I think the bigger issue for US taxpayers is that the IRS doesn’t allow individuals to carryback losses. From what I’ve read, corporations in the US and individual taxpayers in Canada can carry back losses for up to 3 years. The way the crypto market exploded up until late Dec, and then has crashed hard since then could leave some traders with a big tax liability from 2017 that they could end up having to work off for years. The good news is that they might be able to carry 2018’s losses forward to offset future capital gains, but that could be cold comfort to the kids that lost it all on leverage when the bubble popped.
IANAA IANAL, seek professional advice.
I still wouldn’t hold my breath.
They explicitly do consider crypto-to-crypto transactions as a taxable event now, as of the recent tax bill. You are required to pay taxes on it.
I mean where does it end? If I tell you I'll pay you 10000 dollars for the pocket lint in your pocket, did you just make a gain of 10k? Do you now owe the IRS 10k? If you haven't actually made any legal tender, how can you be taxed on a trade at all? The value of something is completely relative, speculative, and ever-changing.
The IRS has all sorts of rules involving barters, meaning trading one asset for another without USD being involved in the transaction at all. [1]
Say you buy a car for $10k, let it sit in your garage for 30 years and it now becomes a classic vintage worth $30k. If you go and trade that car for a new motorcycle worth $30k, the IRS requires you to record your $20k gain on the car when you make the trade for the motorcycle.
Where does it end? When you’ve paid the IRS the tax you owe, as per the law.
Regarding the pocket lint, if you tell me you’ll pay $10k for mine, I have no gain. When the sale happens, I recognize the $10k gain and pay the tax. This seems to be a pretty typical transaction for pocket lint or a truckload of butter.
At the end of the day, whether you traded BTC for DOGE or for IKEA couches, you were able to buy more of the second thing after you traded your BTC. You sold it. You realized your 50% gain.
Its farcicle to argue that by trading BTC for DOGE you're not realizing your gain. You're no longer tied to BTC, and your purchasing power increased at the time of the trade. Your wealth converted to USD went up. You sold your asset. You owe taxes.
> If I tell you I'll pay you 10000 dollars for the pocket lint in your pocket, did you just make a gain of 10k?
Yes. this is exactly how it works. you made a $10k profit. Its not a capital gain, but you made a profit and owe taxes. You dont owe them 10k, but you owe them part of it. If you then go and invest that 10k on physical capital in order to make more lint, then you can deduct that again as a business expense because you've essentially lost 10k on an investment (assuming 100% depreciation).
> The value of something is completely relative, speculative, and ever-changing.
This is why the thing that matters is when you realize your gain by selling the asset. It doesn't matter what you sold it for, you either realized a gain or a loss and that has tax implications.
Do you realize a $10/gain, and owe money on that? If yes, let's say you return the toaster, and your Bitcoin is refunded. Do you still pay taxes?
Moreover, if you bought the toaster, and sold it for $20 in BTC, you would have profited $10 and would need to pay taxes on it.
Key point here is that you also recognize every loss. Which means in effect you are only paying tax on the amount your wealth increased over the tax period.
It could still be huge, but only proportional to huge overall gains.
Not sure about the trading fees for frequent traders. That's definitely a CPA question.
I believe they factor into calculating the gain/loss. E.g., if you buy 100 units for $99 plus a $1 fee, then your cost basis is ($99 + $1)/(100 units) = $1.00/unit. If you later sell them all for $111 with a $1 fee, then your capital gain is ($111 - $1) - ($100) = $10.
You owe taxes to the feds and state of about 500,000, which you don't have anymore. That is of course carried forward as a loss for the next year, but that only results in reducing taxable income at a potentially lower bracket.
For someone who knows nothing about tax law, if I draw the $15k back from Google to USD, would I pay taxes on the full 15k?
This gains growth tax thing seems to make sense, if there is no taxes when converting it to USD. Eg, if I take 10k and make an additional 10k converting from BTC->ETH and pay taxes on that new 10k, that's reasonable to me if I only pay taxes once on those gains. If however, I withdraw the 20k ETH to USD, and pay taxes on the 20k, then effectively I've paid double taxes on the gained $10k.
Is there a way to handle that in tax law? Or are trades among stocks/etc supposed to be double taxed like that?
https://www.irs.gov/taxtopics/tc429
Are cybercurrencies not considered securities in that same sense? Has anyone seen tax advice about how the day trader rules apply?
This is called a "like-kind trade" which is IMO muddy for cryptocoins [1].
EDIT: oh yes, I see now that you cite 1031, oops.
[1] https://www.forbes.com/sites/tysoncross/2018/02/19/the-truth...
The link you cited above covers this on page 4.
Keep in mind also that like-kind exchanges, if you're going to use them this year and for prior year reporting, require you to claim them explicitly on your taxes [1].
[1] https://www.forbes.com/sites/robertwood/2017/11/27/tax-bills...
If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain.
Now, perhaps one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade. The IRS generally doesn’t like someone to be able to trade assets without recognizing a gain, otherwise it breaks down the fundamental framework upon which the entire tax system is based. The law provides a few provisions for tax free trades, but they are specifically prescribed by the tax law, such as a 1031 exchange between real estate holdings.
If you’ve heavily traded between cryptos over the past year with massively appreciating values, I would be worried that the IRS would claim you should have recognized a tax gain with every trade. For some, the ramifications for such a perspective could be huge.