Tax implications for crypto

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Bucketeer
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Re: Tax implications for crypto

Postby Bucketeer » Fri Feb 16, 2018

Long John wrote:
Rik Bitter wrote:What about turning your crypto into something other than cash, like buying PMs. I seem to remember at least one of the large bullion dealers were accepting BTC as tender. Would that be reported to the IRS?

Yes, using crypto to buy goods or services is regarded the same as cashing out. Unfortunately. As far as whether and how it's reported, I don't know. I guess it depends. Using Bitcoin to buy gold from a bullion dealer is probably not safe from the IRS. Sending some Bitcoin into a friend's wallet for his gold/silver, might be. But BTC's blockchain is not truly private in the way Monero is.


My understanding is if the transaction is less that$10K, it is not reported.
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Bucketeer
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Re: Tax implications for crypto

Postby Bucketeer » Fri Feb 16, 2018

silverpv wrote:
Long John wrote:
Does IRS want me to untangle every crypto-to-crypto trade made on a Hong Kong exchange and calculate the profit or loss based on USD value at the time of each trade? Yes, they do. Can they do anything about it, or even know about it, if I choose instead to report the end result based on my 1099 form? Currently, no. They also don't know about the profit you made on your yard sales last summer, or more relevant to us here at BS, on your nonbusiness dealings in precious metal if you choose not to report it.


I never dodge the tax man. I report everything 100% accurately. why would anyone not do that? :angel:

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Bucketeer
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Re: Tax implications for crypto

Postby Bucketeer » Fri Feb 16, 2018

I'm on Social Security with a small pension. I have a serious crypto position. I'm getting my taxes done next week.

I'm curious if the Alterative Minimum tax would apply. These are long-term gains, my income is under $37,000, therefore there should be no capital gains taxes, but I'm wondering about the AMT and how this would affect my SS income.

I wonder if cashing out would mess-up my taxes or SS. I would prefer to cash out, rather than taking $9999 per year.

IRS needs to provide some guidance on crytpos. I'll have some info next week.
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CaptainW
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Re: Tax implications for crypto

Postby CaptainW » Fri Feb 16, 2018

Rik Bitter wrote:
Long John wrote:
Recluse wrote:Has anybody received a 1099 from Bittrex?
According to their About Us "Built and operated in the United States"

No, which surprised me. I do very little business there now, but I traded almost exclusively there from April to September last year. Every bit of profit I made on Bittrex eventually came back through Coinbase, which did produce a form 1099, so I'm not exactly pushing to get it pre-taxed on Bittrex as well.

But I have not seen anyone state that Bittrex issued them a 1099. Maybe the fact that they're not a "money transmitter" like Coinbase is a factor. Or it is possible Bittrex doesn't intend to do it until pushed, as Coinbase was by IRS legal action last year. The court did not give IRS everything it wanted from Coinbase in terms of past records, far from it, but the action did put Coinbase on notice for the 2017 tax year going forward.


Apologies for all the dumb questions. Lets just say Bittrex did issue 1099s. In that scenario, I then moved BTC from from Coinbase to Bittrex and then purchased some gold from Provident with BTC within the same tax year. Would I see the same BTC reported on two separate 1099s?


I’ll add another “dumb” question that I think I know the answer to.
If I make a btc purchase at CB, transfer to an exchange and buy xyz coin, is that a zero profit/loss? What if I made weekly purchases of 1/10 btc for some extended time before buying xyz coin, is that a zero gain or must I figure out the average cost for all btc purchases and proclaim a profit/loss based on btc price at the time I purchased xyz coin?

It seems we are on an “honor system” (like gaming) for 2017 and if it’s difficult for us to make sense of the transactions, it will be much more difficult for the IRS to decipher. I plan to be as honest and accurate as I can be but it still won’t be precise.

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Re: Tax implications for crypto

Postby silverpv » Sat Feb 17, 2018

Wanted to share this with you guys. A trusted colleague recommended cointracker.io. It does a lot of what I was/am working on but in a different way. These guys are YCombinator backed so they are a qualified team working on this project full time.

The concept works like mine. Plug in your read-only api access, the system will pull your records and compile them for your tax purposes. Download your histories for your accountant. Then you can then remove the api access. I used it, pretty much exactly what I was thinking how it should work. Processed my tax responsibility in 15 minutes for 2017 on the exchanges. Once you get the combined record, verify that with cpa. You do not need the paid service. You can download your file for free, then remove the access.

https://cointracker.io

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Long John
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Re: Tax implications for crypto

Postby Long John » Sat Feb 17, 2018

silverpv wrote:Wanted to share this with you guys .... https://cointracker.io

Cointracker has a very useful FAQ on crypto taxes. https://www.cointracker.io/faq#section-tax

This part covers the most basic question most people have: What is taxable? (The one in bold corrects what I had thought I understood, that any transfer between wallets is a taxable event.)

Generally speaking, these are considered taxable events:
•Selling cryptocurrency for fiat currency (i.e. USD, EUR, JPY, etc.)
•Trading cryptocurrency for other cryptocurrency
•Using cryptocurrency to buy a good or service
•Receiving cryptocurrency as a result of a fork or from mining

On the other hand, the following are generally not considered taxable events:
•Buying cryptocurrency with fiat currency
•Donating cryptocurrency to a tax-exempt organization
•Gifting cryptocurrency to anyone (if the gift is sufficiently large it may trigger a gift tax)
Transferring cryptocurrency from one wallet that you own to another wallet that you own

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Long John
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Re: Tax implications for crypto

Postby Long John » Sat Feb 17, 2018

silverpv wrote:Wanted to share this with you guys .... https://cointracker.io

I downloaded my history, and the resulting spreadsheet did not appear to be something an accountant could use to generate a form 8949 without some painstaking manual data manipulation. I think CoinTracker wants you to pay Cointracker to generate the form (that's how they stay in business) and thus try not to give you data for free that you or someone could easily use to do it. Having them do it would cost $30 for the Lite plan (100 transactions or less) or $150 (101 to 1,000 transactions). Note that a single trade may be broken up into several transactions by an exchange, as it may take multiple partial orders to complete one buy or sell order.

You could scroll through the non-spreadsheet transaction history that shows cost basis and gain or loss, and compile your numbers for free that way. It's easier to understand than Coinbase/GDAX's histories. Also free, without even diving into the transactions, is total proceeds and total cost basis, with a resulting total gain or loss. But I think this is not for just the 2017 tax year, it may include transactions before and after from all exchanges to which Contracker has read-only API access.

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Re: Tax implications for crypto

Postby silverpv » Sat Feb 17, 2018

Long John wrote:
silverpv wrote:Wanted to share this with you guys .... https://cointracker.io

I downloaded my history, and the resulting spreadsheet did not appear to be something an accountant could use to generate a form 8949 without some painstaking manual data manipulation. I think CoinTracker wants you to pay Cointracker to generate the form (that's how they stay in business) and thus try not to give you data for free that you or someone could easily use to do it. Having them do it would cost $30 for the Lite plan (100 transactions or less) or $150 (101 to 1,000 transactions). Note that a single trade may be broken up into several transactions by an exchange, as it may take multiple partial orders to complete one buy or sell order.

You could scroll through the non-spreadsheet transaction history that shows cost basis and gain or loss, and compile your numbers for free that way. It's easier to understand than Coinbase/GDAX's histories. Also free, without even diving into the transactions, is total proceeds and total cost basis, with a resulting total gain or loss. But I think this is not for just the 2017 tax year, it may include transactions before and after from all exchanges to which Contracker has read-only API access.


I've contacted them regarding price. This stuff is not easy to do but not happy with $30-$150 option.

The tx's they do filter for 2017. My tx's 200+ for 2017 and 2018 was 800+ so its accurate enough. I've contacted them to ask for better pricing because i do think they deserve compensation for this and value their work. I'll let you guys know if they respond with a discounted price. If they don't, then have to use other options with the raw data.

My tax liablity wasn't as much as i thought thankfully. Definitely recommended just go get your records sorted in one place. I already had all the downloads this just does some of the steps for you. Good luck guys.

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Long John
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Re: Tax implications for crypto

Postby Long John » Sat Feb 17, 2018

Cointracker's transaction history (not the downloaded csv file) shows cost basis and gain/loss for a dated transaction. The spreadsheet download does not include this. Operating off the rather overwhelming spreadsheet alone, you would need to calculate the cost basis yourself, (and you would need to decide which transactions to use for First-In-First-Out, ugh). Cointracker's paid report does this for you.

Rather than use the spreadsheet, or buy the report, it might make sense to scroll down through the transaction pages, noting which ones show profit or loss and grab the numbers from only those, including cost basis, and file your crypto tax based on that. This would be fairly painless for most people and should show accurately your gain/loss on the year. You don't need the really granular stuff unless IRS demands it. They don't require supporting documentation with the 1040 return. Worse comes to worst, I'll pay the freaking $150. It would be cheaper than paying a CPA to untangle my mess.

Again, just thinking out loud and correct me if I'm wrong. This is not expert knowledge!

If they offer discounts to complainers, I would be surprised and impressed. I want in on that action. I wouldn't hesitate to pay $50 or even $70 for the detailed report on <1,000 transactions.

It's been nostalgic and fun to see what prices were back in the early part of last year.

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Re: Tax implications for crypto

Postby tdtwedt » Wed Feb 21, 2018

Here's what can happen if you don't pay taxes on bitcoin

https://www.cnbc.com/2018/02/20/how-to- ... tcoin.html
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Long John
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Re: Tax implications for crypto

Postby Long John » Wed Feb 21, 2018

You make money (salary, annuity, interest, stocks, crypto, the lottery, whatever) you pay taxes on it. Or you don't and risk the consequences. Either way, it's not a crypto thing. It's a U.S. thing.

My bitch is that the IRS-reporting fiat portal, Coinbase, doesn't tell you profit or loss; they just add up all your trades, transfers, sales and put the total on the form 1099. Figuring out profit or loss is up to you; and Coinbase doesn't make it easy to comply with IRS rules that each gain or loss is calculated on USD value at the time of each trade. There are resources like Cointracker, but Coinbase should provide that service to its customers. It would encourage people not to lie, not to just wing it, or not do ignore it altogether.
Last edited by Long John on Wed Feb 21, 2018, edited 1 time in total.

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Re: Tax implications for crypto

Postby Purple and Gold » Wed Feb 21, 2018

And by the time the IRS finds out about the unreported income, its about 2 yrs later and those penalties and interest will accrue from April 15 of the tax year that it wasnt reported. :|
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Re: Tax implications for crypto

Postby Long John » Wed Feb 21, 2018

Purple and Gold wrote:And by the time the IRS finds out about the unreported income, its about 2 yrs later and those penalties and interest will accrue from April 15 of the tax year that it wasnt reported. :|

2 years later it will be harder to prove that the total number on the form 1099 is not all profit. Some people have the attitude of "Come and get me, IRS," maybe figuring the IRS will focus on the whales dodging serious tax amounts. I wouldn't bank on it. Once you're on the IRS radar, you stay there for years. Stay under the radar: Figure out your profit as best you can, pay the tax on it.

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Re: Tax implications for crypto

Postby Bucketeer » Wed Feb 21, 2018

There are no guidelines regarding hard-forks, especially regarding the cost-basis.
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Re: Tax implications for crypto

Postby Bucketeer » Wed Feb 21, 2018

Long John wrote:Once you're on the IRS radar, you stay there for years. Stay under the radar: Figure out your profit as best you can, pay the tax on it.


Sage advice - better to make an attempt to comply instead of not making an effort at all.
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Re: Tax implications for crypto

Postby joefro » Wed Feb 21, 2018

Mining confuses the hell out of me too. The IRS has made it clear that mining proceeds are taxable. But how do you determine a cost basis for something that you are producing tiny amounts of on a continuous basis and your cost is electricity?

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Re: Tax implications for crypto

Postby Bucketeer » Wed Feb 21, 2018

Your production output is variable, correct? (constantly changing difficulty in block size and difficulty).

You could total your production over a 365 day period.

Traditional mining (not crypto) allows the use of a depletion allowance. Maybe the block difficulty....oh never mind.

I really believe that the IRS is not going to be able to offer much, if any guidance, and therefore will be grateful for anything submitted on a "best-efforts" basis. For most of us, it isn't going to be much money.
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Re: Tax implications for crypto

Postby joefro » Wed Feb 21, 2018

My mining rig proceeds will be substantial this year if things keep up. Easily 5 figures at current crypto prices, more if it rises... so I've got a year to figure it out at least. Yes production output is variable, not only in amount of coin but also value of coin. Just about the only thing that remains constant is the cost of electricity. Typical IRS guidance on cost basis is the cost paid to acquire the asset. If you are given $100,000 for free your cost basis is zero and are taxed on the full amount. I guess in that case the cost basis is the cost of electricity... which would make for a high tax bill. Or is the cost of the mining hardware included in the cost basis for the crypto? Or the cost basis is the weighted average of the value of the coin as I acquire them... which is a PITA to determine because they are being constantly "produced" in tiny amounts, but would make for a much lower tax bill. Clear as mud.

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Re: Tax implications for crypto

Postby natsb88 » Thu Feb 22, 2018

joefro wrote:My mining rig proceeds will be substantial this year if things keep up. Easily 5 figures at current crypto prices, more if it rises... so I've got a year to figure it out at least. Yes production output is variable, not only in amount of coin but also value of coin. Just about the only thing that remains constant is the cost of electricity. Typical IRS guidance on cost basis is the cost paid to acquire the asset. If you are given $100,000 for free your cost basis is zero and are taxed on the full amount. I guess in that case the cost basis is the cost of electricity... which would make for a high tax bill. Or is the cost of the mining hardware included in the cost basis for the crypto? Or the cost basis is the weighted average of the value of the coin as I acquire them... which is a PITA to determine because they are being constantly "produced" in tiny amounts, but would make for a much lower tax bill. Clear as mud.

Might be easier to run a mining operation as a business. Sole proprietor or LLC. The cost of your mining rig, the electricity it uses, and the internet connection are all business expenses. The revenue is whatever you get when you sell the coins.

The wrinkle is that, according to FinCEN guidance, if you mine coin and sell it for USD, you are a money transmitter and need a money transmitting license. If you mine coin and spend it on goods or services, you are not a money transmitter and do not need a money transmitting license. I have read some opinions that if you sell mined coin on an exchange, you are not considered a money transmitter, because the exchange is the transmitter. Clear as mud. I am sure there are better researched discussions of this in crypto communities.

Writing off portions of your home / utilities for an in-home business is a good way to invite an audit though. You also pay 15.3% self-employment tax, plus federal state and local income tax in your bracket. And have to send in quarterly estimated payments for federal state and local.

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Re: Tax implications for crypto

Postby joefro » Thu Feb 22, 2018

Agree with all Nate. We actually just got our paperwork approved for an s-corp filing. Just waiting on the comptroller to contact us to set up the EIN for the taxes. We do plan to file quarterly and deduct the hardware costs. Besides just our own mining, this also includes the part of the business where we are building and selling rigs so filing as a corporation to deduct hardware costs is a must!


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