Cryptocurrency and Capital Gains Tax 2017

Discussion in 'General Discussion' started by The CC Forums, Nov 8, 2017.

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  1. The CC Forums

    Staff Member

    We posted a brief introduction to current US tax laws regarding cryptocurrency. You can read it here https://thecryptocurrencyforums.com/cryptocurrency-taxes/

    Note this only applies to the US and is subject to revision at any time. Always seek help of an experienced tax accountant if you don’t feel comfortable completing your own returns.

    Let’s have Q&A on that article in this thread.
     
  2. CryptoTC

    CryptoTC Crypto Fat Cat
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    Nice site and great article.

    I have a question on taxes. If my wife and I have less than $75k income, do I still have to report my crypto transactions even tho i don’t owe tax?

    Thx
     
  3. The CC Forums

    Staff Member

    Hello and welcome to the site! Congratulations on being our first post.

    No you won't have to file Form 8949 or Schedule D if the AGI is lower than the threshold limits. But keep records anyway in case you’re ever reviewed or audited.
     
  4. The CC Forums

    Staff Member

    The Cryptocurrency Tax Fairness Act was introduced into the House Tax plan, it it was rejected. Here’s to hoping common sense will prevail at some point, because record-keeping is a nightmare for anyone making anything more than just a few purchases per year. Many opt to ignore reporting, possibly because of the onerous methods required. Read more in our update here:

    https://thecryptocurrencyforums.com/cryptocurrency-tax-fairness-act-update/
     
  5. Daniel Olshansky

    Daniel Olshansky Starting Investor

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    I have a question about the like-kind exchanges. I read the whole article, the IRS's FQA on crypto, the old laws (2017 and prior) and how section 1031 was amended to "real property" from just "property".

    I understand that moving forward I will definitely, no questions asked, need to pay cap gains on any crypto to crypto trade. I also understand that if I sold any crypto for fiat, cap gains are mandatory. However, it seems that section 1031 was amended because there indeed was a loophole that allowed avoiding paying these taxes until it is cashed out back to fiat.

    I do not want to hide anything from the IRS, but I'll be honest that I do want to legally minimize my taxes as much as possible. In your opinion, do you believe it's fair to use section 1031 and file form 8824 for crypto to crypto trades done in 2017 and prior?
     
  6. The CC Forums

    Staff Member

    Based on opinions from CPA’s and tax attorneys, I believe the IRS expects cryptocurrency gains to be treated exactly like stock purchases and sales. But I’m not a CPA myself although I have 30 yrs of investing and tax experience. I believe the original intent with the 2014 declaration was for 1031 to not apply, leading to the recent clarification.

    I don’t know what would happen if someone handled 2017 and earlier as 1031 and got reviewed. Most of the accountants’ opinions I found advised against trying to do so mainly citing the 1982 statement on precious metals not qualifying for like-kind deferments.

    However, no one really knows what the IRS expects investors to do for 2010-2017 since they never addressed it. No cases have been challenged for ruling that I know of.

    For straight through alt coin buys, it will be a huge pain to list

    bought BTC-sold BTC-no gain-bought Altcoin

    Repeat, repeat, repeat. Even for investors wishing to comply, its almost impossible to do so.

    Until someone gets flagged for filing incorrectly from 2010-2017 and challenges it, we just don’t know the true answer.
     
  7. Daniel Olshansky

    Daniel Olshansky Starting Investor

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    Thanks for the quick reply!

    Given your experience in filing taxes, do you know anything how penalties are assessed or managed?

    If I defer my capital gains taxes using the like-kind exchange argument, I'd pay immediately if they come back to me saying that it's not allowed. However, I don't want to be forced to pay a 20% penalty... I realize I could just pay and avoid any inconvenience, but I like exploring the idea of legally (even if it's a loophole) minimizing my taxes.
     
  8. The CC Forums

    Staff Member

    I have no experience whatsoever so take this answer as pure speculation.

    It’s extremely variable and unpredictable. Deliberate fraud of course risks stiff penalties and even jail time. Honest mistakes may escape with only payment of backed taxes. Depending on the dollar amount and complexity, there could be legal fees for representation and so on.

    It’s just a guess but I suspect a lot of crypto investors will fail to report even with increased publicity from the IRS. Probably even a majority.
     
  9. DK327

    DK327 Starting Investor

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    The most pertinent part of that article to me was:

    "...taxes are only due on those currencies that you’ve sold at a gain relative to your original cost. This means that if you are holding $10,000 of coins for which you only paid $500, you do not yet owe any capital gains. Should you decide to sell all or part of those coins, you owe tax on the net gain realized from that sale. This realized gain is taxed at rates that are dependent on the length of time the coins were held and your total annual income...Long-term capital gains on assets held for more than one year are lower, ranging from 0-20% depending on income."

    So, if one sank $5K into crypto in 2017 and in 2018 it's worth $50K and they continued to HODL, according to the article, they don't owe any taxes...until they cash out. Am I understanding this right?
     
  10. The CC Forums

    Staff Member

    Thanks for joining us and posting.

    Yes but it depends. If you bought currencies and did no trading between them, then you have no taxable gains. But if you bought bitcoin, traded for an alt coin, then traded again for another and/or then back to bitcoin, you are expected to report each trade in USD value and pay taxes. It isn't how much value you hold that matters, it's the transactions that trigger reporting.

    But if you bought 4 coins and still have those exact 4 coins in the original purchased amounts, you have not yet triggered a realized gain.
     
  11. CryptoTC

    CryptoTC Crypto Fat Cat
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    Ugh. It’s March and I’m staring at my crypto records and trying to put off figuring out my gains and losses. And I don’t have many sells at all but bitcoin to altcoin trades still confuse me.

    Does anyone know if I have to report a bitcoin to altcoin trade if it happens rapidly with essentially no gain or loss? For example I bought bitcoin on Coinbase, immediately sent it to another exchange and bought XRP as soon as the bitcoin was credited. Network times varied between 20 mins and around an hour.

    It’s going to be a huge pain to report each of those with tiny variations in price. I keep picking it up, looking it over and then putting it back down to wait another week. 6 weeks left. This sucks.
     
    Old Man Crypto likes this.
  12. Old Man Crypto

    Old Man Crypto Expert chainblocker

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    Retired, can’t remember from what.
    One step ahead
    Print out your records, find an accountant who has read a little on crypto and hand the records to him/her.

    You’re right. Doing it on your own for even small trades or just a few trades gets hard quickly.
     
    The CC Forums likes this.
  13. The CC Forums

    Staff Member

    Probably will end up doing this. But there aren’t many crypto knowledgeable accountants out there yet.
     
  14. The CC Forums

    Staff Member

    Well, I've managed to put off doing my taxes through March. Crunch time approaching,

    For readers who still aren't ready to fill out those 8949 and Schedule D forms, keep in mind you can file to get an extension on your return. You will still owe whatever your tax bill ends up being, and there may be interest applied if you delay paying, but you will at least be compliant with deadlines and avoid trouble if you can't make the April 17th final deadline,

    Just something to consider.
     
  15. The CC Forums

    Staff Member

  16. Big Metal Puppet

    Big Metal Puppet Starting Investor

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    I'm seeking insight on a rather unusual situation. We're in the planning phase of a large sculpture project. The client wants to pay in crypto. I would receive ETH into my wallet and cash it out into my LLC bank account to fund the project. The money would then be spent on materials and payroll. Would the LLC need to pay capital gains on the entire deposit? Can a business be paid for services in Crypto?
    -Thanks!
     
  17. The CC Forums

    Staff Member

    Thanks for joining. You would treat the ETH as business income just as you would if you had been paid in cash or check if you sell it immediately for cash. You have to record the value of ETH at the exact moment received, and that’s the amount of business income for that project. Expenses are handled just as they are with US dollars.

    However, holding the ETH and selling it later may result in either a capital gain or loss, depending on how the market moves. You would need to record and report that in addition to the income received.

    So if you received $1,000 worth of ETH today and immediately converted to cash, you have $1,000 of business revenue today.

    If you held the ETH for a week and then sold for $1,200, you must record $1,000 business revenue today and then report a $200 short term gain that results in additional taxes due.
     
    CryptoTC likes this.
  18. Big Metal Puppet

    Big Metal Puppet Starting Investor

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    Gothca! Thanks so much. At this point we're holding our retainer, paid last month in ETH...so for the foreseeable future we have plenty of capital loss. the quick response is greatly appreciated!!
     
  19. The CC Forums

    Staff Member

    You’re welcome. We are dealing with be exact same situation here, as we soon hope to add premium subscriptions for purchase with dollars or crypto.

    Makes accounting and record keeping a bear though.
     
  20. CryptoTC

    CryptoTC Crypto Fat Cat
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    Do any of the common accounting platforms work with crypto payments? Quick Books, online or others?
     
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