Author

Topic: Poloniex Lending for US Taxpayers Tax Question (Read 1725 times)

legendary
Activity: 2800
Merit: 1012
Get Paid Crypto To Walk or Drive
I am a tax accountant and do corporate taxes for a living, so I have a pretty good understanding of tax law and have been watching bitcoins role in tax very closely.
Coin value growth would be appreciation, same as if you owned gold and sold it at a gain.  You would have capital gains income on the growth.  The IRS does perceive a difference in the two, they are taxed at different rates.  Interest is just ordinary income and property would be subject to capital gains, either long term or short term, depending on how long you have held it for.
There are 2 different questions in your second paragraph, the first is if you trade it for a physical item, and the answer to that is it depends on the item.  If it is something like gold or silver, then generally no, your basis would just transfer to the new property.  If it is something like computer parts, then yes, that would trigger capital gains on the appreciation of the price.  The other side of that question is if you use it to pay utilities or some other service, yes you would owe capital gains tax then on the appreciation of the price.  It doesn't really matter if there is a conversion to fiat in there, you are still realizing the gain with the purchase of something and that triggers tax.  
Sales tax is different than capital gains tax.  One is based off of the purchase price of the item and the other is based off of basis you hold in whatever method your using to buy that item.  Income tax really does not fit in here at all since you aren't providing service for income, but yes, using a debit cryptocard would still trigger the gains.

Hopefully that was clear enough, feel free to ask anymore questions or if there isn't something that makes sense and I can clarify.

You rock dude! that was concise, thank you for spelling that out for me. I learned a lot in those paragraphs, and Im sure the community appreciates that informed guidance (but will promptly ignore it! Cheesy ) your expertise is sincerely appreciated.  Smiley also, I know that little bit of advice would have cost me at least 100 dollars an hour, LOL.

I mentioned income tax because I get paid in bitcoin, but lets shhhh about that here if you get my drift.
Bur dammit man, this is disappointing, I thought tax avoidance was that easy Sad back to the drawing board I guess..  Wink

I am glad to be able to help, i try to spread as much tax information as possible, because the only way we will be takrn serioisly and get shed in the right light is if we dont seem like a bunch of stealing hackers. Lol. Happy to help, feel free to reach out with questions. There are always tax deferal options, although getting paid in btc makes it tough, but putting money into a IRA could be a good option for you, or if yoir employee offers any tax deductible accounts that is an option as well.
legendary
Activity: 1148
Merit: 1048
I am a tax accountant and do corporate taxes for a living, so I have a pretty good understanding of tax law and have been watching bitcoins role in tax very closely.
Coin value growth would be appreciation, same as if you owned gold and sold it at a gain.  You would have capital gains income on the growth.  The IRS does perceive a difference in the two, they are taxed at different rates.  Interest is just ordinary income and property would be subject to capital gains, either long term or short term, depending on how long you have held it for.
There are 2 different questions in your second paragraph, the first is if you trade it for a physical item, and the answer to that is it depends on the item.  If it is something like gold or silver, then generally no, your basis would just transfer to the new property.  If it is something like computer parts, then yes, that would trigger capital gains on the appreciation of the price.  The other side of that question is if you use it to pay utilities or some other service, yes you would owe capital gains tax then on the appreciation of the price.  It doesn't really matter if there is a conversion to fiat in there, you are still realizing the gain with the purchase of something and that triggers tax.  
Sales tax is different than capital gains tax.  One is based off of the purchase price of the item and the other is based off of basis you hold in whatever method your using to buy that item.  Income tax really does not fit in here at all since you aren't providing service for income, but yes, using a debit cryptocard would still trigger the gains.

Hopefully that was clear enough, feel free to ask anymore questions or if there isn't something that makes sense and I can clarify.

You rock dude! that was concise, thank you for spelling that out for me. I learned a lot in those paragraphs, and Im sure the community appreciates that informed guidance (but will promptly ignore it! Cheesy ) your expertise is sincerely appreciated.  Smiley also, I know that little bit of advice would have cost me at least 100 dollars an hour, LOL.

I mentioned income tax because I get paid in bitcoin, but lets shhhh about that here if you get my drift.
Bur dammit man, this is disappointing, I thought tax avoidance was that easy Sad back to the drawing board I guess..  Wink
legendary
Activity: 2800
Merit: 1012
Get Paid Crypto To Walk or Drive
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.

It may not be interest income. For federal tax purposes, virtual currency is treated as PROPERTY. So it's not a currency or financial instrument. It may be considered as property rental income.


This is correct. Until the coins are sold, appreciation doesnt really matter from a legal standpoint. value is only taxed after it is realized as cash. so the sources of bitcoin, if legal are irrelevant. as you cant really spend bitcoin on anything of substance in the world, there is little risk of you evading taxes by buying physical goods. you will need to convert to fiat eventually; when you do, it will be recorded on most major exchanges. and like we learned with coinbase, if they have the records, no matter what the policy is, a government can/will access them to determine tax liability.



Not quite correct, you will owe tax on the interest earned during the period that it was earned.  That will establish your basis in the bitcoin (or other property).  Then you are correct in that you are able to defer the appreciation of the property until it is realized.

Thank you for the clarification. I wasnt aware of the need to establish basis but it makes perfect sense; it would be the citizen/corps responsibility to record/provide said information if the IRS asked. Of course they might want you to record the purchase price, so they know the actual rate of appreciation. One question though, would coin value growth qualify as appreciation or interest, and does the IRS perceive a difference in the two, as far as taxation goes? Im a novice legal enthusiast; its more to protect my own ass than to learn for the sake of learning, LOL.

Also, as I asked in another thread (you seem educated on the subject, curious on your opinion). If I trade btc for physical items, or pay bills directly with btc, there was never a conversion to fiat BUT value was realized. If sales tax is paid, am I still on the hook for gains tax, as I was not the body that made the fiat/bitcoin conversion? Same with the bitcoin/altcoin debit cards. If im using it at a point of sale, good as cash, would I be subject to anything other than income/sales tax, and is income tax even applicable at that point? (im pretty much always holding crypto, on paper)

I wonder if those sovereign citizen dudes know about bitcoin?  Huh


I am a tax accountant and do corporate taxes for a living, so I have a pretty good understanding of tax law and have been watching bitcoins role in tax very closely.
Coin value growth would be appreciation, same as if you owned gold and sold it at a gain.  You would have capital gains income on the growth.  The IRS does perceive a difference in the two, they are taxed at different rates.  Interest is just ordinary income and property would be subject to capital gains, either long term or short term, depending on how long you have held it for.
There are 2 different questions in your second paragraph, the first is if you trade it for a physical item, and the answer to that is it depends on the item.  If it is something like gold or silver, then generally no, your basis would just transfer to the new property.  If it is something like computer parts, then yes, that would trigger capital gains on the appreciation of the price.  The other side of that question is if you use it to pay utilities or some other service, yes you would owe capital gains tax then on the appreciation of the price.  It doesn't really matter if there is a conversion to fiat in there, you are still realizing the gain with the purchase of something and that triggers tax. 
Sales tax is different than capital gains tax.  One is based off of the purchase price of the item and the other is based off of basis you hold in whatever method your using to buy that item.  Income tax really does not fit in here at all since you aren't providing service for income, but yes, using a debit cryptocard would still trigger the gains.

Hopefully that was clear enough, feel free to ask anymore questions or if there isn't something that makes sense and I can clarify.
legendary
Activity: 1148
Merit: 1048
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.

It may not be interest income. For federal tax purposes, virtual currency is treated as PROPERTY. So it's not a currency or financial instrument. It may be considered as property rental income.


This is correct. Until the coins are sold, appreciation doesnt really matter from a legal standpoint. value is only taxed after it is realized as cash. so the sources of bitcoin, if legal are irrelevant. as you cant really spend bitcoin on anything of substance in the world, there is little risk of you evading taxes by buying physical goods. you will need to convert to fiat eventually; when you do, it will be recorded on most major exchanges. and like we learned with coinbase, if they have the records, no matter what the policy is, a government can/will access them to determine tax liability.



Not quite correct, you will owe tax on the interest earned during the period that it was earned.  That will establish your basis in the bitcoin (or other property).  Then you are correct in that you are able to defer the appreciation of the property until it is realized.

Thank you for the clarification. I wasnt aware of the need to establish basis but it makes perfect sense; it would be the citizen/corps responsibility to record/provide said information if the IRS asked. Of course they might want you to record the purchase price, so they know the actual rate of appreciation. One question though, would coin value growth qualify as appreciation or interest, and does the IRS perceive a difference in the two, as far as taxation goes? Im a novice legal enthusiast; its more to protect my own ass than to learn for the sake of learning, LOL.

Also, as I asked in another thread (you seem educated on the subject, curious on your opinion). If I trade btc for physical items, or pay bills directly with btc, there was never a conversion to fiat BUT value was realized. If sales tax is paid, am I still on the hook for gains tax, as I was not the body that made the fiat/bitcoin conversion? Same with the bitcoin/altcoin debit cards. If im using it at a point of sale, good as cash, would I be subject to anything other than income/sales tax, and is income tax even applicable at that point? (im pretty much always holding crypto, on paper)

I wonder if those sovereign citizen dudes know about bitcoin?  Huh
sr. member
Activity: 348
Merit: 250
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.
Do they have 10% interest rate per month? It is huge hard to believe. It does not seem to be sustainable in the long run

It has been fluctuating around .04 to .08% daily, which would be around 20 to 40% APR.  HAHA, as soon as I type that I decide to look, currently at around 1.5% daily, which is 550% APR!  That cannot and won't last.

Okay thanks for information! 1.5% daily is really crazy Smiley
Not stop with rate 1.5% daily, in yesterday the rate for lending increasing up to 5% per day and make me cut loss all order lol. I think if anyone in this thread have Bitcoin on exchange Poloniex, should going to lending now and enjoy profit. Wink
legendary
Activity: 2800
Merit: 1012
Get Paid Crypto To Walk or Drive
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.

It may not be interest income. For federal tax purposes, virtual currency is treated as PROPERTY. So it's not a currency or financial instrument. It may be considered as property rental income.


This is correct. Until the coins are sold, appreciation doesnt really matter from a legal standpoint. value is only taxed after it is realized as cash. so the sources of bitcoin, if legal are irrelevant. as you cant really spend bitcoin on anything of substance in the world, there is little risk of you evading taxes by buying physical goods. you will need to convert to fiat eventually; when you do, it will be recorded on most major exchanges. and like we learned with coinbase, if they have the records, no matter what the policy is, a government can/will access them to determine tax liability.



Not quite correct, you will owe tax on the interest earned during the period that it was earned.  That will establish your basis in the bitcoin (or other property).  Then you are correct in that you are able to defer the appreciation of the property until it is realized.
legendary
Activity: 2800
Merit: 1012
Get Paid Crypto To Walk or Drive
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.

It may not be interest income. For federal tax purposes, virtual currency is treated as PROPERTY. So it's not a currency or financial instrument. It may be considered as property rental income.


No, even property (gold or silver) lent out and receiving interest on, will have the proceeds treated as interest income for federal tax purpsoses.
legendary
Activity: 1148
Merit: 1048
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.

It may not be interest income. For federal tax purposes, virtual currency is treated as PROPERTY. So it's not a currency or financial instrument. It may be considered as property rental income.


This is correct. Until the coins are sold, appreciation doesnt really matter from a legal standpoint. value is only taxed after it is realized as cash. so the sources of bitcoin, if legal are irrelevant. as you cant really spend bitcoin on anything of substance in the world, there is little risk of you evading taxes by buying physical goods. you will need to convert to fiat eventually; when you do, it will be recorded on most major exchanges. and like we learned with coinbase, if they have the records, no matter what the policy is, a government can/will access them to determine tax liability.

newbie
Activity: 121
Merit: 0
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.

It may not be interest income. For federal tax purposes, virtual currency is treated as PROPERTY. So it's not a currency or financial instrument. It may be considered as property rental income.
full member
Activity: 503
Merit: 102
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.
Do they have 10% interest rate per month? It is huge hard to believe. It does not seem to be sustainable in the long run

It has been fluctuating around .04 to .08% daily, which would be around 20 to 40% APR.  HAHA, as soon as I type that I decide to look, currently at around 1.5% daily, which is 550% APR!  That cannot and won't last.

Okay thanks for information! 1.5% daily is really crazy Smiley
legendary
Activity: 2800
Merit: 1012
Get Paid Crypto To Walk or Drive
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.
Do they have 10% interest rate per month? It is huge hard to believe. It does not seem to be sustainable in the long run

It has been fluctuating around .04 to .08% daily, which would be around 20 to 40% APR.  HAHA, as soon as I type that I decide to look, currently at around 1.5% daily, which is 550% APR!  That cannot and won't last.
full member
Activity: 503
Merit: 102
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.
Do they have 10% interest rate per month? It is huge hard to believe. It does not seem to be sustainable in the long run
legendary
Activity: 2800
Merit: 1012
Get Paid Crypto To Walk or Drive
The correct way to treat this income is as interest income.  So for example...

You have 1 btc with basis of $2000 and you lent it for 1 month and earned .1 btc and the btc price is now $2500

You would have interest income of $250 and unrealized capital gains of $500, which would be realized when you sell that coin.  You now have a basis in the .1 of $250.
newbie
Activity: 34
Merit: 0
I believe it should be reported as interest income but given how vague everything is you may want to be conservative and choose the total number that gets tax the most.  Nevertheless, I would advise talking to a tax expert on this.  Bitcoin aand cyrpto currencies according to the IRS is like property.  So, if you have proof of a cost basis and then show the trades (all of them) you need to report the net and all of the interest, "dividends" etc.
full member
Activity: 181
Merit: 100
Has anyone reported interest received from lending bitcoin on Poloniex? Did you report it as Interest income or capital gain? Or something else? How did you arrive at your basis?

Thanks!
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