Topic: Is trading BTC for fiat or altcoins kept on an exchange a non-taxable event? (Read 354 times)
January 18, 2018, 07:24:56 PM
While in the exchange it's tough to tax, but when it comes out into your bank account it will jump out at tax agencies through their data matching. If profits were used to pay for goods or services with crypto then it would be less likely to be flagged.
January 18, 2018, 08:13:24 AM
Your too late, as of December 2017, a bill was passed within U.S parliament reforming the tax loophole of likekind exchanges.
It is best to just pay your dues, and give to Caesar, what belongs to Caesar! I myself, am not the best record keeper, but keeping some form of ledger is vital, especially in the event of an audit.
Bitcoin transfers into a bank account above $5000 or more is sure to set off red flags, best to talk with someone at your local financial institution about any large incoming transactions involving Bitcoin, as it should be considered investment income.
Regulation is the best thing to happen to Bitcoin, because it provides guidance. Is it not better to know the rules, than to blindly assume, and stumble in the process? Up until now, the government here in the U.S has been pretty relaxed on the regulations of crypto currency, slowly providing guidance over time.
Welcome to the neo goldrush, here on the digitalized wild western frontier.
It is best to just pay your dues, and give to Caesar, what belongs to Caesar! I myself, am not the best record keeper, but keeping some form of ledger is vital, especially in the event of an audit.
Bitcoin transfers into a bank account above $5000 or more is sure to set off red flags, best to talk with someone at your local financial institution about any large incoming transactions involving Bitcoin, as it should be considered investment income.
Regulation is the best thing to happen to Bitcoin, because it provides guidance. Is it not better to know the rules, than to blindly assume, and stumble in the process? Up until now, the government here in the U.S has been pretty relaxed on the regulations of crypto currency, slowly providing guidance over time.
Welcome to the neo goldrush, here on the digitalized wild western frontier.
January 17, 2018, 01:07:45 AM
Quote
Bad News: Republicans Just Closed This Lucrative Cryptocurrency Tax Loophole
Virtual-currency investors won't be able to avoid paying capital-gains tax with this trick any longer.
Republicans just closed this lucrative cryptocurrency tax loophole
One of the more subtle changes made in the new tax law entails how "like-kind exchanges" are dealt with (Section 1031 of the U.S. tax code, in case you're interested). Like-kind exchanges describe the act of an "investor" who disposes of real and/or personal property and uses the proceeds of that sale to purchase a similar asset. For example, if a parcel of land is sold and used to purchase another parcel of land, or a piece of art is sold with the proceeds being used to buy another piece of art, within a defined period of time, these probably qualify as like-kind exchanges.
According to the U.S. tax code through Dec. 31, 2017, assets that qualify under the like-kind exchange rules can avoid capital-gains tax. One such "investment" that qualified was cryptocurrencies. An investor could sell bitcoin and purchase Ethereum, Ripple, or any other of the hundreds of investable cryptocurrencies, and claim it was a like-kind exchange, thus avoiding capital-gains taxation. Considering that the combined market cap of virtual currencies jumped more than 3,300% last year, the like-kind exchange loophole may have saved cryptocurrency investors a fortune... for now.
However, a rewrite of this section of the U.S. tax code did away with all iterations of the like-kind exchange, save for instances that relate to real estate. That means that any time cryptocurrency investors sell one virtual coin to buy another, beginning on Jan 1, they'll have to report the sale of the original coin as a capital gain or loss on their federal tax returns.
Wait -- it gets even more complicated for crypto investors
And not only are cryptocurrency investors on the line for the capital gains they net from their investment activities, but virtually any transaction involving cryptocurrencies could also necessitate paying capital-gains tax. For instance, if an individual uses bitcoin to buy a good or service, the IRS views that as a disposition of assets, requiring the "investor" to pay appropriate capital-gains tax.
Making matters even more complicated is that popular cryptocurrency exchanges aren't guaranteed to provide investors with a 1099 that outlines their cost basis and sale price. It truly leaves a number of virtual currency investors flying blind, so to speak.
Not surprisingly, a recent survey from LendEDU found that 36% of bitcoin investors weren't planning to divulge their capital gains to the IRS in the upcoming tax season. Of course, this upcoming tax season will be the last opportunity cryptocurrency investors will have to use like-kind exchanges to their advantage. From here, they'll have no choice but to report their gains and losses, or run the risk of financial penalties or criminal charges.
And make no mistake about it: The IRS is coming for cryptocurrency tax evaders. The regulatory tax body recently won a court case against Coinbase, one of the most popular crypto exchanges in the world, requiring it hand over information on 14,355 users who'd exchanged more than $20,000 worth of bitcoin between 2013 and 2015. Since only 802 taxpayers reported bitcoin-based capital gains on their 2015 federal returns, the IRS is aware that it has a capital-gains evasion problem on its hands, and it's done sitting idly by.
Long story short: The free ride is over for digital-currency investors.
Virtual-currency investors won't be able to avoid paying capital-gains tax with this trick any longer.
Republicans just closed this lucrative cryptocurrency tax loophole
One of the more subtle changes made in the new tax law entails how "like-kind exchanges" are dealt with (Section 1031 of the U.S. tax code, in case you're interested). Like-kind exchanges describe the act of an "investor" who disposes of real and/or personal property and uses the proceeds of that sale to purchase a similar asset. For example, if a parcel of land is sold and used to purchase another parcel of land, or a piece of art is sold with the proceeds being used to buy another piece of art, within a defined period of time, these probably qualify as like-kind exchanges.
According to the U.S. tax code through Dec. 31, 2017, assets that qualify under the like-kind exchange rules can avoid capital-gains tax. One such "investment" that qualified was cryptocurrencies. An investor could sell bitcoin and purchase Ethereum, Ripple, or any other of the hundreds of investable cryptocurrencies, and claim it was a like-kind exchange, thus avoiding capital-gains taxation. Considering that the combined market cap of virtual currencies jumped more than 3,300% last year, the like-kind exchange loophole may have saved cryptocurrency investors a fortune... for now.
However, a rewrite of this section of the U.S. tax code did away with all iterations of the like-kind exchange, save for instances that relate to real estate. That means that any time cryptocurrency investors sell one virtual coin to buy another, beginning on Jan 1, they'll have to report the sale of the original coin as a capital gain or loss on their federal tax returns.
Wait -- it gets even more complicated for crypto investors
And not only are cryptocurrency investors on the line for the capital gains they net from their investment activities, but virtually any transaction involving cryptocurrencies could also necessitate paying capital-gains tax. For instance, if an individual uses bitcoin to buy a good or service, the IRS views that as a disposition of assets, requiring the "investor" to pay appropriate capital-gains tax.
Making matters even more complicated is that popular cryptocurrency exchanges aren't guaranteed to provide investors with a 1099 that outlines their cost basis and sale price. It truly leaves a number of virtual currency investors flying blind, so to speak.
Not surprisingly, a recent survey from LendEDU found that 36% of bitcoin investors weren't planning to divulge their capital gains to the IRS in the upcoming tax season. Of course, this upcoming tax season will be the last opportunity cryptocurrency investors will have to use like-kind exchanges to their advantage. From here, they'll have no choice but to report their gains and losses, or run the risk of financial penalties or criminal charges.
And make no mistake about it: The IRS is coming for cryptocurrency tax evaders. The regulatory tax body recently won a court case against Coinbase, one of the most popular crypto exchanges in the world, requiring it hand over information on 14,355 users who'd exchanged more than $20,000 worth of bitcoin between 2013 and 2015. Since only 802 taxpayers reported bitcoin-based capital gains on their 2015 federal returns, the IRS is aware that it has a capital-gains evasion problem on its hands, and it's done sitting idly by.
Long story short: The free ride is over for digital-currency investors.
October 05, 2017, 12:26:14 PM
The best way to financially benefit from your bitcoins is to:
1) Leave the US with your bitcoins.
2) Live in some other country that has less onerous taxation.
1) Leave the US with your bitcoins.
2) Live in some other country that has less onerous taxation.
You will still be accessed a capital gains tax for the portion of the time you held the asset while still a USA citizen. Ditto for tax home residents of an nation.
Additionally the USA now has a law where if your net worth is more than $2 million when renouncing your USA citizenship, the CGT is accessed on their current value at the time of renunciation. This could be quite unfair if the assets are highly illiquid and you can’t raise funds (e.g. sell altcoins with low volume of trading) without crashing the prices of your assets.
Disclaimer: IANAL nor a CPA (although my father is an attorney and my grandfather and sister were both CPAs before they died). This is not legal nor accounting advice.
Countries that Treat Virtual Currencies as Foreign Currency
Avoiding Taxes on Bitcoin Gains
If you considered bitcoins a foreign currency, though, and you spent them, you would not owe any capital gains as long as you spent the currency on goods and services and didn't exchange it back to dollars.
[…]
The potential pitfalls are:
1) You might have trouble considering bitcoins to be a foreign currency. The recent FinCen guideline imply that bitcoins that address "virtual currencies" imply that bitcoin might fall under currency regulations. This is essential in that you owe no capital gains tax on appreciation of foreign currencies that you actually spend.
If you considered bitcoins a foreign currency, though, and you spent them, you would not owe any capital gains as long as you spent the currency on goods and services and didn't exchange it back to dollars.
[…]
The potential pitfalls are:
1) You might have trouble considering bitcoins to be a foreign currency. The recent FinCen guideline imply that bitcoins that address "virtual currencies" imply that bitcoin might fall under currency regulations. This is essential in that you owe no capital gains tax on appreciation of foreign currencies that you actually spend.
Bitcoins cannot be considered as foreign currency because that would mean there is a country somewhere that views it as legal currency. You could see many tax advisors and accountants but as we're still waiting for official regulations regarding it, they just won't be able to give you a correct answer, and neither can I.
But logic says capital gains regulations should apply.
But logic says capital gains regulations should apply.
Decentralized issuance and management of the currency could theoretically still be considered to be foreign. It certainly isn’t domestic where the only domestic currency is the USA dollar (or what ever is the legal tender in your nation).
I am an accountant, working towards CPA, who currently has a job in corporate tax. The problem with your scenario is that the tax code is not black and white, there are many areas of gray that the IRS sets up for situationse exactly like this, it is in my professional opinion that you would still owe capital gains tax (which btw has now been increased to 20% if you were to make that much of a gain), because of the fact that you can buy more gold now than you would previously been able to, aka a gain.
I do like your scenario though, unfortunately as previously stated, the code is not black and white, and even if you can fully show compliance, the IRS has the power to simply say, "No, we dont agree and you owe tax on this gain" regardless of what the code says. Then you could either pay the tax or take them to court, which would inevitably end up costing you much more than its worth to just pay the tax.
Although I agree that no penalties or interest would be assessed, although dont take my word for it, I have seen some pretty strange stuff be enforced for weird reasons, I still dont think they would care as long as you paid the back taxes or agreed to some kind of compromise on the amount owed.
I do like your scenario though, unfortunately as previously stated, the code is not black and white, and even if you can fully show compliance, the IRS has the power to simply say, "No, we dont agree and you owe tax on this gain" regardless of what the code says. Then you could either pay the tax or take them to court, which would inevitably end up costing you much more than its worth to just pay the tax.
Although I agree that no penalties or interest would be assessed, although dont take my word for it, I have seen some pretty strange stuff be enforced for weird reasons, I still dont think they would care as long as you paid the back taxes or agreed to some kind of compromise on the amount owed.
Thanks, DebitMe. I'm fully aware this is definitely a gray area. None of this would matter until tax time next year anyways, at which time maybe there will be more clarification on the matter.
If I do try and show full compliance, and the IRS ends up taxing me, well, then I'm in the same position I was in had I just paid the taxes up front.
My understanding is that the 20% rate is only for those in the highest tax bracket (for ordinary tax), although I've seen different charts where 20% extends all the way down. I'm not sure which is more up to date for 2013.
However, the IRS at least has already ruled against the foreign currency classification:
Re: Bitcoin Taxation and Attorney in Canada?
According to this website :
http://www.canadiantaxlitigation.com/cra-bitcoins-may-be-specified-foreign-property
Bitcoin counts as foreign property and "under the foreign property reporting rules in section 233.3 of the Income Tax Act." unless you have more than $100,000 CDN worth Bitcoin, you shouldn't pay any tax.
Unless you convert it to fiat or have more than $100,000 CDN you should be fine.
According to this website :
http://www.canadiantaxlitigation.com/cra-bitcoins-may-be-specified-foreign-property
Bitcoin counts as foreign property and "under the foreign property reporting rules in section 233.3 of the Income Tax Act." unless you have more than $100,000 CDN worth Bitcoin, you shouldn't pay any tax.
Unless you convert it to fiat or have more than $100,000 CDN you should be fine.
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