New IRS Guidance on Cryptocurrency BitBoy Crypto

US Tax Guide for ETH and other cryptocurrencies

Introduction:  
Greetings, fellow ethtraders! Happy New Year! In the next few months, taxpayers across the US will be filing their 2017 tax returns. As an Enrolled Agent and a ETH/cryptocurrency investor and enthusiast, I wanted to write up a brief guide on how your investments in ETH and other cryptocurrencies are taxed in the US.
 
 
1. Are ETH/cryptocurrency realized gains taxable?
Yes. The IRS treats virtual currency (such as cryptocurrency) as property. That means if you sell ETH, BTC, or any other cryptocurrency that has appreciated in value, you have realized a capital gain and must pay taxes on this income. If you held the position for one year or less, it is a short-term capital gain which is taxed at your ordinary income tax rate. If you held the position for more than one year, it is a long-term capital gain which is taxed at your long-term capital gains tax rate. In most cases, this is 15%, but could also be 0% or 20% depending on your specific ordinary income tax bracket.
 
2. If I sell my ETH for USD on Coinbase but do not transfer the USD from Coinbase to my bank account, am I still taxed?
Yes. The only thing that matters is that you sold the ETH, which creates a taxable transaction. Whether you transfer the USD to your bank account or not does not matter.
 
3. If I use my ETH to buy OMG or another cryptocurrency, is this a taxable transaction?
Most likely yes. See #4 below for a more detailed explanation. If assuming crypto to crypto trades are not able to be like-kind exchanged, then continue on to the next paragraph here.
This is actually two different transactions. The first transaction is selling your ETH for USD. The second transaction is buying the OMG with your USD. You must manually calculate these amounts. For example, I buy 1 ETH for $600 on Coinbase. Later on, the price of 1 ETH rises to $700. I transfer that 1 ETH to Bittrex and use it to buy 37 OMG. I have to report a capital gain of $100 because of this transaction. My total cost basis for the 37 OMG I purchased is $700.
 
4. If I use my ETH to buy OMG or other cryptocurrency, could that be considered a tax-free like-kind exchange?
Probably not. The new tax law says that like-kind exchanges only pertain to real estate transactions. This was done with Section 13303, which replaced “property” with “real property” for all of Section 1031 (page 72 near the bottom). My personal interpretation:
In 2018 and going forward, cryptocurrencies can definitely not be like-kind exchanged.
In 2017 and before, it is a very gray area. I personally am not taking the position that they can be like-kind exchanged, because if the IRS went after a taxpayer who did this, the IRS would probably win and the taxpayer would owe taxes, interest, and probably penalties on every single little gain made from trading one cryptocurrency for another.
Here is a great interpretation of why trading cryptocurrency for cryptocurrency is probably not a like-kind transaction.
In my opinion, the biggest factor is that like-kind exchanges must be reported on Form 8824 and not just ignored. Therefore, if a taxpayer is claiming like-kind exchanges on crypto to crypto exchanges, he or she would have to fill out a Form 8824 for each individual transaction of crypto to crypto, which would be absolutely cumbersome if there are hundreds or thousands of such trades.
Here is another article about like-kind exchanges.
Here is the American Institute of CPAs' letter to the IRS, dated June 10, 2016, asking them to release guidance on whether crypto to crypto can be like-kind exchanged or not. The IRS has not responded to the letter.
 
5. How do I calculate the realized capital gain or loss on the sale of my cryptocurrency?
The realized gain or loss is your total proceeds from the sale minus what you purchased those positions for (your cost basis). For example, you bought 1 ETH for $300 in June of 2017. In December of 2017, you sold that 1 ETH for $800. Your realized gain would be $800 - $300 = $500. Since you held it for one year or less, the $500 would be a short-term capital gain taxed at your ordinary income tax rate.
 
6. Which ETH's cost basis do I use if I have multiple purchases?
The cost basis reporting method is up to you. For example, I buy my first ETH at $300, a second ETH at $530, and a third ETH at $400. Later on, I sell one ETH for $800. I can use:
FIFO (first in first out) - cost basis would the first ETH, $300, which would result in a gain of $500.
LIFO (last in first out) - cost basis would be the third ETH, $400, which would result in a gain of $400.
Average cost - cost basis would be the average of the three ETH, $410, which would result in a gain of $390.
Specific identification - I can just choose which coin's cost basis to use. For example, I can choose the second ETH's cost basis, $530, which would result in the lowest capital gains possible of $270.
 
7. If I end up with a net capital loss, can I claim this on my tax return?
Capital gains and capital losses are netted on your tax return. If the net result of this is a capital loss, you may offset it against ordinary income on your tax return, but only at a maximum of $3,000 per year. The remaining losses are carried forward until you use them up.
 
8. What is the tax rate on my capital gains?
If long-term, the tax rate is 0%, 15%, or 20%, depending on your ordinary income tax bracket. If short-term, the tax bracket you’ll be in will depend on your total income and deductions. The ordinary income tax brackets are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% in 2017 and 10%, 12%, 22%, 24%, 32%, 35%, and 37% in 2018 and going forward.
Here are the 2017 and 2018 ordinary income tax brackets.
Here are the 2017 and 2018 long-term capital gains tax brackets.
Here is a detailed article on how the calculation of long-term capital gains tax work and how you can take advantage of the 0% long-term capital gains rate, if applicable.
 
9. If I mine ETH or any other cryptocurrency, is this taxable?
Yes. IRS Notice 2014-21 states that mining cryptocurrency is taxable. For example, if you mined $7,000 worth of ETH in 2017, you must report $7,000 of income on your 2017 tax return. For many taxpayers, this will be reported on your Schedule C, and you will most likely owe self-employment taxes on this income as well. The $7,000 becomes the cost basis in your ETH position.
 
10. How do I calculate income for the cryptocurrency I mined?
This is the approach I would take. Say I mined 1 ETH on December 31, 2017. I would look up the daily historical prices for ETH and average the high and low prices for ETH on December 31, 2017, which is ($760.35 + $710.12) / 2 = $735.24. I would report $735.24 of income on my tax return. This would also be the cost basis of the 1 ETH I mined.
 
11. Can I deduct mining expenses on my tax return?
If you are reporting the income from mining on Schedule C, then you can deduct expenses on Schedule C as well. You can deduct the portion of your electricity costs allocated to mining, and then you depreciate the cost of your mining rig over time (probably over five years). Section 179 also allows for the full deduction of the cost of certain equipment in year 1, so you could choose to do that if you wanted to instead.
 
12. If I receive ETH or other cryptocurrency as a payment for my business, is this taxable?
Yes. Similar to mining, your income would be what the value of the coins you received was. This would also be your cost basis in the coins.
 
13. If I received Bitcoin Cash as a result of the hard fork on August 1, 2017, is this taxable?
Most likely yes. For example, if you owned 1 Bitcoin and received 1 Bitcoin Cash on August 1, 2017 as a result of the hard fork, your income would be the value of 1 Bitcoin Cash on that date. Bitcoin.tax uses a value of $277. This value would also be your cost basis in the position. Any other hard forks would probably be treated similarly. Airdrops may be treated similarly as well, in the IRS' view.
Here are a couple more good articles about reporting the Bitcoin Cash fork as taxable ordinary income. The second one goes into depth and cites a US Supreme Court decision as precedent: one, two
 
14. If I use ETH, BTC, or other cryptocurrency to purchase goods or services, is this a taxable transaction?
Yes. It would be treated as selling your cryptocurrency for USD, and then using that USD to purchase those goods or services. This is because the IRS treats cryptocurrency as property and not currency.
 
15. Are cryptocurrencies subject to the wash sale rule?
Probably not. Section 1091 only applies to stock or securities. Cryptocurrencies are not classified as stocks or securities. Therefore, you could sell your ETH at a loss, repurchase it immediately, and still realize this loss on your tax return, whereas you cannot do the same with a stock. Please see this link for more information.
 
16. What if I hold cryptocurrency on an exchange based outside of the US?
There are two separate foreign account reporting requirements: FBAR and FATCA.
A FBAR must be filed if you held more than $10,000 on an exchange based outside of the US at any point during the tax year.
A Form 8938 (FATCA) must be filed if you held more than $75,000 on an exchange based outside of the US at any point during the tax year, or more than $50,000 on the last day of the tax year.
The penalties are severe for not filing these two forms if you are required to. Please see the second half of this post for more information on foreign account reporting.
 
17. What are the tax implications of gifting cryptocurrency?
Small gifts of cryptocurrency do not have a tax implication for the gift giver or for the recipient. The recipient would retain the gift giver's old cost basis, so it could be a good idea for the gift giver to provide records of the original cost basis to the recipient as well (or else the recipient would have to assume a cost basis of $0 if the recipient ever sells the cryptocurrency).
Large gifts of cryptocurrency could start having gift and estate tax implications on the giver if the value exceeds more than $14,000 (in 2017) or $15,000 (in 2018) per year per recipient.
Here's a good article on Investopedia on this issue.
An important exception applies if the gift giver gives cryptocurrency that has a cost basis that is higher than the market value at the time of the gift. Please see the middle of this post for more information on that.
 
18. Where can I learn even more about cryptocurrency taxation?
Unchained Podcast: The Tax Rules That Have Crypto Users Aghast
IRS Notice 2014-21
Great reddit post from tax attorney Tyson Cross from 2014
 
19. Are there any websites that you recommend in helping me with all of this?
Yes - I have used bitcoin.tax and highly recommend it. You can import directly from an exchange to the website using API, and/or export a .csv/excel file from the exchange and import it into the website. The exchanges I successfully imported from were Coinbase, GDAX, Bittrex, and Binance. The result is a .csv or other file that you can import into your tax software.
I have also heard good things about cointracking.info but have not personally used it myself.
 
20. Taxation is theft!
I can't help you there.
 
 
That is the summary I have for now. There have been a lot of excellent cryptocurrency tax guides on reddit, such as this one, this one, and this one, but I wanted to post my short summary guide on ethtrader which hopefully answers some of the questions you all may have about US taxation of ETH and other cryptocurrencies. Please let me know if you have any more questions, and I’d be happy to answer them to the best of my ability. Thank you!
Regarding edits: I have made many edits to my post since I originally posted it. Please refresh to see the latest edits to my guide. Thank you.
 
Disclaimer:
The information contained within this post is provided for informational purposes only and is not intended to substitute for obtaining tax, accounting, or financial advice from a professional.
Any U.S. federal tax advice contained in this post is not intended to be used for the purpose of avoiding penalties under U.S. federal tax law.
Presentation of the information via the Internet is not intended to create, and receipt does not constitute, an advisor-client relationship. Internet users are advised not to act upon this information without seeking the service of a tax professional.
submitted by Nubboi to ethtrader [link] [comments]

Playing with fire with FinCen and SEC, Binance may face a hefty penalty again after already losing 50 percent of its trading business

On 14 June, Binance announced that it “constantly reviews user accounts to improve (their) platform security and to comply with global compliance requirements”, mentioning that “Binance is unable to provide services to any U.S. person” in the latest “Binance Terms of Use” attached within the announcement.
According to the data from a third-party traffic statistics website, Alexa, users in the U.S. form the biggest user group of Binance, accounting for about 25% of the total visitor traffic.
In the forecast of Binance’s user scale compiled by The Block, the largest traffic is dominated by users in the U.S., surpassing the total of the ones from the second place to the fifth place.
Also, considering that the scale of digital asset trading for the users in the U.S. far exceeds that of the users of many other countries, it could mean that Binance may have already lost 50 % of the business income by losing users in the U.S. Apparently, such an announcement by Binance to stop providing services to users in the U.S. means Binance has no other alternative but “seek to live on.”
So, what are the specific requirements of the U.S. for digital asset exchanges and which of the regulatory red lines of the U.S. did Binance cross?
Compliance issues relating to operation permission of digital asset exchanges
In the U.S., the entry barrier for obtaining a business license to operate a digital asset exchange is not high. Apart from the special licencing requirements of individual states such as New York, most of the states generally grant licences to digital asset exchanges through the issuance of a “Money Transmitter License” (MTL).
Each state has different requirements for MTL applications. Some of the main common requirements are:
Filling out the application form, including business address, tax identification number, social security number and statement of net assets of the owneproprietor Paying the relevant fees for the licence application Meeting the minimum net assets requirements stipulated by the state Completing a background check Providing a form of guarantee, such as security bonds
It is worth noting that not all states are explicitly using MTL to handle the issues around operation permission of digital asset exchanges. For instance, New Hampshire passed a new law on 12 March 2017, announcing that trading parties of digital assets in that state would not be bound by MTL. Also, Montana has not yet set up MTL, keeping an open attitude towards the currency trading business.
On top of obtaining the MTL in each state, enterprises are also required to complete the registration of “Money Services Business” (MSB) on the federal level FinCEN (Financial Crimes Enforcement Network of the U.S. Treasury Department) issued the “Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies” on 18 March 2013. On the federal level, the guideline requires any enterprise involved in virtual currency services to complete the MSB registration and perform the corresponding compliance responsibilities. The main responsibility of a registered enterprise is to establish anti-money laundering procedures and reporting systems.
However, California is an exception. Enterprises in California would only need to complete the MSB registration on the federal level and they do not need to apply for the MTL in California.
Any enterprise operating in New York must obtain a virtual currency business license, Bitlicense, issued in New York
Early in July 2014, the New York State Department of Financial Services (NYSDFS) has specially designed and launched the BitLicense, stipulating that any institutions participating in a business relevant to virtual currency (virtual currency transfer, virtual currency trust, provision of virtual currency trading services, issuance or management of virtual currencies) must obtain a BitLicense.
To date, the NYSDFS has issued 19 Bitlicenses. Among them includes exchanges such as Coinbase (January 2017), BitFlyer (July 2017), Genesis Global Trading (May 2018) and Bitstamp (April 2019).
Solely from the perspective of operation permission, Binance has yet to complete the MSB registration of FinCEN (its partner, BAM Trading, has completed the MSB registration). This means that Binance is not eligible to operate a digital asset exchange in the U.S. FinCEN has the rights to prosecute Binance based on its failure to fulfil the relevant ‘anti-money laundering’ regulatory requirements.
Compliance issues relating to online assets
With the further development of the digital asset market, ICO has released loads of “digital assets” that have characteristics of a “security” into the trading markets. The Securities and Exchange Commission (SEC) has proposed more comprehensive compliance requirements for digital asset exchanges. The core of the requirements is reflected in the restrictions of offering digital assets trading service.
In the last two years, the SEC has reiterated on many occasions that digital assets that have characteristics of a security should not be traded on a digital asset exchange
In August 2017, when the development of ICO was at its peak, the SEC issued an investor bulletin “Investor Bulletin: Initial Coin Offerings” on its website and published an investigation report of the DAO. It determined that the DAO tokens were considered ‘marketable securities’, stressing that all digital assets considered ‘marketable securities’ would be incorporated into the SEC regulatory system, bound by the U.S. federal securities law. Soon after, the SEC also declared and stressed that “(if) a platform offers trading of digital assets that are securities and operates as an “exchange,” as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”
On 16 November 2018, the SEC issued a “Statement on Digital Asset Securities Issuance and Trading,” in which the SEC used five real case studies to conduct exemplary penalty rulings on the initial offers and sales of digital asset securities, including those issued in ICOs, relevant cryptocurrency exchanges, investment management tools, ICO platforms and so on. The statement further reiterates that exchanges cannot provide trading services for digital assets that have characteristics of a security.
On 3 April 2019, the SEC issued the “Framework for ‘Investment Contract’ Analysis of Digital Assets” to further elucidate the evaluation criteria for determining whether a digital asset is a security and providing guiding opinions on the compliance of the issuance, sales, holding procedures of digital assets.
As of now, only a small number of digital assets, such as BTC, ETH, etc. meet the SEC’s requirement of “non-securities assets.” The potentially “compliant” digital assets are less than 20.
Early in March 2014, the Inland Revenue Service (IRS) has stated that Bitcoin will be treated as a legal property and will be subject to taxes. In September 2015, the U.S. Commodity Futures Trading Commission (CFTC) stated that Bitcoin is a commodity and will be treated as a “property” by the IRS for tax purposes.
On 15 June 2018, William Hinman, Director of the Corporate Finance Division of the SEC, said at the Cryptocurrency Summit held in San Francisco that BTC and ETH are not securities. Nevertheless, many ICO tokens fall under the securities category.
So far, only BTC and ETH have received approval and recognition of the U.S. regulatory authority as a “non-securities asset.”
Since July 2018, the SEC has investigated more than ten types of digital assets, one after another, and ruled that they were securities and had to be incorporated into the SEC regulatory system. It prosecuted and punished those who had contravened the issuance and trading requirements of the securities laws.
Although there are still many digital assets that have yet to be characterised as “securities”, it is extremely difficult to be characterised as a “non-securities asset” based on the evaluation criteria announced by the SEC. As the SEC’s spokesperson has reiterated many times, they believe the majority of ICO tokens are securities.
Under the stipulated requirements of the SEC, Coinbase, a leading U.S. exchange, has withdrawn a batch of digital assets. The assets withdrawn included digital assets that had been characterised as “securities” as well as those that have high risks of being characterised as “securities.” However, it is worth noting that although the risk to be characterised as “securities” for more than ten types of digital assets, which have not been explicitly required by SEC to be withdrawn, is relatively small, they are not entirely safe. With the further escalation of the SEC’s investigations, they could still be characterised as securities and be held accountable for violating their responsibilities. However, this requires further guidance from the SEC.
*Coinbase’s 14 types of digital assets that have yet to be requested for withdrawal
Poloniex announced on 16 May that it would stop providing services for nine digital assets, including Ardor (ARDR), Bytecoin (BCN), etc. under the compliance guidelines of the SEC. On 7 June, Bittrex also announced that it would stop providing trading services to U.S. users for 32 digital assets. The action of the SEC on its regulatory guidance was further reinforced apparently.
In fact, it is not the first time that these two exchanges have withdrawn digital assets under regulatory requirements. Since the rapid development of digital assets driven by ICO in 2017, Poloniex and Bittrex were once leading exchanges for ICO tokens, providing comprehensive trading services for digital assets. However, after the SEC reiterated its compliance requirements, Poloniex and Bittrex have withdrawn a considerable amount of assets in the past year to meet the compliance requirements.
In conclusion, the takeaways that we have got are as follows: Under the existing U.S. regulatory requirements of digital assets, after obtaining the basic entry licences (MSB, MTL), exchanges could either choose the “compliant asset” solution of Coinbase and only list a small number of digital assets that do not have apparent characteristics of a security, and at all times prepare to withdraw any asset later characterised as “securities” by the SECs; or choose to be like OKEx and Huobi and make it clear they would “not provide services to any U.S. users” at the start.
Binance has been providing a large number of digital assets that have characteristics of a security to U.S users without a U.S. securities exchange licence, so it has already contravened the SEC regulatory requirements.
On top of that, it is also worth noting that the rapid development of Binance has been achieved precisely through the behaviours of “contrary to regulations” and “committing crimes.” Amid the blocking of several pioneering exchanges, such as OKCoin, Huobi, etc. providing services to Chinese users in the Chinese market under new laws from the regulatory authorities, Binance leapfrogged the competition and began to dominate the Chinese market. Similarly, Binance’s rapid growth in the U.S. market is mainly due to its domination of the traffic of digital assets withdrawn by Poloniex and Bittrex. One can say that Binance not only has weak awareness of compliance issues, but it is also indeed “playing with fire” with the U.S. regulators.
In April 2018, the New York State Office of Attorney General (OAG) requested 13 digital asset exchanges, including Binance, to prepare for investigations, indicating it would initiate an investigation in relations to company ownership, leadership, operating conditions, service terms, trading volume, relationships with financial institutions, etc. Many exchanges, including Gemini, Bittrex, Poloniex, BitFlyer, Bitfinex, and so on, proactively acknowledged and replied in the first instance upon receipt of the investigation notice. However, Binance had hardly any action.
Binance has been illegally operating in the U.S. for almost two years. It has not yet fulfilled the FinCEN and MSB registration requirements. Moreover, it has also neglected the SEC announcements and OAG investigation summons on several occasions. The ultimate announcement of exiting the U.S. market may be due to the tremendous pressure imposed by the U.S. regulators.
In fact, the SEC executives have recently stressed that “exchanges of IEO in the U.S. market are facing legal risks and the SEC would soon crack down on these illegal activities” on numerous occasions. These were clear indications of imposing pressure on Binance.
Regarding the SEC’s rulings on illegal digital asset exchanges, EtherDelta and investment management platform, Crypto Asset Management, it may not be easy for Binance to “fully exit” from the U.S. market. It may be faced with a hefty penalty. Once there are any compensation claims by the U.S. users for losses incurred in the trading of assets at Binance, it would be dragged into a difficult compensation dilemma. It would undoubtedly be a double blow for Binance that has just been held accountable for the losses incurred in a theft of 7,000 BTC.
Coincidentally, Binance was tossed out of Japan because of compliance issues. In March 2018, the Financial Services Agency of Japan officially issued a stern warning to Binance, which was boldly providing services to Japanese users without registering for a digital asset exchange licence in Japan. Binance was forced to relocate to Malta instead. Binance may have to bear hefty penalties arising from challenging the compliance requirements after it had lost important markets due to consecutive compliance issues.
The rise of Binance was attributed to its bold and valiant style, grasping the opportunity created in the vacuum period of government regulation, breaking compliance requirements and rapidly dominating the market to obtain user traffic. For a while, it gained considerable advantages in the early, barbaric growth stage of the industry. Nonetheless, under the increasingly comprehensive regulatory compliance system for global digital asset markets, Binance, which has constantly been “evading regulation” and “resisting supervision” would undoubtedly face enormous survival challenges, notwithstanding that it would lose far more than 50 per cent of the market share.
https://www.asiacryptotoday.com/playing-with-fire-with-fincen-and-sec-binance-may-face-a-hefty-penalty-again-after-already-losing-50-percent-of-its-trading-business/
submitted by Fun_Judgment to CryptoCurrencyTrading [link] [comments]

FBAR & FATCA Filing Information for Crypto Traders (Podcast & Summary)

Hey all - we've noticed a ton of our customers asking about FBAR & FATCA filing requirements. So, I interviewed a tax professional well-versed in FBAR & FATCA reporting requirements for crypto traders. Below is a link to the actual podcast, and then a summary of the interview, with timestamps in case you want to just fast forward to a certain part. Full disclosure, I work for Bitcointaxes.
BitcoinTaxes Podcast Link
Guest: Andrew Gordon, ESQ.
Topic: FBAR & FATCA Filing for Crypto
Summary:
Our guest, Andrew Gordon, is a tax attorney who understands the ins and outs of foreign account reporting in relation to cryptocurrency trading. Andrew joins us to discuss FBAR & FATCA reporting, the penalties associated with not reporting, and to address whether he believes crypto traders should be filing these forms.
Andrew has been working in the crypto-space since 2014. [00:24]
Andrew: Actually several years ago, ago in 2014, we had a client approach us who was getting paid "magic internet money", from the Ethereum Foundation. Back then the IRS had not released any guidance - it wasn't till later in 2014 that the IRS even defined Crypto as property. That was our first introduction and we were and presented the question of, well, if I'm getting paid these random tokens called Ethereum, how do we account for this?
In terms of foreign account reporting, there's two main forms you need to know about: FBAR & FATCA. The FBAR is a separate form that is due the same day as your returns. [02:42]
Andrew: FBAR is my favorite four letter word. It stands for "Foreign Bank Account Report". It isn't actually filed with your tax return. It's a separate form. It's filed online, electronically. It has the same due dates as your tax returns - April 15th and it can be extended six months to October 15th. So same due dates, but it's filed differently, still sent to the Department of Treasury - it's a separate form.
On the FBAR form, what taxpayers have to do is they have to identify the maximum value at any time during the tax year of their foreign bank accounts. If that value at anytime exceeded $10,000, you have to report. The FBAR is an informational form, which means that there's no tax actually owed.
There are popular exchanges that ARE considered foreign entities and some that are NOT considered foreign entities.[04:15]
Andrew: Unfortunately, it's not that easy because a lot of exchanges don't even make their address public - it's pretty hard to find. Even just as a starting point, I would list out all of the exchanges that you've used and try to use Google to find their addresses.
There's a couple that we know are considered foreign financial institutions at this point, and the most popular is Binance. In addition, many people suspect that Bitfinex has kind of self-reported themselves as a foreign financial institution and their information is being shared with taxing authorities.
Coinbase, Gemini, GDAX, and a number of others are considered a US-based institution.
The FATCA form is 8938, and is part of your tax-return. [06:15]
Andrew: It's very similar to the FBAR, but it's not exactly the same. One of the first differences is that the threshold for FATCA is higher. For the FBAR, your aggregate maximum holdings have to exceed $10,000. Aggregate meaning that when you add your bank accounts or crypto exchanges together, the maximum during the year exceeds $10,000.
The FATCA threshold, for a single person, is $50,000. FATCA, just like the FBAR, is an informational form, which means again, there's no tax due. The government just wants to know the maximum value of each account. One of the other differences is that FATCA is more general, so FBAR only requires foreign bank accounts to be recorded, whereas FATCA is both bank accounts and foreign assets.
There's no tax involved with these forms - but there are significant penalties for not filing when required to do so. [07:57]
Andrew: The penalties for not filing an FBAR can be very severe. One of the most basic penalties for not filing an FBAR is $10,000 per year - for non-willful offenders.
If you were willful and you just disregarded your requirement to file? Well then the penalties can be even higher - up to 75% of the maximum value of your account or your exchange values. It can be very severe. So while there's no tax, the penalties are much greater. It's one of those things to do to comply with the rules.
The FATCA form also has similar penalties.
The burden of proof for "non-willfulness" is on you. [10:14]
Andrew: To be able to prove that you are not-willful is very difficult. In general, if you file and sign your tax returns, you are signing under penalties of perjury that everything is correct. You have an obligation to know the requirements and just saying "I didn't know the law" is not sufficient proof of non-willfulness.
If you've exceeded these limits in previous years, but didn't file these forms, there are still feasible options to consider…but these options may not last forever. [16:25]
Andrew: I would suggest that if you met these requirements in earlier years, take corrective action to amend or file the returns properly. There are some IRS programs that are available to come forward and file these forms for earlier years with a reduced penalty - or in some cases, no penalty at all.
The IRS Streamlined Offshore Disclosure Program. Under this program, you have to be non-willful and you will actually self-certify - so you'll sign a statement saying I didn't file the FBAR because I basically didn't know about it. There are some other requirements to be aware of as well. In this program, you'll pay a five percent penalty on the maximum balance of your foreign exchange value.
submitted by Sal-BitcoinTax to BitcoinMarkets [link] [comments]

Let’s talk about taxes.

A lot of people have been talking about taxes for this upcoming year and that like kind apparently doesn’t apply to crypto (anymore or potentially ever). In theory that’s fine, I get the usd cost of every trade and bam ez pz got my taxes all set and ready. Now let’s talk about reality.
First off every coin usually has two trading pairs at least on every exchange bitcoin and ether. Ether and bitcoin in turn have different prices on different exchanges. This effectively makes taxes impossible to do fairly in anyway whatsoever. Here’s a hypothetical. Say I bought 100 Trx earlier today at 325 sats on a binance trading pair. And now I just sold it for 430 Sats. This is potentially a taxable event so now I want to calculate the gains on this trade. Well I gained a total of 10500 sats which is 1.43 dollars based on gdaxes current price of 13625 per bitcoin. Beautiful - good don.... not even close. First how is this the fair price of my exchange if the transfer would take me 80 minutes to be able to convert to usd in which time the price will change. Also the transaction fees for stock trades are not calculated as capital gains so I would have to include those. But those are just the solvable problems, I could wait 80 minutes and record the hypothetical price of sale and minus the transaction fee. But there’s a few more unsolvable problems. One is there is currently on coin market cap 400 bitcoin markets, some for usd some for other alt coins, and these are the top 400 based on volume there is of course more. Well obviously I would only include trading pairs which use actual fiat currency. Still got a problem. As on Wex exchange whatever that is the price is 13382. On Gdax it is now 13621. On finex it’s 13515. On bithumb it’s 17681. And so on and so forth WHICH ONE DO I USE? is it the one I’ve used before, well great except I’ve used more than 1 before.
Then there’s the rub of eth trading pair. I can spend 43000 sats ive earned today to buy eth and cash out that way as I usually do because eth transfers faster. This of course means I guess I need to calculate it’s fair price based on eth trading pairs on other exchanges which is going to be different then each other and the bitcoin pairs. The transaction fees are also different. So is the transaction times.
Then there’s the IRS tax guidance sheet which states it only applies to “convertible virtual currency” and proceeds to define “convertible virtual currency” as “ currency that can be digitally traded and purchased for or exchanges into usd”. Which only fits the description of bitcoin, eth and bitcoin cash and litecoin for most Americans. I cannot exchange trx for usd. I can exchange it for bitcoin which I can then exchange for usd.
I’ve talked with an accountant who admitted he wasn’t very knowledgeable about it but he said based on those points, he wouldn’t account for any gain as realized until actual cashing to US dollars. I intend to go to another accountant I’ve heard who apparently knows this better and see what he says I should do but this covers only a few of the problems. What about derivatives like bitmex.
submitted by commander217 to CryptoCurrency [link] [comments]

BitcoinTaxes Podcast: FBAR & FATCA Filing for Crypto Traders

BitcoinTaxes Podcast Link
Guest: Andrew Gordon, ESQ.
Topic: FBAR & FATCA Filing for Crypto

Summary:
Our guest, Andrew Gordon, is a tax attorney who understands the ins and outs of foreign account reporting in relation to cryptocurrency trading. Andrew joins us to discuss FBAR & FATCA reporting, the penalties associated with not reporting, and to address whether he believes crypto traders should be filing these forms.
Andrew has been working in the crypto-space since 2014. [00:24]
Andrew: Actually several years ago, ago in 2014, we had a client approach us who was getting paid "magic internet money", from the Ethereum Foundation. Back then the IRS had not released any guidance - it wasn't till later in 2014 that the IRS even defined Crypto as property. That was our first introduction and we were and presented the question of, well, if I'm getting paid these random tokens called Ethereum, how do we account for this?
In terms of foreign account reporting, there's two main forms you need to know about: FBAR & FATCA. The FBAR is a separate form that is due the same day as your returns. [02:42]
Andrew: FBAR is my favorite four letter word. It stands for "Foreign Bank Account Report". It isn't actually filed with your tax return. It's a separate form. It's filed online, electronically. It has the same due dates as your tax returns - April 15th and it can be extended six months to October 15th. So same due dates, but it's filed differently, still sent to the Department of Treasury - it's a separate form.
On the FBAR form, what taxpayers have to do is they have to identify the maximum value at any time during the tax year of their foreign bank accounts. If that value at anytime exceeded $10,000, you have to report. The FBAR is an informational form, which means that there's no tax actually owed.
There are popular exchanges that ARE considered foreign entities and some that are NOT considered foreign entities.[04:15]
Andrew: Unfortunately, it's not that easy because a lot of exchanges don't even make their address public - it's pretty hard to find. Even just as a starting point, I would list out all of the exchanges that you've used and try to use Google to find their addresses.
There's a couple that we know are considered foreign financial institutions at this point, and the most popular is Binance. In addition, many people suspect that Bitfinex has kind of self-reported themselves as a foreign financial institution and their information is being shared with taxing authorities.
Coinbase, Gemini, GDAX, and a number of others are considered a US-based institution.
The FATCA form is 8938, and is part of your tax-return. [06:15]
Andrew: It's very similar to the FBAR, but it's not exactly the same. One of the first differences is that the threshold for FATCA is higher. For the FBAR, your aggregate maximum holdings have to exceed $10,000. Aggregate meaning that when you add your bank accounts or crypto exchanges together, the maximum during the year exceeds $10,000.
The FATCA threshold, for a single person, is $50,000. FATCA, just like the FBAR, is an informational form, which means again, there's no tax due. The government just wants to know the maximum value of each account. One of the other differences is that FATCA is more general, so FBAR only requires foreign bank accounts to be recorded, whereas FATCA is both bank accounts and foreign assets.
There's no tax involved with these forms - but there are significant penalties for not filing when required to do so. [07:57]
Andrew: The penalties for not filing an FBAR can be very severe. One of the most basic penalties for not filing an FBAR is $10,000 per year - for non-willful offenders.
If you were willful and you just disregarded your requirement to file? Well then the penalties can be even higher - up to 75% of the maximum value of your account or your exchange values. It can be very severe. So while there's no tax, the penalties are much greater. It's one of those things to do to comply with the rules.
The FATCA form also has similar penalties.
The burden of proof for "non-willfulness" is on you. [10:14]
Andrew: To be able to prove that you are not-willful is very difficult. In general, if you file and sign your tax returns, you are signing under penalties of perjury that everything is correct. You have an obligation to know the requirements and just saying "I didn't know the law" is not sufficient proof of non-willfulness.
If you've exceeded these limits in previous years, but didn't file these forms, there are still feasible options to consider…but these options may not last forever. [16:25]
Andrew: I would suggest that if you met these requirements in earlier years, take corrective action to amend or file the returns properly. There are some IRS programs that are available to come forward and file these forms for earlier years with a reduced penalty - or in some cases, no penalty at all.
The IRS Streamlined Offshore Disclosure Program. Under this program, you have to be non-willful and you will actually self-certify - so you'll sign a statement saying I didn't file the FBAR because I basically didn't know about it. There are some other requirements to be aware of as well. In this program, you'll pay a five percent penalty on the maximum balance of your foreign exchange value.
If you enjoyed our podcast, be sure to check back frequently for more great discussions about a range of topics in the crypto space. If you have any questions for Andrew Gordon, he can be reached via his website, Gordon Law LTD, or via Twitter @Accounting.
If you would like to request a topic for an interview, or have any questions related to this podcast, be sure to reach out to us at [email protected].
submitted by Sal-BitcoinTax to bitcointaxes [link] [comments]

US Tax Guide for Cryptocurrencies

Introduction:  
Greetings, cryptax! Tax season is upon us, and in the next couple of months, taxpayers across the US will be filing their 2017 tax returns. As a tax professional, an Enrolled Agent, and a cryptocurrency investor and enthusiast, I wanted to write up a brief guide on how your investments in cryptocurrencies are taxed in the US.
 
 
1. Are cryptocurrency realized gains taxable?
Yes. The IRS treats virtual currency (such as cryptocurrency) as property. That means if you sell BTC, ETH, or any other cryptocurrency that has appreciated in value, you have realized a capital gain and must pay taxes on this income. If you held the position for one year or less, it is a short-term capital gain which is taxed at your ordinary income tax rate. If you held the position for more than one year, it is a long-term capital gain which is taxed at your long-term capital gains tax rate. In most cases, this is 15%, but could also be 0% or 20% depending on your specific ordinary income tax bracket.
 
2. If I sell my BTC for USD on Coinbase but do not transfer the USD from Coinbase to my bank account, am I still taxed?
Yes. The only thing that matters is that you sold the BTC, which creates a taxable transaction. Whether you transfer the USD to your bank account or not does not matter.
 
3. If I use my BTC to buy another cryptocurrency (XMR for example), is this a taxable transaction?
Most likely yes. See #4 below for a more detailed explanation. If assuming crypto to crypto trades are not able to be like-kind exchanged, then continue on to the next paragraph here.
This is actually two different transactions. The first transaction is selling your BTC for USD. The second transaction is buying the XMR with your USD. You must manually calculate these amounts (or use a website such as bitcoin.tax or software to calculate it for you). For example, I buy 1 BTC for $8,000 on Coinbase. Later on, the price of 1 BTC rises to $9,000. I transfer that 1 BTC to Bittrex and use it to buy 38 XMR. I have to report a capital gain of $1,000 because of this transaction. My total cost basis for the 38 XMR I purchased is $9,000.
 
4. If I use my BTC to buy another cryptocurrency, could that be considered a tax-free like-kind exchange?
Probably not. The new tax law says that like-kind exchanges only pertain to real estate transactions. This was done with Section 13303, which replaced “property” with “real property” for all of Section 1031 (page 72 near the bottom). My personal interpretation:
In 2018 and going forward, cryptocurrencies can definitely not be like-kind exchanged.
In 2017 and before, it is a very gray area. I personally am not taking the position that they can be like-kind exchanged, because if the IRS went after a taxpayer who did this, the IRS would probably win and the taxpayer would owe taxes, interest, and probably penalties on every single little gain made from trading one cryptocurrency for another.
Here is a great interpretation of why trading cryptocurrency for cryptocurrency is probably not a like-kind transaction.
In my opinion, the biggest factor is that like-kind exchanges must be reported on Form 8824 and not just ignored. Therefore, if a taxpayer is claiming like-kind exchanges on crypto to crypto exchanges, he or she would have to fill out a Form 8824 for each individual transaction of crypto to crypto, which would be absolutely cumbersome if there are hundreds or thousands of such trades.
Another is that there has to be a Qualified Intermediary that facilitates a like-kind exchange. So, it's a more involved process, and that's why I think cryptocurrency cannot be like-kind exchanged.
Here is another article about like-kind exchanges.
Here is the American Institute of CPAs' letter to the IRS, dated June 10, 2016, asking them to release guidance on whether crypto to crypto can be like-kind exchanged or not. The IRS has not responded to the letter.
 
5. How do I calculate the realized capital gain or loss on the sale of my cryptocurrency?
The realized gain or loss is your total proceeds from the sale minus what you purchased those positions for (your cost basis). For example, you bought 1 BTC for $3,000 in June of 2017. In December of 2017, you sold that 1 BTC for $18,000. Your realized gain would be $18,000 - $3,000 = $15,000. Since you held it for one year or less, the $15,000 would be a short-term capital gain taxed at your ordinary income tax rate.
 
6. Which BTC's cost basis do I use if I have multiple purchases?
The cost basis reporting method is up to you. For example, I buy my first BTC at $3,000, a second BTC at $5,300, and a third BTC at $4,000. Later on, I sell one BTC for $8,000. I can use:
FIFO (first in first out) - cost basis would the first BTC, $3,000, which would result in a gain of $5,000.
LIFO (last in first out) - cost basis would be the third BTC, $4,000, which would result in a gain of $4,000.
Average cost - cost basis would be the average of the three BTC, $4,100, which would result in a gain of $3,900.
Specific identification - I can choose which coin's cost basis to use. For example, I can choose the second BTC's cost basis, $5,300, which would result in the lowest capital gains possible of $2,700.
The IRS has not given any guidance on cost basis accounting methods for cryptocurrency, but I am taking the position that any method can be used, and that you can change your method at any time as you please (e.g. FIFO for one year, LIFO for another. Or, FIFO for the sale of a specific lot, then LIFO for the sale of another lot on the same day).
 
7. If I end up with a net capital loss, can I claim this on my tax return?
Capital gains and capital losses are netted on your tax return. If the net result of this is a capital loss, you may offset it against ordinary income on your tax return, but only at a maximum of $3,000 per year. The remaining losses are carried forward until you use them up.
 
8. What is the tax rate on my capital gains?
If long-term, the tax rate is 0%, 15%, or 20%, depending on your ordinary income tax bracket. If short-term, the tax bracket you’ll be in will depend on your total income and deductions. The ordinary income tax brackets are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% in 2017 and 10%, 12%, 22%, 24%, 32%, 35%, and 37% in 2018 and going forward.
Here are the 2017 and 2018 ordinary income tax brackets.
Here are the 2017 and 2018 long-term capital gains tax brackets.
Here is a detailed article on how the calculation of long-term capital gains tax work and how you can take advantage of the 0% long-term capital gains rate, if applicable.
 
9. If I mine BTC or any other cryptocurrency, is this taxable?
Yes. IRS Notice 2014-21 states that mining cryptocurrency is taxable. For example, if you mined $8,000 worth of BTC in 2017, you must report $8,000 of ordinary income on your 2017 tax return. For many taxpayers, this will be reported on your Schedule C, and you will most likely owe self-employment taxes on this income as well. The $8,000 becomes the cost basis in your BTC position.
 
10. How do I calculate income for the cryptocurrency I mined?
This is the approach I would take. Say I mined 0.01 BTC on December 31, 2017. I would look up the daily historical prices for BTC and average the high and low prices for BTC on December 31, 2017, which is ($14,377.40 + $12,755.60) / 2 = $13,566.50. I would report $13,566.50 * 0.01 = $135.67 of income on my tax return. This would also be the cost basis of the 0.01 BTC I mined.
 
11. Can I deduct mining expenses on my tax return?
If you are reporting the income from mining on Schedule C, then you can deduct expenses on Schedule C as well. You can deduct the portion of your electricity costs allocated to mining, and then you depreciate the cost of your mining rig over time (probably over five years). Section 179 also allows for the full deduction of the cost of certain equipment in year 1, so you could choose to do that if you wanted to instead.
 
12. If I receive BTC or other cryptocurrency as a payment for my business, is this taxable?
Yes. Similar to mining, your income would be what the value of the coins you received was. This would also be your cost basis in the coins.
 
13. If I received Bitcoin Cash as a result of the hard fork on August 1, 2017, is this taxable?
Most likely yes. For example, if you owned 1 Bitcoin and received 1 Bitcoin Cash on August 1, 2017 as a result of the hard fork, your income would be the value of 1 Bitcoin Cash on that date. Bitcoin.tax uses a value of $277. This value would also be your cost basis in the position. Any other hard forks would probably be treated similarly. Airdrops may be treated similarly as well, in the IRS' view.
Here are a couple more good articles about reporting the Bitcoin Cash fork as taxable ordinary income. The second one goes into depth and cites a US Supreme Court decision as precedent: one, two
 
14. If I use BTC or other cryptocurrency to purchase goods or services, is this a taxable transaction?
Yes. It would be treated as selling your cryptocurrency for USD, and then using that USD to purchase those goods or services. This is because the IRS treats cryptocurrency as property and not currency.
 
15. Are cryptocurrencies subject to the wash sale rule?
Probably not. Section 1091 only applies to stock or securities. Cryptocurrencies are not classified as stocks or securities. Therefore, you could sell your BTC at a loss, repurchase it immediately, and still realize this loss on your tax return, whereas you cannot do the same with a stock. Please see this link for more information.
 
16. What if I hold cryptocurrency on an exchange based outside of the US?
There are two separate foreign account reporting requirements: FBAR and FATCA.
A FBAR must be filed if you held more than $10,000 on an exchange based outside of the US at any point during the tax year.
A Form 8938 (FATCA) must be filed if you held more than $75,000 on an exchange based outside of the US at any point during the tax year, or more than $50,000 on the last day of the tax year.
The penalties are severe for not filing these two forms if you are required to. Please see the second half of this post for more information on foreign account reporting.
 
17. What are the tax implications of gifting cryptocurrency?
Small gifts of cryptocurrency do not have a tax implication for the gift giver or for the recipient. The recipient would retain the gift giver's old cost basis, so it could be a good idea for the gift giver to provide records of the original cost basis to the recipient as well (or else the recipient would have to assume a cost basis of $0 if the recipient ever sells the cryptocurrency).
Large gifts of cryptocurrency could start having gift and estate tax implications on the giver if the value exceeds more than $14,000 (in 2017) or $15,000 (in 2018) per year per recipient.
Here's a good article on Investopedia on this issue.
An important exception applies if the gift giver gives cryptocurrency that has a cost basis that is higher than the market value at the time of the gift. Please see the middle of this post for more information on that.
 
18. Where can I learn even more about cryptocurrency taxation?
Unchained Podcast: The Tax Rules That Have Crypto Users Aghast
IRS Notice 2014-21
Great reddit post from tax attorney Tyson Cross from 2014
 
19. Are there any websites that you recommend in helping me with all of this?
Yes - I have used bitcoin.tax and highly recommend it. You can import directly from an exchange to the website using API, and/or export a .csv/excel file from the exchange and import it into the website. The exchanges I successfully imported from were Coinbase, GDAX, Bittrex, and Binance. The result is a .csv or other file that you can import into your tax software.
I have also heard good things about cointracking.info but have not personally used it myself.
 
20. If I move my BTC from one exchange to another, or into a hard wallet, is this a taxable event?
No - you are not selling anything, so no gains are realized.
 
21. Where do I report cryptocurrency sales on my tax return?
The summary of your sales would reported on Schedule D on line 3 and/or line 10 depending on short-term or long-term. Supplemental Form 8949 must also be included with Box C or Box F checked depending on short-term or long-term. Form 8949 is where you must list each individual sale.
 
22. If coins become lost or inaccessible (e.g. lost or forgotten passphrase or thrown away hard drive), can I claim that as a loss? What about coins that have gotten stolen? What about losing money in investment or ICO scams (e.g. Bitconnect or Confido)?
These are really tricky questions. Unfortunately, the potential to claim such a loss against ordinary income is very low, especially with the new tax law. At the very least, capital losses can be claimed, but the deduction is capped at $3,000 per year against ordinary income with the rest carrying forward indefinitely.
The new tax law changed the casualty and theft loss to only apply to presidential disaster areas, so at least in the case of a loss passphrase, I think the answer is no for 2018 and going forward. For 2017, the answer is possibly yes. Here is an article on the subject if you are interested in reading more.
 
23. Taxation is theft!
Sorry, I can't help you there.
 
 
That is the summary I have for now. There have been a lot of excellent cryptocurrency tax guides on reddit, such as this one and this one, but I wanted to post my guide on cryptax which hopefully answers some of the questions you all may have about US taxation of cryptocurrencies. Please let me know if you have any more questions, and I’d be happy to answer them to the best of my ability. Thank you!
Regarding edits: I may make many edits to my post after I originally post it. Please refresh to see the latest edits to my guide. Thank you.
 
Disclaimer:
The information contained within this post is provided for informational purposes only and is not intended to substitute for obtaining tax, accounting, or financial advice from a professional.
Any U.S. federal tax advice contained in this post is not intended to be used for the purpose of avoiding penalties under U.S. federal tax law.
Presentation of the information via the Internet is not intended to create, and receipt does not constitute, an advisor-client relationship. Internet users are advised not to act upon this information without seeking the service of a tax professional.
submitted by Nubboi to cryptax [link] [comments]

How to file taxes on your cryptocurrency trades in a bear year

Fred traded bitcoin, ether and a handful of other cryptocurrencies on Gemini, Binance and Coinbase last year. Unfortunately, due to the crypto downturn, his trading yielded a capital loss of more than $35,000. He’s not alone — the stories have been coming out right and left about people who are not already rich, who have lost serious money lately.
While it was a rough loss, filing taxes could add another headache in a few weeks if not done correctly.
Given that bitcoin is down 55 percent year-over-year in 2018, compared to 686 percent up the year before, chances are that filing taxes on crypto trades may look quite different this year for crypto holders like Fred.
The main difference is that users will want to claim capital losses in a bear year to reduce their tax bill. That means ensuring that you are maximizing your capital loss claims to the greatest potential by:

Capital loss example

To get an understanding of how powerful this is, let’s take an example. Imagine Maya earned $5,000 in the stock market in 2018, but lost $9,000 in cryptocurrency trading in the same year. Without filing cryptocurrency taxes, Maya would be on the hook for capital gains taxes on $5,000 from the stock market. At the 24 percent short-term tax rate, that would be $1,200 ($5,000 * 24 percent) to pay in taxes!
Now, taking into account the $9,000 crypto capital loss, all $5,000 of capital gains in the stock market would be offset, leaving an additional $4,000 of losses. Because Maya is single, an additional $3,000 of income could be offset (which normally would also be taxed at 24 percent). Therefore, you would save $1,200 of taxes (from the stock market) and $720 ($3,000 * 24 percent) that would have been paid in income tax, for a total of $1,920 saved in taxes. And, on top of that, Maya would still have an incremental $1,000 ($9,000 — $5,000 — $3,000) of capital losses that could be rolled forward to the 2019 tax year to offset capital gains (and potentially income) the next year as well. Not bad.

2018 tax changes

The last year brought many new cryptocurrency trading pairs versus earlier years, as well as more transactions on more exchanges. This means, more than ever, you’ll want to ensure that you have all your accounts or records from all the accounts handy.
There are also regulatory differences as well. This year for U.S. holders, the IRS has clarified that like-kind exchanges only apply to real property (like real estate). That means that cryptocurrency-to-cryptocurrency trades in 2018 are subject to capital gains calculations, not just when you cash out to fiat currency (e.g. USD) at the end of the day.
According to IRS guidance, all virtual currencies are taxed as property, whether you hold bitcoin, ether or any other cryptocurrency. With the new clarification that like-kind exchange does not apply to cryptocurrency, this means you need to have solid records of every cryptocurrency transaction you made, including crypto-to-crypto transactions.
submitted by HashBXGlobal to u/HashBXGlobal [link] [comments]

[uncensored-r/CryptoCurrency] Let’s talk about taxes.

The following post by commander217 is being replicated because some comments within the post(but not the post itself) have been openly removed.
The original post can be found(in censored form) at this link:
np.reddit.com/ CryptoCurrency/comments/7nllf7
The original post's content was as follows:
A lot of people have been talking about taxes for this upcoming year and that like kind apparently doesn’t apply to crypto (anymore or potentially ever). In theory that’s fine, I get the usd cost of every trade and bam ez pz got my taxes all set and ready. Now let’s talk about reality.
First off every coin usually has two trading pairs at least on every exchange bitcoin and ether. Ether and bitcoin in turn have different prices on different exchanges. This effectively makes taxes impossible to do fairly in anyway whatsoever. Here’s a hypothetical. Say I bought 100 Trx earlier today at 325 sats on a binance trading pair. And now I just sold it for 430 Sats. This is potentially a taxable event so now I want to calculate the gains on this trade. Well I gained a total of 10500 sats which is 1.43 dollars based on gdaxes current price of 13625 per bitcoin. Beautiful - good don.... not even close. First how is this the fair price of my exchange if the transfer would take me 80 minutes to be able to convert to usd in which time the price will change. Also the transaction fees for stock trades are not calculated as capital gains so I would have to include those. But those are just the solvable problems, I could wait 80 minutes and record the hypothetical price of sale and minus the transaction fee. But there’s a few more unsolvable problems. One is there is currently on coin market cap 400 bitcoin markets, some for usd some for other alt coins, and these are the top 400 based on volume there is of course more. Well obviously I would only include trading pairs which use actual fiat currency. Still got a problem. As on Wex exchange whatever that is the price is 13382. On Gdax it is now 13621. On finex it’s 13515. On bithumb it’s 17681. And so on and so forth WHICH ONE DO I USE? is it the one I’ve used before, well great except I’ve used more than 1 before.
Then there’s the rub of eth trading pair. I can spend 43000 sats ive earned today to buy eth and cash out that way as I usually do because eth transfers faster. This of course means I guess I need to calculate it’s fair price based on eth trading pairs on other exchanges which is going to be different then each other and the bitcoin pairs. The transaction fees are also different. So is the transaction times.
Then there’s the IRS tax guidance sheet which states it only applies to “convertible virtual currency” and proceeds to define “convertible virtual currency” as “ currency that can be digitally traded and purchased for or exchanges into usd”. Which only fits the description of bitcoin, eth and bitcoin cash and litecoin for most Americans. I cannot exchange trx for usd. I can exchange it for bitcoin which I can then exchange for usd.
I’ve talked with an accountant who admitted he wasn’t very knowledgeable about it but he said based on those points, he wouldn’t account for any gain as realized until actual cashing to US dollars. I intend to go to another accountant I’ve heard who apparently knows this better and see what he says I should do but this covers only a few of the problems. What about derivatives like bitmex.
submitted by censorship_notifier to noncensored_bitcoin [link] [comments]

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