Yes you have to be able to prove your cost basis, otherwise they assume it is zero.
For example, for my 2018 taxes I just put my year's starting and finishing trading amounts on my taxes to figure out my total capital gain/loss. In 2020 IRS hit me with a letter saying I owed them $800k in taxes plus $300k in fees because Coinbase had sent them my trade volume for 2018 and the IRS took my volume as my sell volume and the cost basis as zero, and since my trade volume was obviosly many times higher than just my starting and ending trading amounts, they said I didn't account for my trades. So I had to spend 4 weeks finding as much 2018 data as I could to prove that I owed them nothing.
Which is why people should not get into trading lightly. Make sure you are tracking your trades, or just trade on one exchange, or make sure you are doing things that will be easy to add up come tax time.
Topic: How does the IRS look at anonymous bitcoin? (Read 261 times)
How does it work if you sell at a KYC exchange and you pay taxes. But you say you bought it from someone IRL for 70k but you sold at 100k (hypothetically)
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
You need to have some form of proof. This is the same with everything.
Imagine someone buys and sells stuff with cash, they also need to provide some kind of proof. It might be paper invoices, whatever.
As long as you report what you actually paid and received, and you have some kind of proof of it, there shouldn't be any issues.
How does it work if you sell at a KYC exchange and you pay taxes. But you say you bought it from someone IRL for 70k but you sold at 100k (hypothetically)
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
You can export the data from p2p and use it for tax reporting purposes there is no other way and you have to keep track of all your trades and there are some features available on the exchanges as well but if you are someone who trades for huge volume in a year then you should consult the tax advisor and get the actual solution depends on your region. I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
How does it work if you sell at a KYC exchange and you pay taxes. But you say you bought it from someone IRL for 70k but you sold at 100k (hypothetically)
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
You can use the blockchain record as proof of your transaction and you can see the rate of Bitcoin at that time since there a time stamp on blockchain records. Just use the actual rate of Bitcoin by the time you commence transaction video record/document your transaction for proof of physical trade. You can ask too for an invoice for the Bitcoin seller since this kind if paper receipts is accepted by the IRS. It’s so hard to argue with them so it’s much better if you can provide proof as much as possible.
There is no anonymous Bitcoin. If you use a good Bitcoin mixer/ tumbler service like Chipmixer, you will have better transactions for your privacy and anonymity. Bitcoin transactions are not anonymous by default. It depends on how you mix and use your inputs, how to spend them in outputs, and how to you broadcast your transaction with Tor or no Tor connection.
It is same for tax. Because to buy Bitcoin, most of people will use fiat currency or they use fiat to buy stable coin as a middle currency to buy Bitcoin. So if they have to do KYC in first step to buy stablecoin, and later they take profit of their Bitcoin to stable coin. Governments will know it and it is just matter of time and how government will make tax call.
You can not hide yourself and your asset if you do bad things for your inputs into Bitcoin, stablecoin, etc.
It is same for tax. Because to buy Bitcoin, most of people will use fiat currency or they use fiat to buy stable coin as a middle currency to buy Bitcoin. So if they have to do KYC in first step to buy stablecoin, and later they take profit of their Bitcoin to stable coin. Governments will know it and it is just matter of time and how government will make tax call.
You can not hide yourself and your asset if you do bad things for your inputs into Bitcoin, stablecoin, etc.
How would receiving the bitcoin as a gift work? I think gifts are exempt to a certain point.
The answer to this is given in the same link I provided above: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactionsQuestions 31 and 32 deal with receiving bitcoin as a gift. You have no tax liability on bitcoin received a gift until you do something with that bitcoin. Your cost basis for the gift will be the same as the cost basis of the person who gifted it to you. If you can't prove what their basis is, then your basis will be zero.
Does it matter if you dont plan to sell your btw but rather borrow against it one day?
Putting bitcoin up as collateral for a loan will have different tax implications, but I have no idea what those implications would be because I've never done this. My understanding is that it is incredibly risky, and if you get liquidated then you will end up still owing just as much tax as if you sold the bitcoin, but you'll only have a fraction of the bitcoin value in fiat in your possession.Thanks very much that helps a lot!
Hmm... what if they only can prove part of the transaction. Like they bought some btc on exchange, and some with cash from p2p irl?
And yeah it's risky depending on how much you're using. It's a lower chance of getting liquidated if you say only use 25% compared to 75% or idk if anyone can loan out 100% of their collateral. I think the norm is like 50%. So long as bitcoin never drops below 50% of its value at that time you're okay. Which it could, which is why maybe only using 25% would work since it's unlikely btc will ever see an 80% dip like in the old days...... hopefully. I think one day we'll get to that point. idk if we're out of the water yet but yeah. hell, maybe just 20% Idk would be the safest option although you aren't really borrowing against that much.
How would receiving the bitcoin as a gift work? I think gifts are exempt to a certain point.
The answer to this is given in the same link I provided above: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactionsQuestions 31 and 32 deal with receiving bitcoin as a gift. You have no tax liability on bitcoin received a gift until you do something with that bitcoin. Your cost basis for the gift will be the same as the cost basis of the person who gifted it to you. If you can't prove what their basis is, then your basis will be zero.
Does it matter if you dont plan to sell your btw but rather borrow against it one day?
Putting bitcoin up as collateral for a loan will have different tax implications, but I have no idea what those implications would be because I've never done this. My understanding is that it is incredibly risky, and if you get liquidated then you will end up still owing just as much tax as if you sold the bitcoin, but you'll only have a fraction of the bitcoin value in fiat in your possession.
Does it matter if you dont plan to sell your btw but rather borrow against it one day?
Due to needing to keep records, it would probably be recommended that despite dealing with someone in person, you should probably still go through a peer to peer exchange, so at least you can keep a record of it. Print that record that the exchange provides, and submit that to the tax authority. What they accept is up to them, but I should think that would probably be enough.
You could potentially even include in your reference that you sent from your bank, the amount of Bitcoin bought, and at what price. Then, your bank would keep that reference, and you could potentially prove it that way. I mean if you're in doubt, contact them directly, and see what evidence they would require in this particular instance.
You could potentially even include in your reference that you sent from your bank, the amount of Bitcoin bought, and at what price. Then, your bank would keep that reference, and you could potentially prove it that way. I mean if you're in doubt, contact them directly, and see what evidence they would require in this particular instance.
How would receiving the bitcoin as a gift work? I think gifts are exempt to a certain point.
That makes it more complicated. If they consider gift everyone will provide proof the BTC they got is a gift. IRS is worse than the police because at least the police will leave your family with what you have but once IRS gets their hands on you, even your properties will also be taken leaving nothing for your kids.
BTC gets the attention because its one means to fund political parties which they definitely want to tax, I don't know if they could let signature participants slide if they give proof that they got the BTC from the campaign promotion in this forum. They'd confiscate the BTC from the platform if they decide it got to your account mysteriously.
How would receiving the bitcoin as a gift work? I think gifts are exempt to a certain point.
Thanks for this comment which help me to understand the point the dev is trying to make, I have seen several topics on taxation on assets but digital and physical assets and the issue of IRS records. The point income tax varies from country to country and if you can't provide the cost of an asset during taxation what the authority does is evaluate the cost and place a fixed tax on it.
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Preface: I am not a tax expert.So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Here are some relevant parts from the IRS website: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions
Read Question 27 about peer to peer transactions and Question 46 about maintaining records.
If you are trading peer to peer, then you simply need to keep your own records which are comprehensive enough to satisfy the IRS.
If the IRS coming knocking after you sell an asset and you cannot reasonably prove the cost basis at which you acquired that asset, then they will assign a cost basis of zero. This is the same for all assets, bitcoin included.
How does it work if you sell at a KYC exchange and you pay taxes. But you say you bought it from someone IRL for 70k but you sold at 100k (hypothetically)
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
There has been a lot of discussion on this topic in the forum, and, in the end, it is best that if you are really in this situation you consult a lawyer or financial advisor who specializes in these matters.
What I can tell you is that, assuming that the IRS applies a cost basis 0 for when you cannot prove the purchase price, the best thing to do is to wait until the price has risen so much that it does not matter, as long as you do not need the money.
If you bought bitcoin at $1K and sell it at $42K, you don't care if they apply a 0 cost basis because almost 100% of it is profit.
How does it work if you sell at a KYC exchange and you pay taxes. But you say you bought it from someone IRL for 70k but you sold at 100k (hypothetically)
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
All countries have different legislation, and if you plan to invest that kind of money in cryptocurrency, then you need to study tax issues or consult with a tax advisor in your country.In many European countries, as well as in the USA, exchanges provide an extract on the purchase of cryptocurrencies and help to generate a tax return through their software. If you need purchase documents, then take care of them before buying.I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
IRS assumes like you bought BTC at zero if you can't provide a data? That might be too much of a greed on their side but where did you get the information?
It could be because its easier that way than confiscating your BTC. So what would you rather do, provide the proof of how and when you got the coins or simply give it to them? Its kind of a hostage. Funny but I want to read some other's opinion.
It's only something I heard from people in the youtube comment section. Idk how true it is but it's what I heard.
Also, what counts as proof? If I have a hand written receipt or something, would that count as proof I wonder? How are they gonna say I did NOT buy it in person. Where did I get the money to buy it? Maybe I saved up a ton of cash? Seems like the burden of proof should be on them if they're saying I "owe" more than I say I "owe" but idk how it works.
IRS assumes like you bought BTC at zero if you can't provide a data? That might be too much of a greed on their side but where did you get the information?
It could be because its easier that way than confiscating your BTC. So what would you rather do, provide the proof of how and when you got the coins or simply give it to them? Its kind of a hostage. Funny but I want to read some other's opinion.
How does it work if you sell at a KYC exchange and you pay taxes. But you say you bought it from someone IRL for 70k but you sold at 100k (hypothetically)
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
I've heard that unless you have proof, they'll treat it as if you bought it at 0 dollars? Is that true?
So you could end up paying more in taxes than you actually bought it for?
If so, how is that fair?
Why is bitcoin treated like this but buying gold or silver or metals, you can buy for like 20 bucks an ounce of silver, it shoots up to 50 and you sell a crap ton. They seem to be okay with paper receipts so is it really different with bitcoin? Idk...
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