Topic: day trading crypto in the United States Vs. the IRS (Read 129 times)
Well, this is actually true --it has been approved by the international governing council already. I heard that they might make it generalized around the world. But that was not final yet. The only thing that is final is that you had to connect at least two of your chosen exchange and have them associated with the website, and they will automatically calculate your taxes for you. But of course, you are only going to be taxed by your gains, and also it is minimal. We know that the essence of cryptocurrency is slowly fading but I think the best thing to do now is to enjoy it while it lasts.
But if I did that, I would owe taxes for every single time I did a 'convert back and forth' maneuver. If I did that enough times in a day, over the course of a year, would I end up owing so much taxes the next year that I would probably end up having to pay more in taxes than what I made in capital gains?
You don't pay a tax based on the value of the transaction. You pay a tax based on the realized gain (or loss) in the transaction. In effect, you are paying a portion of your total gain as a tax, so you can't pay more than you make in capital gains.
For example, if you previously bought ABC coins for $100 and then you exchanged them for $150 worth of XYZ coins, you pay tax on $50, and not $150. Then, if you exchange the XYZ coins for $225 worth of PQR coins, you pay tax on $75, and not $225.
Well that was a rather interesting experience with the CPA that I had. Maybe I paid 50 bucks for 30 minutes with the wrong CPA but she wouldn't give me a straight answer on whether or not cryptotrader.tax is legit or not. She even flat out said that she hopes that I do my crypto taxes with her next year and not somewhere else so she didn't give me a straight answer about that.
But I was able to get reassurance from her that if I implemented the day trading strategy which I think is called scalp trading, that every time I convert crypto from one form to another it will trigger a taxable event, and that the percentage is dependent on the amount of gain, but no matter what I won't end up owing more taxes than gain by the end of the year.
So basically, if I do cash out any gains, I should keep it safe in an extra savings account and don't spend anything until after doing my taxes next year.
Through this, she did help me find something on coinbase that I didn't even know that was there.
Right under settings, if you click on "taxes and Reports" it'll lead you to a webpage that give info on taxes and there's a link titled "go to cointracker".
That led me to another website called cointracker.io. I purchased a monthly membership so I can explore it, and there's a link on my account at cointracker.io where it holds a record of every SINGLE transaction I've ever done on my coinbase account. I also learned that on binance.us, the only other exchange where I invested anything with (I got a few DOGE coins for the lolz) that I can actually get a 'statement', but I can only get that statement a limited x amount of times a year.
I have no idea how I'm going to keep track of all my transactions if I day trade at all, and I've already lost track of my transactions doing little experiments like exchanging really small amount of one form of crypto to another to test if I really understand how it works.
So as far as I know, the best way I'm going to file my taxes regarding crypto next year is to either:
A. Use cointracker.io or cryptotrader.tax and plug it directly into a turbotax
or
B. Hire a CPA next year to help me do my crypto taxes for the first time next year.
So far, that's all I've been able to learn about the matter, other than the CPA informing me that the IRS is planning on getting more strict and crack down more on crypto. Uncle Sam just needs that extra dollar to waste on something stupid like rockets that ain't reusable haha.
But I was able to get reassurance from her that if I implemented the day trading strategy which I think is called scalp trading, that every time I convert crypto from one form to another it will trigger a taxable event, and that the percentage is dependent on the amount of gain, but no matter what I won't end up owing more taxes than gain by the end of the year.
So basically, if I do cash out any gains, I should keep it safe in an extra savings account and don't spend anything until after doing my taxes next year.
Through this, she did help me find something on coinbase that I didn't even know that was there.
Right under settings, if you click on "taxes and Reports" it'll lead you to a webpage that give info on taxes and there's a link titled "go to cointracker".
That led me to another website called cointracker.io. I purchased a monthly membership so I can explore it, and there's a link on my account at cointracker.io where it holds a record of every SINGLE transaction I've ever done on my coinbase account. I also learned that on binance.us, the only other exchange where I invested anything with (I got a few DOGE coins for the lolz) that I can actually get a 'statement', but I can only get that statement a limited x amount of times a year.
I have no idea how I'm going to keep track of all my transactions if I day trade at all, and I've already lost track of my transactions doing little experiments like exchanging really small amount of one form of crypto to another to test if I really understand how it works.
So as far as I know, the best way I'm going to file my taxes regarding crypto next year is to either:
A. Use cointracker.io or cryptotrader.tax and plug it directly into a turbotax
or
B. Hire a CPA next year to help me do my crypto taxes for the first time next year.
So far, that's all I've been able to learn about the matter, other than the CPA informing me that the IRS is planning on getting more strict and crack down more on crypto. Uncle Sam just needs that extra dollar to waste on something stupid like rockets that ain't reusable haha.
IMO, you had to completely understand how tax works because taxes will still be there, always. Almost all of your transactions are associated with the tax.
But it doesn’t mean that you’ll owe a lot of taxes by the end of the year.
Trading taxes is also different than being an employee. You were able to speak with tax lawyers right?
Next time ask them the difference between the two and the second, tax only occurs if you earn or gain. And of course, if you have given them losses taxes might be very minimal. So don't worry about it and find a way to reduce your tax instead and seek help from any tax experts to check loopholes, that’s what I can recommend.
But it doesn’t mean that you’ll owe a lot of taxes by the end of the year.
Trading taxes is also different than being an employee. You were able to speak with tax lawyers right?
Next time ask them the difference between the two and the second, tax only occurs if you earn or gain. And of course, if you have given them losses taxes might be very minimal. So don't worry about it and find a way to reduce your tax instead and seek help from any tax experts to check loopholes, that’s what I can recommend.
I believe as long as you do not disclose that you own bitcoin and you do not end up spending it or cashing it out, there is no law that would make you pay a tax, hell they wouldn't even know it is yours, just hide your money if you can because let's face it 50% of the taxes paid all goes to waste for sure and the other part usually goes to unwanted things and spent wrongly, military getting 800 billion will not improve our lives for example. So long story short it's obvious that we need to actually make a statement that bitcoin is not something that could be taxed and should not be taxed if we can, and contact congress people and senators and state legislature to back off.
However if you have to, coinbase helps you, it has a lot of FAQ questions and answers that will help you, you can contact their support and get a lot more information than an accountant can give.
However if you have to, coinbase helps you, it has a lot of FAQ questions and answers that will help you, you can contact their support and get a lot more information than an accountant can give.
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AFAIK you can just file monthly taxes that would be based on your monthly profits. Example, you trade with initial capital of 1,000USD on April 1, and after one month you then have 13,000USD, your monthly tax would only deduct on 12,000USD leaving your capital untouched. Even if you lost any amount on your overall trading in a month, that wouldn't count nor affect your profits for over a month.
Also, if your country really is that strict on taxes even on online crypto profits, then you might find your source of income be the same as having a physical job. Some countries counts crypto trading as "freelancing", as they don't have enough studies and laws that focuses on tax on any crypto related income generation.
and fortunately where I live the tax on crypto profits still hasn't been enforced or probably won't at all. because the system applied tax is only imposed on exchanges that have become part of the Ministry of Asset Trading. so we feel lucky for now. As for the taxes that we bear, only the local taxes that we have. that's all the rest we have freedom.
If I did that enough times in a day, over the course of a year, would I end up owing so much taxes the next year that I would probably end up having to pay more in taxes than what I made in capital gains?
Automatically that's what it implies. I suggest you return to the tax consultant to get clearified on this. Paying tax on each transactions ( mostly for day traders) would limit the profit margin made on each trade. Other alternate measure should be used instead to calculate the taxes expected from traders and investors other than thisWell, when I went back to the tax consultant, she said that her and the rest of her staff are just starting to get trained in crypto tax laws because they've been having more and more customers come in and ask complicated tax questions. So she doesn't know, but she did advice that I search for a local CPA(Certified Public Accountant) and get tax consulting done that way. I found a local CPA and have an appointment set for tomorrow morning and I'll be able to get my legal questions answered. Hopefully through that consultation I'll find out if cryptotrader.tax is legit or not. I hope it is, because that would make filing for crypto taxes next year pretty easy.
If I did that enough times in a day, over the course of a year, would I end up owing so much taxes the next year that I would probably end up having to pay more in taxes than what I made in capital gains?
Automatically that's what it implies. I suggest you return to the tax consultant to get clearified on this. Paying tax on each transactions ( mostly for day traders) would limit the profit margin made on each trade. Other alternate measure should be used instead to calculate the taxes expected from traders and investors other than this 
I'm from the UK so things could be slightly different but: you'll NEVER pay more tax than what you EARN. You're taxed only on profits.
Generally, if you can, you should take the sum of:
Withdrawals - deposits
Amount you have at your last trade on the account - amount you had at the start of the tax year on the account.
If you're trading through the year you can probably just multiply your gains by the average price for the year. If not you might want to take the data monthly and use the average price for those. (unless you're trading with dollar pairs exclusively).
There are easy ways to calculate this programmatically but if you can do simple sums on a spreadsheet you can always try doing that if you want to save money on an advisor but still be accurate with your taxes. (you should be able to refine the reports you can generate from an exchange to get one of just deposits, one of just withdrawals and one of trades - if you can't do that then you should ask their support to add it.
Generally, if you can, you should take the sum of:
Withdrawals - deposits
Amount you have at your last trade on the account - amount you had at the start of the tax year on the account.
If you're trading through the year you can probably just multiply your gains by the average price for the year. If not you might want to take the data monthly and use the average price for those. (unless you're trading with dollar pairs exclusively).
There are easy ways to calculate this programmatically but if you can do simple sums on a spreadsheet you can always try doing that if you want to save money on an advisor but still be accurate with your taxes. (you should be able to refine the reports you can generate from an exchange to get one of just deposits, one of just withdrawals and one of trades - if you can't do that then you should ask their support to add it.
When I was filing my taxes for 2020 today at a tax office, I used it as an opportunity to talk to a tax professional about how taxes work with crypto, and got a lot of basic questions answered. They even printed out some information, which gave me a better vocabulary to use to google tax information online with crypto. It was basically just a printout that explained what different types of taxes are for different ways of earning crypto. Further googling on my own led me to discover this website:
cryptotrader.tax
From what I understand, the way I would file taxes next year, the way I report gains/losses is to go to cryptotrader.tax, create an account there, connect my accounts at two exchanges that I'm using right now, and that website will automatically look at all my recorded transactions and make the calculations needed to create a tax form that I would then print out and either use it when I file for taxes myself (like using turbotax) or bring that printed out form to a tax professional that I would pay to do my taxes for me.
Is this legit?
Also, I learned through internet searching today if I were to convert one type of crypto to another currency, that this triggers a taxable event. So if I were to implement a 'day trading strategy' where if I had x mount of litecoins, and the value shoots up by 8 percent, I quickly convert all my LTC to USDC (a crypto that typically stays the same value) and then as soon as the price comes back down I convert my USDC back to LTC with the resulting extra buying power and just rinse and repeat.
But if I did that, I would owe taxes for every single time I did a 'convert back and forth' maneuver. If I did that enough times in a day, over the course of a year, would I end up owing so much taxes the next year that I would probably end up having to pay more in taxes than what I made in capital gains?
cryptotrader.tax
From what I understand, the way I would file taxes next year, the way I report gains/losses is to go to cryptotrader.tax, create an account there, connect my accounts at two exchanges that I'm using right now, and that website will automatically look at all my recorded transactions and make the calculations needed to create a tax form that I would then print out and either use it when I file for taxes myself (like using turbotax) or bring that printed out form to a tax professional that I would pay to do my taxes for me.
Is this legit?
Also, I learned through internet searching today if I were to convert one type of crypto to another currency, that this triggers a taxable event. So if I were to implement a 'day trading strategy' where if I had x mount of litecoins, and the value shoots up by 8 percent, I quickly convert all my LTC to USDC (a crypto that typically stays the same value) and then as soon as the price comes back down I convert my USDC back to LTC with the resulting extra buying power and just rinse and repeat.
But if I did that, I would owe taxes for every single time I did a 'convert back and forth' maneuver. If I did that enough times in a day, over the course of a year, would I end up owing so much taxes the next year that I would probably end up having to pay more in taxes than what I made in capital gains?
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