Rate this post

Spring is in the air, and you know what that means. Flowers are blooming, birds are singing, and for Americans, it’s time to sharpen your pencils and get out your calculator: tax season is upon us. Thousands of people made huge profits in Bitcoin  last year, and Uncle Sam wants his share.

Nobody like taxes, but without them we wouldn’t have essential services like roads, schools, wars, and so on.  “Crypto” is actually a Greek word for “Fuck Taxes” and having an anonymous wallet of untraceable internet money might tempt you into trying to get out of paying your share. Unfortunately, the government is already one step ahead of you–if your coins have ever been on an exchange, like Coinbase,  the IRS probably already knows. Even localbitcoins is coming under scrutiny.

First, a Word of Warning: I’m not a tax professional, and you shouldn’t get advice from strangers on the Internet. It doesn’t help that  the IRS hasn’t issued any cryptocurrency guidelines since 2014, so what follows is nothing more than a compilation of best guesses and intuition from people who seem to know what they’re talking about.

Now that that’s out of the way, let’s make your cryptotaxes as painless as possible.

The Basics

Here’s the Millenial edition of the tax code, digested for those who were too broke to file in previous years.

The IRS regards cryptocurrency as investments, not as money. Therefore, you’re going to be declaring your bitcoins as if they were serious property assets and not a wild bet with your friends(which, for most coiners, is more likely to have been the case). There are a few more twists, but in most cases you can cross out the word “cryptocurrency” and replace it with “Stock” to get a pretty good idea of how to file. 

Taxes play an important social function. How else would we pay for our wars?

Your liability is determined by any profits(capital gain) from the sale of your cryptocurrency– subtract your basis(buying price plus fees) from your proceeds(selling price plus fees) to get your capital gains, and pay taxes on the difference(or claim the loss). If your gains are under $600, you don’t have to file.  In a perfect world, it would be that easy.

However,  the IRS has no interest in making your life easy. Forget about dollar-cost averaging: you have to record every transaction separately. If that’s not hard enough,  you also have to figure out how long you’ve been hodling each coin. Anything under a year is a short-term investment, and your profits are taxed at the same rate as your employment. If you’ve been hodling for over a year, there’s a discount– you’re a long-term investor, eligible for the same low tax rates as Donald Trump and the rest of the Business Class. 

The only bright side is that you also get to claim your losses, and subtract them from your gains. Did you buy Bitcoin at 19.5k and think it would go up? That’s a capital loss– an unfortunate risk of doing business. Flushed your coins down the BitGrail rabbit hole? You can write that off too.

Altcoins: Where things fall apart

Most new crypto investors are only dealing in fiat pairings, and the preceding advice should suffice.

Things get a lot more complicated when we consider the whole galaxy of altcoins, weird utility tokens and scammy ICOs. Until recently these could be passed off as “like-kind” trades: You could buy bitcoin, speculate to your heart’s content in Doge and Bitcoiin, and not worry about taxes until you cashed out for, well, cash.

New regulations toss a wrench into that equation: Beginning this year, every trade will be a taxable event, according to the dollar value

Probably have to pay taxes on these, too.

at the time of the trade. Any coin-to-coin trade is effectively the same as selling one coin for cash, and buying the new coin for the same value. Here’s what that means:

Suppose you bought a Bitcoin at 10,000$ and, when the market went wild in December, reinvested it for Ripple. Then, you came to your senses and sold the Ripple back for Bitcoin, and later cashed out to fiat.

That’s four transactions, three of which are taxable. First, you get to pay for the increase in value between buying Bitcoin and transferring it to Ripple. Next, you get to pay taxes for any appreciation of Ripple(in dollar values) when you transferred back to Bitcoin. Finally, you get to pay for any further change in Bitcoin prices when you cashed out.

The catch is that the new rules only take effect in 2018–which would seem to suggest that altcoin trades may still be like-kind exchanges for last year, except  Uncle Sam has not been kind enough to make that clear. If you do attempt to pass altcoin purchases as like-kind exchanges, you still have to document them in good faith.

Fork Coins: Fork them Over

Arrr, Mateys, it’s time to talk about booty. If ye been hodlin’ yer Bitcoins since before September, then ye may be regarded as the discoverer of a vast hoard of digital treasure.

Specifically, cryptocurrency investors with Bitcoin balances received equal amounts of Bitcoin Cash in August 2017, and an equal

Source: flickr

amount of Bitcoin Gold in October 2017, not to mention a few other minor forks. There have been similar splits in DASH, Ethereum, Litecoin, and several other major blockchains.

The IRS will most likely treat forkcoins under the “treasure trove” doctrine, which also covers lottery winnings, buried pirate gold and other strokes of good luck. Under these doctrines, any windfalls—like the unexpected receipt of Bitcoin Cash—is taxed at your normal bracket rate, at the market price of the asset at the time it was received. For example, Bitcoin Cash began trading at 266 USD on Bitfinex, and Bitcoin Gold near at 101.

What About Mining?

If you thought doing taxes on forks was a puzzle, mining taxes are like doing a Rubiks cube while in a coma.As you’d expect, Uncle Sam still wants his share—you have to report every successful mine, and the market value at the time you mined it. After mining, any coins you sell are further taxed when you sell them, as described above.

That’s one expensive “hobby.”

Depending on how much money you make, the IRS will regard mining as either self-employment or as a hobby.If you’ve only got a couple of gaming cards, you’re probably a hobbyist. Your mining profits go on line 21(other income) and you get to subtract your expenses on schedule A, up to the value of your profits.

If you’ve got a rack of liquid-cooled ASICs, you’re probably self-employed, and you can report your earnings and expenses on schedule C. There are more deductions available, but you have to pay self-employment tax in addition to normal income tax.

 

 

Do I really need to report Every trade? That’s Really Hard!

Unfortunately, this is one area that’s pretty clear: you need to report every transaction, even if you made hundreds or thousands of them. The IRS has spent decades going after stock traders, and they were using the same excuses we do.

There is a tiny bit of wiggle room: IRS guidelines call for a “Best Effort,” which means you might get away with a bit of guesstimating. If you’re not sure what price you bought or sold for, research historical prices on CMC or exchanges. If you do get audited, you’re better off with an honest effort than none at all.

If you’re still overwhelmed, it might be time to call in a pro. Most CPAs will probably roll their eyes at the word “Crypto,” but there are a few that specialize in crypto trades. Bitcoin.tax is one of the most cost-efficient sites:  All you need is a spreadsheet of your trades–which most exchanges can export–and thirty bucks, for a much simplified tax season.

 

About Andrew

The author is a starving writer and a shiftless traveller to antique lands. After many adventures in China, Iran, India, and South America, he made a tiny fortune in Bitcoin, which he prompty squandered on Cryptokitties. He now spends his time dodging his creditors and reading fanfiction to the blind.

His writing and photography can be found in several magazines and websites. Some of them are pretty good.

View All Posts

Categories:

Bitcoin News
xxxnxx
aflamsex
xnxxx
iporn xxx
arab xxnx

Share This