Let's talk taxes and records

hairygrape
hairygrape

Let's talk taxes and records.
Are you required to report every individual cryptocoin transaction on your taxes, or just the value when you finally cash out to USD?

How can I set up an Excel sheet that will reference the historical cost of BTC and convert from Satoshi to USD? I want to keep a record so a year from now when I do taxes I don't have to go back, look up BTC price, and convert to USD from Satoshi.

All urls found in this thread:

klasing-associates.com/possible-1031-exchange-bitcoin-ethereum-electroniccrypto-currencies/
irs.gov/uac/eight-facts-about-new-irs-form-8949-and-schedule-d
gov.uk/tax-sell-shares]

Nojokur
Nojokur

Usd cashed out - usd invested =gains. Report what u cash out for the year.

Evil_kitten
Evil_kitten

Are you required to report every individual cryptocoin transaction on your taxes
Technically, yes. But a cryptocoin transaction is one that you actually perform yourself. When you're trading on an exchange, those transactions are not yours because when you deposit, you temporarily disown the coins. So only deposits and withdrawals count, not what lies in between.

Methnerd
Methnerd

Ok, let's assume I hold for multiple years. Am I required to report transactions between coins on a yearly basis, or only when I cash out to USD? I heard someone say every transaction must be reported and that taxes should be paid on gains, but does it matter if those gains are all crypto gains, prior to converting back to USD?

VisualMaster
VisualMaster

So I'm required to report a deposit of USD into a cryptocurrency?

Speaking of ownership, let's assume someone gave me money and I bought crypto. How do I transfer the crypto to them so that the tax liability is theirs? Is it as simple as sending it to a wallet they control?

takes2long
takes2long

the rules are still up for interpretation which is why you get so many different answers

lowest risk option:
report all transactions, coin to coin, coin to fiat, and purchases
record usd value (in a consistent manner) for everything at time of sale

read this
klasing-associates.com/possible-1031-exchange-bitcoin-ethereum-electroniccrypto-currencies/

high risk:
only reporting when you move in and out of fiat
this bullshit, exchanges are money transmitters, the IRS won't fall for this meme

Gigastrength
Gigastrength

user told me the irs will kill me if didont pay is this

StonedTime
StonedTime

Thanks for the link. So there is no official guidance, just more and less conservative ways to go about it at this time. If I chose the safest route, I'd be declaring short-term capital gains on every transaction, even if, say, I bought $25 of RDD and sold it for $50. Sounds tedious.

Any answer on the transfer of tax liability? Re: my previous question, in which someone gives me USD, I purchase a crypto, and now I want to transfer ownership of that crypto to them?

StonedTime
StonedTime

it is tedious. I claim tons of $0.01 gains and losses but I want to do it by the book, the IRS brought this on themselves. I automated much of it because I am a developer though.

can't help you on the transfer thing. I would just treat it as a buy/sell on my end and assume he'd treat it as a buy. as long as you transfer it to them immediately you should be able to report a $0.00 gain/loss on it. 30% of $0 is $0. unless you're stuck in FIFO and you are holding whatever you give them, and it sells your oldest lot. then again it may be beneficial to raise your avg cost and reduce tax exposure if you think the price will continue to grow. but that transaction to the friend (not for the purpose of trading) may qualify for something like a like-kind exchange too. it's all very squishy user. you would need a tax attorney/cpa to answer that.

Playboyize
Playboyize

Some of this is going over my head, like the FIFO trading. On the subject of reporting gains, would I file a separate 1040 for every transaction or can I aggregate them and report the whole value for the year? I've never reported capital gains before because my dealings were in tangible objects, off the record, whereas these exchanges may be reporting my activities to the IRS so I want to do it right.

ZeroReborn
ZeroReborn

You'd fill out a Schedule D.

BinaryMan
BinaryMan

just use tax software like turbotax or something. it's capital gains treated as property and should come out on form 8949. FIFO is the accounting type, first (shares) in first (shares) out. so selling your oldest. use software like quicken to track the sale of each lot, that's too much work to do manually.

Soft_member
Soft_member

irs.gov/uac/eight-facts-about-new-irs-form-8949-and-schedule-d

Poker_Star
Poker_Star

Thanks anons, will check out these resources

TechHater
TechHater

Kind of interested too. I've just started trading options and will potentially trade hundreds or even thousands of times each year. Each Trade Confirmation is stored in a PDF in my brokerage account so It's no problem to download them and make them available to anyone but surely they won't be interested in every transaction.

I presume as it will just be capital gain and I would just report the gain for the year and pay any corresponding tax.

askme
askme

Regarding FIFO, how does this relate to the sale of cryptocurrency? Presumably this means you sell the coins you purchased first, but I don't understand how you would make that distinction, because the coins are all stored in the same wallet and they aren't separated based on when they were purchased.

Stark_Naked
Stark_Naked

Bitcoin.tax

Crazy_Nice
Crazy_Nice

Thanks user, looks useful.

Burnblaze
Burnblaze

you're right it doesn't really make sense except for on tax forms. I basically just treat each trade as a new lot. in order to calculate the correct cost basis you need the price + amount of coins.

so if I open a buy order for 75 ETH and it gets filled at 3 levels:
25 ETH @ 191.50
25 ETH @ 191.60
25 ETH @ 191.70

now I have 3 lots where I know the exact cost basis for each, and the 191.50 lot will be sold first. every time the price changes that's a new lot.

obviously this can get out of hand quickly if the order book is filled with orders that only differ by a few sats. that's why i try to execute all my trades to reduce the amount of lots I create, or use and exchange the fills the whole order as a single lot at the same price.

Fuzzy_Logic
Fuzzy_Logic

it would look more like this at a high level

100 ETH @ $10 - 3/1/2016
100 ETH @ $50 - 4/1/2017
100 ETH @ $150 - 5/1/2017

so your oldest would go out first tax wise when you sell any ETH

Emberburn
Emberburn

Got it. So despite the fact that all my ETH are in the same wallet with no distinction made among them, if I have recorded the information you outlined, I could sell some ETH and make an arbitrary declaration that that was my "oldest lot". Am I understanding you correctly?

StrangeWizard
StrangeWizard

yes, this is my interpretation of how the IRS would view it. you have some freedom year over year but if people could pick and choose how much they realized trade over trade, the IRS wouldn't make any money. FIFO is probably the lowest risk method.

Ignoramus
Ignoramus

So if you sell 150 ETH for $500 the capital gains would be $500 - $10 - $25 = $465
?

farquit
farquit

yes, exactly

likme
likme

this is why it would be beneficial to offload your very cheap lots if you think a coin will keep growing because as price grows exponentially, so does tax exposure

farquit
farquit

offload?

Inmate
Inmate

the totals would be a little different in practice actually, say the price was $500

(150 x 500) - ((100 x 10) + (50 x 50)) = realized gain

sell

Burnblaze
Burnblaze

So to be clear, the only time one reports capital gains is when a coin is sold, yes? How about if I've simply bought crytpo and am holding it? In this scenario, I don't report it because no capital gains have been made via a sale, is that right?

FastChef
FastChef

yeah, you don't pay taxes until you sell

selling also includes coin to coin transactions (assuming you are trading for the expressed purpose of trading) and purchases using crypto

Nude_Bikergirl
Nude_Bikergirl

Oh you meant 100 ETH @ $10 per ETH not for the whole 100?

girlDog
girlDog

The reason people would recommend just reporting whatever you convert to fiat is because with crypto you tend to day trade or hold short positions. If you lose money do you really want to document all 130 transactions you made or just show that you put X amount in and pulled Y amount out?

Evil_kitten
Evil_kitten

So, if you're in the uk it's very simple - bitcoin comes under the capital gains tax. Read this [gov.uk/tax-sell-shares] if you don't know how it applies.

5mileys
5mileys

Also thank you for answering questions, I know there's been a lot of panic as people realize coin cap gains can be taxed

iluvmen
iluvmen

yes, because you can sell only a portion of a lot if you want (like in that example), that's really the only way to keep track of it and how accounting software would display it.

Emberburn
Emberburn

the risk here is the IRS will see you have a 10,000% gain and using your date aquired/date sold could easily determine that you had to have a myriad of altcoin or margin trades to get those returns.

RumChicken
RumChicken

Can you comment on how selling older, cheaper lots reduces your tax exposure?

Wouldn't the increase in value of a coin justify holding to get greater gains (on which you would pay more taxes) than selling cheaper units to reduce a tax burden? I guess it depends on how much value the coin gains, no?

New_Cliche
New_Cliche

bitcoin crash of 2018 happens when the the IRS audits every motherfucker with a crypto account and notices they owe tens of thousands in taxes

takes2long
takes2long

if you replace your cheap lots with more expensive ones your gain will be much smaller when you eventually sell everything

this happened by accident with me because I need to use ETH to move coins between exchanges more efficiently due to bitcoins network fees and transfer times. so I buy new ETH, sell it for an altcoin, and my oldest ETH lots are sold from the tax perspective. then when it's $1000 a coin, I'm paying much less on the gain.

Emberburn
Emberburn

this depends on the price continuing to rise though or else you'll "lose" money obviously. then wash sale rules may apply on any losses you realize, but currently most people are saying that wash sales only apply to securities and the IRS decided to treat virtual currencies as property, not securities. so they shouldn't be an issue until IRS says otherwise.

CouchChiller
CouchChiller

jumping through all these hoops so you can take uncle sam cuck you for your money

Damn you guys are dumb.

Stupidasole
Stupidasole

How do you get around it?

Raving_Cute
Raving_Cute

Expecting the IRS to not come knocking when they realize you managed to buy $10k worth of items without using your bank account.

hairygrape
hairygrape

I would literally up and leave. Idgaf, I don't have time to deal with tedious bs.

Spamalot
Spamalot

So in that scenario, you're selling new ETH (purchased at a higher price) but reporting the sale of your oldest (cheapest) lot because your cost basis for taxable gains would be smaller?

SniperGod
SniperGod

you guys are retarded

IRS will give zero fucks about <5k selling a month, which obviously you should not be doing right now

just keep trading until one giant cashout. at that point, report taxes

or go for slow leak. cash out steadily like 3k a month for many months. IRS wont catch you.

or buy everything in btc. IRS wont catch you

StrangeWizard
StrangeWizard

People who don't want to commit tax fraud are retarded
The IRS doesn't care about getting their money

Supergrass
Supergrass

no, because you can't change you accounting method trade over trade within the same tax year, to my knowledge

if I would have first bought at the ATH, then my oldest lot may have been the most expensive one, and it may have been the current market price - all that matters is that it was the oldest.

there's really no connection to the actual coins in the wallet and the financial transactions. they don't care what bits and bytes are sitting in your wallet.

Booteefool
Booteefool

Easy solution is to never cash out.

Carnalpleasure
Carnalpleasure

Ok. I don't have the expertise to figure out the most efficient way to reduce my tax basis, but I think I know enough to at least document and pay taxes on this stuff correctly. Thanks for the info. I like the idea of building on a small amount of money over time using large sets of various altcoin transactions as well as holding more viable assets over the longterm, I'm just not sure if the effort it takes to file taxes properly is worth it. If I can get 10-20 grand after taxes it seems like I could suck it up and meticulously document everything.

Like my dad said, if you don't have a tax problem, get one.

StrangeWizard
StrangeWizard

I can't find a clear answer for this online so hopefully you guys can clear this up for me.

According to the FinCEN Virtual Currency Guidance,

"An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations, unless a limitation to or exemption from the definition applies to the person. FinCEN’s regulations define the term “money transmitter” as a person that provides money transmission services, or any other person engaged in the transfer of funds. The term “money transmission services” means “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.”"

This might be a silly question, but when I trade bitcoins and altcoins on an exchange like Bittrex, am I therefore considered a money transmitter and obligated to register as an MSB? Or is the exchange site I'm using considered to be a money transmission service since they're the ones who actually transfer my virtual currency to someone else, and I'm just considered as user paying and selling them my virtual currency for their service?

Raving_Cute
Raving_Cute

just record all transaction details in a spreadsheet or database, along with USD values of each coin that was calculated in a consistent manner (like for coins that aren't in fiat markets or an average of multiple fiat markets). as detailed as you can. then import everything into software like quicken which will do ALL the tax lot tracking for you automatically. you just select FIFO, LIFO, etc and it will generate capital gains reports for you. then either export that data into tax software or manually enter the trades. it's not as bad as it seems.

takes2long
takes2long

technically they host the wallets for you to trade with

maybe if you're transferring from a desktop wallet to a trading wallet online it actually counts

Skullbone
Skullbone

Delete this image.
Thanks for your help user

StonedTime
StonedTime

the exchange is the transmitter, you're the use, you're drastically overthinking it

Garbage Can Lid
Garbage Can Lid

When should you legally declare gains with the IRS?

RavySnake
RavySnake

if you make massive gains you may need to pay estimated taxes quarterly (or face a penalty) if you aren't already withholding enough elsewhere (like on your day job's W-2) or overpaid previously

BinaryMan
BinaryMan

Should I speak with a qualified Financial Accountant CrptoCurrency Expert on this?

Crazy_Nice
Crazy_Nice

that would be extremely wise

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