco]

I have a bunch of bitcoins, result of mining and buying from many years ago. Now my problem is that I have not kept track of transactions and cost basis of those days. And I have also changed wallets a few times in the meantime: all I know is that the most recent transactions are dated 2018 when I moved all my bitcoins to my current hardware wallet.

My question is simple: how am I supposed to pay taxes if I sell my coins? Is it admissible to declare a cost basis of 0 on my tax declaration, and pay capital gain taxes on the full sale amount? I don't see it being a problem, as it would basically correspond to paying the most possible taxes on that amount, but I am not sure if I am required to attach documentation when filing taxes, for instance the cost basis or proof that I held them long enough to qualify for long term capital gains. Any suggestions for good sources of information on this? Good tax advisors for bitcoin?

Thanks!

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[jackg]

You haven't actually said where you're from?

If you made less than a certain amount of income from mining at the time the coins were mined them you don't have to have declared them as income (the threshold for a declaration is £1000 in the UK for example).

You normally don't need to provide evidence you've been holding the assets for a long time but thisight change based on the tax system - for example the irs in the US might expect such evidence to be attached. There is normally a field on a tax return where you are optionally able to explain where the funds came from - you can use this space to free up obscirities normally..

[bioparco]

I am currently in the US, so if I sell in the near future I'll definitely have to deal with IRS. Does anybody know what would I need to submit to IRS in this case?

At the time I got the coins I was a resident of Italy (the value at the time was definitely below 1k EUR).

[squatter]

I have a bunch of bitcoins, result of mining and buying from many years ago. Now my problem is that I have not kept track of transactions and cost basis of those days. And I have also changed wallets a few times in the meantime: all I know is that the most recent transactions are dated 2018 when I moved all my bitcoins to my current hardware wallet.

My question is simple: how am I supposed to pay taxes if I sell my coins? Is it admissible to declare a cost basis of 0 on my tax declaration, and pay capital gain taxes on the full sale amount? I don't see it being a problem, as it would basically correspond to paying the most possible taxes on that amount, but I am not sure if I am required to attach documentation when filing taxes, for instance the cost basis or proof that I held them long enough to qualify for long term capital gains. Any suggestions for good sources of information on this? Good tax advisors for bitcoin?

Thanks!

I'm not a lawyer, but here is my opinion.

If you report a cost basis of $0, the IRS won't mind. It's admissible. As you said, you would be overstating your tax liability, so you can't be penalized. If you don't report anything to the contrary and they haven't received a 1099 reporting the basis, they assume it's $0 anyway.

Whether it's advisable to do that is another story. If you're talking about very large sums of money, it might be worth the trouble of parsing through your wallet and exchange histories to determine your actual basis. The tax savings might be very significant.

If you send outputs last moved in 2018 to an exchange to sell them, that confirmed blockchain transaction is useful documentation of long term gains, since the outputs hadn't been moved in well over a year prior. You won't need to attach this to your tax return, but you'll definitely want to keep a copy of it in your records, along with an export of your exchange trading history, in case the IRS ever comes knocking.

[NotFuzzyWarm]

NOTE: I am not a tax advisor
In the US, if you can establish value of the coins when mined you can then take the capital gains route for taxes due when selling them. Other than that it can also just be "Other Income" same as from lottery or gambling winnings that could be taxed up to 35-40% of value.

Talk to a tax advisor/CPA if you have a substantial income from selling the coins...

[bioparco]

Thanks all for the answers!

It is definitely a significant amount of money, so I am really concerned about doing things right from the beginning! I don't think I want to declare it as "other income", not to run into the risk of raising suspects about it being dirty money (this is also true when moving a large sum from an exchange to my local bank account I guess). And I am totally OK with paying taxes on the whole sum ($0 cost basis), as it won't significantly affect taxes in my case.

I would assume that not all tax advisors are equally qualified on this specific topic: are there any sufficiently experienced that somebody can suggest?

[squatter]

Thanks all for the answers!

It is definitely a significant amount of money, so I am really concerned about doing things right from the beginning! I don't think I want to declare it as "other income", not to run into the risk of raising suspects about it being dirty money (this is also true when moving a large sum from an exchange to my local bank account I guess). And I am totally OK with paying taxes on the whole sum ($0 cost basis), as it won't significantly affect taxes in my case.

I forgot about the issue of mining income. Unfortunately, mining income is taxable at the time of receipt based on the fair market value of the mining rewards. It is considered self employment income. Selling the mining rewards down the road triggers a second taxable event when you realize a capital gain or loss.

A competent tax advisor may advise you to amend prior year returns to report your mining income, depending on the facts of your case.

I would assume that not all tax advisors are equally qualified on this specific topic: are there any sufficiently experienced that somebody can suggest?

I can't vouch for any service personally, but a few internet-based tax consultancies like TokenTax have emerged over the past few years. Their more expensive services are made specifically for people like you -- those with missing trade data, lost bitcoins, unknown cost basis, and other complex situations.

[odolvlobo]

Thanks all for the answers!

It is definitely a significant amount of money, so I am really concerned about doing things right from the beginning! I don't think I want to declare it as "other income", not to run into the risk of raising suspects about it being dirty money (this is also true when moving a large sum from an exchange to my local bank account I guess). And I am totally OK with paying taxes on the whole sum ($0 cost basis), as it won't significantly affect taxes in my case.

I would assume that not all tax advisors are equally qualified on this specific topic: are there any sufficiently experienced that somebody can suggest?

It is long-term capital gains. It's not complicated, even if you don't have any documentation for when you acquired them. Any CPA should be able to deal with it.

[HeRetiK]

I am currently in the US, so if I sell in the near future I'll definitely have to deal with IRS. Does anybody know what would I need to submit to IRS in this case?

At the time I got the coins I was a resident of Italy (the value at the time was definitely below 1k EUR).

I forgot about the issue of mining income. Unfortunately, mining income is taxable at the time of receipt based on the fair market value of the mining rewards. It is considered self employment income. Selling the mining rewards down the road triggers a second taxable event when you realize a capital gain or loss.

A competent tax advisor may advise you to amend prior year returns to report your mining income, depending on the facts of your case.

I don't know about Italy, but some European countries have certain thresholds for additional income for which no tax report needs to be made. If I recall correctly that should be around ~700ish in Austria and Germany, maybe in Italy there's a similar threshold. Since OP was a resident of Italy at the time, they presumably also paid their taxes there. So unless they already had ties to the US back then (or moved to the US during the same calendar year), they paid what was due for mining while living in Italy (and if the value of the time was below 1k EUR, what was due at the time was probably zero).

It is long-term capital gains. It's not complicated, even if you don't have any documentation for when you acquired them. Any CPA should be able to deal with it.

Also the rules for how to handle crypto have become fairly clear by now so it's not black magic anymore.

[zasad@]

I am currently in the US, so if I sell in the near future I'll definitely have to deal with IRS. Does anybody know what would I need to submit to IRS in this case?

At the time I got the coins I was a resident of Italy (the value at the time was definitely below 1k EUR).

I forgot about the issue of mining income. Unfortunately, mining income is taxable at the time of receipt based on the fair market value of the mining rewards. It is considered self employment income. Selling the mining rewards down the road triggers a second taxable event when you realize a capital gain or loss.

A competent tax advisor may advise you to amend prior year returns to report your mining income, depending on the facts of your case.

I don't know about Italy, but some European countries have certain thresholds for additional income for which no tax report needs to be made. If I recall correctly that should be around ~700ish in Austria and Germany, maybe in Italy there's a similar threshold. Since OP was a resident of Italy at the time, they presumably also paid their taxes there. So unless they already had ties to the US back then (or moved to the US during the same calendar year), they paid what was due for mining while living in Italy (and if the value of the time was below 1k EUR, what was due at the time was probably zero).

It is long-term capital gains. It's not complicated, even if you don't have any documentation for when you acquired them. Any CPA should be able to deal with it.

Also the rules for how to handle crypto have become fairly clear by now so it's not black magic anymore.

I understand you correctly that if I come to the usa to live and work in 2021 and start exchanging my bitcoins for dollars.
When the US Tax Service is interested in me, I will tell them that I purchased my bitcoins between 2015 and 2020, and under Russian law, cryptocurrencies were not taxed.
Will they really answer me that I have to declare my bitcoins from 2021 and pay taxes on them next year?

[HeRetiK]

I understand you correctly that if I come to the usa to live and work in 2021 and start exchanging my bitcoins for dollars.
When the US Tax Service is interested in me, I will tell them that I purchased my bitcoins between 2015 and 2020, and under Russian law, cryptocurrencies were not taxed.
Will they really answer me that I have to declare my bitcoins from 2021 and pay taxes on them next year?

I'm saying that if you received bitcoins as income (ie. by mining, providing services or selling goods), and it's been taxed as income in a country that has a tax treaty with the US, they won't have to pay income tax a second time for the same payment when moving to the US, even if the amount of income tax was zero because in the country of origin the threshold for having to pay income tax wasn't reached. That was my response to squatter's assumption that OP would get taxed twice, once for the income upon receiving payment and once for the capital gains upon selling. (put differently, opposed to squatter I assume that OP would get taxed in the US only once, for capital gains, since the first taxable event -- receiving the bitcoins as mining income -- happened under a different tax jurisdiction)

Now I know very little about how taxation in the US works, but from what I've gathered once you become a tax resident of the US, you'll have to pay capital gains tax on your Bitcoin gains regardless of whether you bought (or earned) them before you moved to the US. I do assume that would happen in any country that applies a capital gains tax on Bitcoin (ie. even if you bought your coins in a tax jurisdiction that does not require capital gains tax on Bitcoin, once you start selling the coins as resident of a tax jurisdiction that does, you are owing taxes to that country).

I'm no tax expert though.

[odolvlobo]

I understand you correctly that if I come to the usa to live and work in 2021 and start exchanging my bitcoins for dollars.
When the US Tax Service is interested in me, I will tell them that I purchased my bitcoins between 2015 and 2020, and under Russian law, cryptocurrencies were not taxed.
Will they really answer me that I have to declare my bitcoins from 2021 and pay taxes on them next year?

I'm not a tax expert but my guess is that when you file your taxes, you report when you bought them and for how much, and how much you sold them for. You pay taxes on the difference. I don't believe Russian law is relevant.

[zasad@]

I understand you correctly that if I come to the usa to live and work in 2021 and start exchanging my bitcoins for dollars.
When the US Tax Service is interested in me, I will tell them that I purchased my bitcoins between 2015 and 2020, and under Russian law, cryptocurrencies were not taxed.
Will they really answer me that I have to declare my bitcoins from 2021 and pay taxes on them next year?

I'm saying that if you received bitcoins as income (ie. by mining, providing services or selling goods), and it's been taxed as income in a country that has a tax treaty with the US, they won't have to pay income tax a second time for the same payment when moving to the US, even if the amount of income tax was zero because in the country of origin the threshold for having to pay income tax wasn't reached. That was my response to squatter's assumption that OP would get taxed twice, once for the income upon receiving payment and once for the capital gains upon selling. (put differently, opposed to squatter I assume that OP would get taxed in the US only once, for capital gains, since the first taxable event -- receiving the bitcoins as mining income -- happened under a different tax jurisdiction)

Thank you, I realized that double taxation is obtained in the USA. In Russia, such a system will not work - citizens will not submit their declarations.
For example, if I bought bitcoin for $ 10,000 and sold it for $ 15,000, then I will pay 13% income tax = $ 5,000 * 13% = $ 650
We have no capital gains tax.
And if I mined 1 bitcoin and sold it for 15,000, then I will pay $ 15,000 * 13% = $ 1950. I can reduce the tax if I collect documents that prove mining costs,
but most people did not keep these documents.
But while mining tax can be paid at a rate of 4% as self-employed.

[Streets 2.0]

I think the tax office will calculate the tax on the date of filing the tax return, and not after the fact. If so, then the price will be current and the tax will be calculated from its current nominal market price. Calculate all the numbers in advance before contacting the tax office. The step is definitely the right one - you have to pay taxes, but pay more than you have to - you yourself understand pretty stupid. Ideally, you should consult with a tax lawyer before reporting.

[yhiaali3]

I do not think that this is a problem, this varies of course from one country to another according to the tax laws in each country, but I do not see a problem in declaring the last amount only in taxes as long as you say that you do not Remember what the cost basis in past years, I think it will be sufficient to declare about Only the last amount and pay the tax.

[alan228]

I do not think that this is a problem, this varies of course from one country to another according to the tax laws in each country, but I do not see a problem in declaring the last amount only in taxes as long as you say that you do not Remember what the cost basis in past years, I think it will be sufficient to declare about Only the last amount and pay the tax.

In different countries there are different taxes for cryptocurrencies. The number of people who use cryptocurrencies only increase and I think that the more countries will regulate  Bitcoin and other cryptocurrency. This is an article what is a difference in tax rates for Bitcoin Taxes in different european countries
 https://dailycoin.com/european-highest-lowest-bitcoin-taxes/

In many countries it is nessecary to pay taxes for Bitcoin and other crypto.

[Lorence.xD]

If you don't want to pay taxes, sell your coins on a P2P exchanges or sell it personally with cold hard cash, that way you don't have any problem with paying taxes as you have paid it directly from the person. You can use XMR or a mixer if you worry that much.