Since every CPA and tax consultant wants you to pay them money just to answer simple questions, I figured I'd share some of the information I was able to gather this tax season.
I used the Bitcoin.tax tool to calculate my tax liability. It was actually extremely straightforward to use if you have just done regular investing and holding, but it is ambiguous on a few points if you do not already know a few things ahead of time.
1. FIFO or LIFO (first-in, first-out vs last-in, first-out)?
Sadly, FIFO will fuck many people who got into BTC early in 2017 and then used BTC to buy altcoins later in the year. Trading BTC for altcoins is a taxable event under US tax codes. This also counts for trading back to BTC, and even between altcoins... basically anything not bought using fiat is considered a "trade" and will be taxed.
When you trade between coins, it is technically considered "selling" the original coin to fiat and then "buying" the new coin using that fiat. Using FIFO, you will use the cost basis of when you bought the very first BTC you ever owned and then compare it to the fair market price at the time you bought the altcoin.
This means that if you bought your first BTC in early 2017 (or even before then), you probably saw considerable gains on that coin. That means you will need to pay taxes on those gains when you traded your BTC for alts.
FIFO sucks because even if you bought BTC and immediately sold it for altcoins, you will still need to use the first Bitcoins you ever bought as your cost basis, rather than buying and selling your BTC for instantly for the same price.
You need to use FIFO sadly. Only under special circumstances are you allowed to use LIFO. The only good news is that the taxes will equalize at the end once you cash out entirely from crypto.
Under the Bitcoin.tax tool, report the forked coins as a gift with a zero cost basis (since you literally paid nothing for them). When you cash out your coins later, it will calculate your gains assuming you paid nothing for the asset.
Michael Butler
I have lost an unknown amount of monero. Sorry for your tax tool
Josiah Perry
reminder that forks/airdrops are income, not gifts.
Eli Barnes
further reminder that while FBAR is not required, FATCA is!
Kevin Rodriguez
3. Can I use a 1031 exchange to defer taxes on altcoin trading?
1031 exchanges were restricted to solely real estate transactions in the new 2018 US tax code. Rumor has it that the IRS will be sniffing out any 1031 exchanges in 2017 as well. There is an option to use it on the Bitcoin.tax tool. Use it at your own risk.
Dylan Collins
I actually paid a consultant to answer this question, guy told me to report it as a gift with a zero cost basis.
So either both methods worked, or my guy is an idiot.
Parker Murphy
yeah i'm just fud'ing, i got the same answer.
Jaxson Ortiz
You cheeky little devil....
James Evans
seriously though, how do you record lost/stolen coins, like say if you sent coins to an ico which was literally a scam
Nathaniel Fisher
Not even joking, there is an option in Bitcoin.tax tool for lost/stolen/hacked coins.
Austin Barnes
Remember to pay taxes on all on your WoW auctions too
Caleb Baker
theres an irs form for it. I don't know what though, because i'm not stupid enough to have gotten scammed. I did buy a dead coin and suffer losses, but i still recouped i think 2/3rds of what i put in, so i'll just report the loss on my 8949 next year.
Easton Jones
>market sell a lot >have like 20k individual trades or something retarded am i seriously supposed to list every single one on my 8949
can i just batch them together at the average price or whatever
Liam Carter
>You need to use FIFO sadly. Only under special circumstances are you allowed to use LIFO. The only good news is that the taxes will equalize at the end once you cash out entirely from crypto.
What is this based off of? There's no law or even guidance that says you have to use FIFO.
Jackson White
I nearly missed my EVE gains on my 2017 tax return. Thanks for the reminder
Ethan Cruz
As long as the coin you bought isn't SEC registered you do not need to register trades, or hypothetical "gains"
Hudson Myers
When calculating the taxes owed on capital gains, you will definitely have to list every transaction. I know Bitcoin.tax has import tools for a lot of common exchanges.
But honestly, at that point I would literally just pay someone to put together your taxes. Let someone else have that headache. Services I've seen range anywhere from $300-$500 bucks. Also include your regular federal/state returns plus any other forms you need to submit.
Lincoln Powell
i hope the IRS likes 700 pages of 8949s then
Angel Hill
You're not the first day trader to ever submit taxes.
In all seriousness, go on a crypto tax site and look at the packages. There is a reason they have packages advertising 10,000+ trade calculations.
Henry Butler
yeah i am using bitcoin.tax
i just think it's retarded
Gavin Allen
Hope you didn't participate in any trade route blockades The trade commission goin cum down on yo ass for market manipulation
Gabriel Parker
>Only under special circumstances are you allowed to use LIFO.
What circumstances are those?
>The only good news is that the taxes will equalize at the end once you cash out entirely from crypto.
In some cases they will never equalize. Let's say you bought 10 bitcoins. You sent 8 to cold storage to hold for over a year and 2 to an exchange to trade into more coins. If calculated with FIFO, every time you buy and sell the 2 coins, the cost basis and date acquired of the 8 coins that are sitting in cold storage would keep cycling through the whole year, converting everything into short term capital gains which would be significantly higher. LIFO, would be significantly lower because it would preserve the long term capital gains status of those 8 coins AND more closely mimic your trading activity. Why would you use FIFO in this case and INACCURATELY make it look like you've been actively trading with those 8 coins that were just sitting in cold storage?
Daniel Adams
And actually, if you had over $10,000 at any point in the year on a foreign exchange (Binance is the only one I know off the top of my head), make sure to submit an FBAR with your return.
Eli Brown
I don’t get it?
Nolan Rodriguez
Fuck i did that and on top of that i have multiple accounts. What should i do? REEEEEEE
Hudson Perez
Yeah same thing happens with gold, they charge you for gold forever that's why everyone buys it
Lincoln Davis
I'm going to be honest, I don't know. I'm following what my consultant told me. Use LIFO at your own risk.
Christopher Cook
test
James Perez
What’s a trade route blockade? Please explain for a brainlet
Brandon Morales
FBAR isn't needed for crypto, that was established years ago
Austin King
If you have a source for that, that would be very useful for me.
James Walker
We're talking about a video game MMORPG that uses virtual currencies paired with fiat.
Just reminding everyone that if you play MMORPGS that have fiat pairs, the virtual markets are regulated in the same way stocks, property, and commodities are. Just like BTC is.
Carson Butler
I was told an FBAR was definitely needed, where did you hear otherwise?
Jeremiah Bennett
Why does this shit happen.
Adrian Kelly
Oh I got you. I was confused because I thought EVE was the coin Devery, which is actually a supply chain project
Carter Morris
i'm looking for it now, i know in 2014 they issued guidance which said it wasn't needed.
Jack Ross
I'm using it. But let's be real. It's not that risky. First of all, no human is most likely going to look at your 8949 electronic attachment. Even if they do, it's utterly incomprehensible and has minimal information, and doesn't say what accounting method you even used. And even if it goes to court the fact that there's no law or guidance on that you HAVE to use FIFO is a pretty good defense, and some tax professionals agree with using other accounting methods.
Nathan Hughes
I salute you then, I think you will be okay but am genuinely interested in hearing how things turn out. Make a post on here when you get your final results.
Anthony Lewis
The government doesn't want us to spend our time playing video games, they want us working at Mcdonalds slaving away our lives
It's the same reason they are taxing the shit out of crypto, even though crypto is an unregulated market.
Aiden Cruz
>tfw american education and entertainment made my attention span at the equivalent to a gold fish.
>tfw even if I tried whatever the fuck OP wrote down about tax magic mumbo jumbo looks literally like Chinese scribble scramble letters
looks like an advertisement, why do you always post this tax shit around this exact time when i'm about to get off work.
>tfw I literally work at an accounting firm for 7+ years
>In light of the potential penalties that can be imposed for FBAR and FATCA compliance failures, the IRS’s guidance on the issue cannot be described as anything but anemic and inviting tax controversy. In 2014, Rod Lundquist, a senior program analyst for the Small Business/Self-Employed Division indicated that the IRS would not require Bitcoin to be reported as part of FBAR. He elaborated by adding that that “FinCEN has said that virtual currency is not going to be reportable on the FBAR, at least for this filing season [emphasis added].” The IRS later clarified this statement in response to a reporter’s inquiry. It clarified that virtual currency accounts also fell under the non-reportable guidance.
Camden Thompson
I side with because what he said makes sense, it's absurd to use FIFO with several BTC that you hold long term and several that you trade with, LIFO is the only way of accounting that would make sense for btc or any alt at all
also important to note, odds are that you have not made enough money to incentivize the government to try and squeeze you with an audit. also, the fact that you filed at all generally puts the burden of proof on the IRS and due to the complexity of the filing and how new crypto is, it won't be economically viable to go after you if they have to prove you misfiled and then calculate what you owe them. if you don't file, the burden of proof is on you to argue against paying what they claim your burden+fees+penalties are
it's not entirely a good faith effort situation as there is no official rule stating that a good faith effort is enough, but it essentially is
thanks for some decent info, and what do you think of bitcoin.tax in terms of ease of use and pricing? i also have thousands of transaction from stupid trading and don't want to pay hundreds for the bigger packages, thought maybe it would be worth doing on my own especially if I had to organize data form trades, transferring between exchanges, running arbitrage, and margin trades
Jaxson Green
Straight pussies I collect taxes , i don't pay them I get tax returns like i should, money that was robbed me.. I'm a semi poorfag in crypto so miss me with all this tax bs, no one is going on binance to track my 10,000 trades i have so far and convert it to the price of ETH at that very moment Not me not anyone
Eli Collins
>forked/mined coins - income vs. gift the distinction here is really IF the coin you acquired had market value value when it was acquired.
standard fork situation - you hold the private keys, it's very easy to argue when those coins were acquired at the fork block that NO markets existed yet and the true market value was $0.
if you mine coins, get via airdrop, or keep them on an exchange during a fork, there's a good chance they do have a market value when they are acquired by you, since the exchanges probably don't distribute the coins until the markets open, and with mining, unless you are mining a brand new coin with no markets it likely has a stable market value already which will technically be your market value.
I use FIFO because I plan on making way more gains in the future than I have in the present, so I'd rather knock out all my cheap sales now. it really only has an effect on long term holds and won't change short term gains at all.
I do it every year
Hunter Campbell
no I actually don't and im like 26 years old.
I cashed out like nearly 1200$ 2 weeks ago and nothing happend kek.
