2018 Crypto Tax Changes

The CC Forums

Admin
Staff member
https://thecryptocurrencyforums.com/2018-cryptocurrency-tax-rules/

I just posted this a few minutes ago. Basically, crypto investors lost all around in this one. Crypto to crypto trades cannot be tax deferred under section 1031 like-kind exchanges rules. And the under $600 exclusion failed to make it into the final bill.

I’m hoping the team at https://coincenter.org/ can keep up the fight for reform. The US risks falling further behind the rest of the world in developing a true world economy unless reason trumps greed moving forward.
 

Mwhite

Contributor
How do you determine the value of bitcoin for a particular day if the market never closes and you just traded alts?

If you never withdrew into fiat how is the “gain value” determined?

Is the price of all trades determined with the price of bitcoin at the time it was purchased with fiat or the value at the time of the alt trade?
 

The CC Forums

Admin
Staff member
How do you determine the value of bitcoin for a particular day if the market never closes and you just traded alts?

If you never withdrew into fiat how is the “gain value” determined?

Is the price of all trades determined with the price of bitcoin at the time it was purchased with fiat or the value at the time of the alt trade?
Yes. You determine the value of the asset you’re moving out of and use that to determine level of gains to that point. Use the USD value of both at time of swap. That also becomes your cost basis for the new coins.

It requires disciplined record keeping if you trade a lot. For quick alt coin buys where you buy bitcoin and use them immediately to swap it isn’t that hard.

If you have to go back and dredge up previous buys, your exchange reporting tools will have date and time of day for trades. You can correlate that with bitcoin prices on coinmarketcap.
 

lexiri

Contributor
Thanks for the wealth of information between this and the previous post on cryptocurrency-taxes. I had a question regarding crypto arbitrage and taxes. If a crypto pair, say eth-btc, was listed for 0.10 in exchange-A and 0.11 in exchange B, I could convert btc to eth on A and eth to btc on B, netting a gain of 0.01 BTC in the process. Now if I wrote a bot to automatically execute the trades and then move the coins to rebalance accounts and repeat the cycle continuously, what would be the tax implications for such arbitrage trading? Is each execution of a trade a taxable event considering there would be tens of transactions per day? Or would it be okay to report gains/losses when I finally convert the two currencies back to USD? I'm asking since I read in the below article that we need not report each transaction for an arbitrage session but only the net gain/loss.

https://budgeting.thenest.com/gains-arbitrage-betting-considered-taxable-income-32940.html

Excerpt from the above article:
"Fortunately you don't have to track the outcome of every single bet. The final outcome at the end of a single gambling session is all the IRS cares about. What constitutes a single session of arbitrage — or any gambling — is a subjective standard."
 

The CC Forums

Admin
Staff member
Thanks for the wealth of information between this and the previous post on cryptocurrency-taxes. I had a question regarding crypto arbitrage and taxes. If a crypto pair, say eth-btc, was listed for 0.10 in exchange-A and 0.11 in exchange B, I could convert btc to eth on A and eth to btc on B, netting a gain of 0.01 BTC in the process. Now if I wrote a bot to automatically execute the trades and then move the coins to rebalance accounts and repeat the cycle continuously, what would be the tax implications for such arbitrage trading? Is each execution of a trade a taxable event considering there would be tens of transactions per day? Or would it be okay to report gains/losses when I finally convert the two currencies back to USD? I'm asking since I read in the below article that we need not report each transaction for an arbitrage session but only the net gain/loss.

https://budgeting.thenest.com/gains-arbitrage-betting-considered-taxable-income-32940.html

Excerpt from the above article:
"Fortunately you don't have to track the outcome of every single bet. The final outcome at the end of a single gambling session is all the IRS cares about. What constitutes a single session of arbitrage — or any gambling — is a subjective standard."
I’m not certain of the correct answer, but I am certain that the IRS hasn’t addressed arbitrage or bitcoin specifically. There are different reporting rules and tax rates for Forex currency traders. There are different rules for municipal bond tax arbitrage. I believe stock arbitrage traders have to list each transaction separately when reporting gains and losses, but automatic reporting tools and 1099 forms exist to make that easier.

There are no requirements for crypto exchanges to report trades in a standard format. Further complicating this is the actual transfer from one exchange to another for the trades. Neither exchange would be able to provide a full set of records for you to use.

The article you linked is specifically addressing gambling winings and losses; I’m fairly confident that the IRS won’t treat crypto trades as gambling proceeds given their previous classification as property rather than as currency.

Do any of our other users have any input on this one?
 

lexiri

Contributor
Most people do cryptocurrency arbitrages with trading bots which use the small differences between exchanges many times a day. I'm guessing in the order of 20-30 trades per day, maybe even more. I just don't know how reporting such huge number of trades would be feasible! And more importantly, if each trade event for one crypto to another is taxable, I wonder if anybody can afford to run such trading bots anymore. Seems to me they may end up owing taxes on net losses if crypto falls in value.
 

The CC Forums

Admin
Staff member
Most people do cryptocurrency arbitrages with trading bots which use the small differences between exchanges many times a day. I'm guessing in the order of 20-30 trades per day, maybe even more. I just don't know how reporting such huge number of trades would be feasible! And more importantly, if each trade event for one crypto to another is taxable, I wonder if anybody can afford to run such trading bots anymore. Seems to me they may end up owing taxes on net losses if crypto falls in value.
I agree completely that the reporting requirements are steep. I’m very far removed from my coding days, but is there a way to have the bot pull a current USD price for the cryptos being exchanged and have a report generated showing each trade with gain and/or loss?

Net losses will not result in taxes though. You only pay tax on the overall net gain vs loss.

The key to all of this lies in interpretation of the wording on form 8949. You may aggregate trade totals IF trades have been reported to the IRS on 1099’s. Stock brokers, mutual funds, and other investment accounts do this for you. I’m assuming each crypto trade needs to be reported by the investor since no exchange reports cost basis to the IRS for you.

 

gnayjmit

Contributor
"Altcoins are typically purchased using bitcoin or Ethereum. Investors are now required to report each of those buys as a taxable trade. If you have bitcoin and later decide to buy altcoin X using that bitcoin, you’ll owe taxes on any gains in the value of that bitcoin even though you didn’t realize those gains in fiat currency."

do we know what % the taxation on trades into and back from altcoin would be?
 

The CC Forums

Admin
Staff member
"Altcoins are typically purchased using bitcoin or Ethereum. Investors are now required to report each of those buys as a taxable trade. If you have bitcoin and later decide to buy altcoin X using that bitcoin, you’ll owe taxes on any gains in the value of that bitcoin even though you didn’t realize those gains in fiat currency."

do we know what % the taxation on trades into and back from altcoin would be?
Thanks for registering and welcome.

Yes. Capital gains rates vary. Long term rates are 0, 15 and 20% for various income levels. Short term capital gains are taxed at the same rate as your income bracket. Of course it will therefore depend on your income level.

There’s more in this article:

https://thecryptocurrencyforums.com/cryptocurrency-taxes/
 

gnayjmit

Contributor
"gnayjmit
"Altcoins are typically purchased using bitcoin or Ethereum. Investors are now required to report each of those buys as a taxable trade. If you have bitcoin and later decide to buy altcoin X using that bitcoin, you’ll owe taxes on any gains in the value of that bitcoin even though you didn’t realize those gains in fiat currency."

do we know what % the taxation on trades into and back from altcoin would be?
Thanks for registering and welcome.

Yes. Capital gains rates vary. Long term rates are 0, 15 and 20% for various income levels. Short term capital gains are taxed at the same rate as your income bracket. Of course it will therefore depend on your income level.

There’s more in this article:

https://thecryptocurrencyforums.com/cryptocurrency-taxes/"

so I've read the article but I don't think I've had my question answered - let's say I go to a store and purchase a box of pens - I will be taxed the 7% or so upon purchase for the pen. As of right now, there is no taxation happening when I purchase XLM with BTC on Binance; the quote above seems to state that IRS will charge for the transaction of buying / selling (just like the 7% tax for purchasing the pen) - is this not the case? What would be the % tax I would need to account for / report / pay to the IRS for exchanging BTC to XLM?

Am I only paying taxes on the capital gains I made if / when the XLM I bought increases in value?
 

The CC Forums

Admin
Staff member
"gnayjmit
"Altcoins are typically purchased using bitcoin or Ethereum. Investors are now required to report each of those buys as a taxable trade. If you have bitcoin and later decide to buy altcoin X using that bitcoin, you’ll owe taxes on any gains in the value of that bitcoin even though you didn’t realize those gains in fiat currency."

do we know what % the taxation on trades into and back from altcoin would be?
Thanks for registering and welcome.

Yes. Capital gains rates vary. Long term rates are 0, 15 and 20% for various income levels. Short term capital gains are taxed at the same rate as your income bracket. Of course it will therefore depend on your income level.

There’s more in this article:

https://thecryptocurrencyforums.com/cryptocurrency-taxes/"

so I've read the article but I don't think I've had my question answered - let's say I go to a store and purchase a box of pens - I will be taxed the 7% or so upon purchase for the pen. As of right now, there is no taxation happening when I purchase XLM with BTC on Binance; the quote above seems to state that IRS will charge for the transaction of buying / selling (just like the 7% tax for purchasing the pen) - is this not the case? What would be the % tax I would need to account for / report / pay to the IRS for exchanging BTC to XLM?

Am I only paying taxes on the capital gains I made if / when the XLM I bought increases in value?
There is no tax due at time of trades. Taxes are reported and paid annually. The IRS requires you to report each transaction and calculate the gain or loss for each trade. The net total gain or loss is then reported with your federal 1040, and any taxes due are paid at that time. Alternatively, if you’ve overpaid income tax in your regular job, your rebate will be reduced.

Example:

You buy 0.25 bitcoin at $10,000, that cost will be $2,500.00
Later you send BTC to another exchange and use it to buy XLM.
You must estimate the dollar value of the BTC used at that time. Assume that you use all 0.25 and current BTC price is $14,000. Your BTC is worth $3,500 at that point. You report that on the form 8949 above. Net gain is $1,000.
Your XLM now has a cost of $3,500 for future trade reporting.
Once each trade is listed on 8949, you total short-term and long-term gains at the bottom of the page and transfer those totals to either schedule D or form 1040 for total tax calculations.

More specific details can be found in our tax article.
 

CryptoTC

Crypto Fat Cat
Staff member
There is no tax due at time of trades. Taxes are reported and paid annually. The IRS requires you to report each transaction and calculate the gain or loss for each trade. The net total gain or loss is then reported with your federal 1040, and any taxes due are paid at that time. Alternatively, if you’ve overpaid income tax in your regular job, your rebate will be reduced.

Example:

You buy 0.25 bitcoin at $10,000, that cost will be $2,500.00
Later you send BTC to another exchange and use it to buy XLM.
You must estimate the dollar value of the BTC used at that time. Assume that you use all 0.25 and current BTC price is $14,000. Your BTC is worth $3,500 at that point. You report that on the form 8949 above. Net gain is $1,000.
Your XLM now has a cost of $3,500 for future trade reporting.
Once each trade is listed on 8949, you total short-term and long-term gains at the bottom of the page and transfer those totals to either schedule D or form 1040 for total tax calculations.

More specific details can be found in our tax article.
Although there’s no tax due at the time of trade as you say, investors with large gains may have to pay estimated taxes on a quarterly basis to prevent getting tagged with an underpayment penalty when filing their final 1040. It’s a complicated topic. Some states also charge an underpayment penalty. Best to read on IRS.gov and your state income tax site to check out how underpayments are calculated.
 
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