OK Veeky Forums, as tax season is around the corner, I keep thinking about this more and more.
>Put 5k USD into crypto
>Make 100% gains, have 10k USD worth of crypto now.
>Pull 5k USD out.
What did I just pull out? The principle or the gains? Do I get to pick? Is it a mix? Obviously I'd prefer to pull out the principle which has already been taxed, and leave the crypto to mature into long-term gains if it isn't there already. Do I get to do that?
you put in 5k and took out 5k so the difference for calculating gains tax is 0. When you cash out the other 5k you'll have to pay tax on that, but it's 0% if you hold it for a year and make less than 37.5k plus the 6k standard deductable
Thanks. Wouldn't that mean if I put in 5k and didn't take it out that year, that my difference would be -5k? Could I deduct it from my taxable income for the year?
what if you convert 100% into tether
No.
You pay what you gained regardless of 5k in 5k out.
Say you pay 100$ for 10 widget coin. Widget coin doubles you sell 5 widget coins.
You pay 50 bucks on tax.
You profited and sold for that. Since you held less than a year you pay what your tax bracket is.
Hold widget coin for over a year and sell than capital tax.
No that's wrong.
Just think of it like an equity. You bought X number of coins at $Y cost basis. Then you sold m coins (where m > X) at $Y+$n price. You then pay taxes on m*n.
What does cash out mean? Changing to USD? Or does it mean. Transfering BTC from one exchange to the other?
It goes by number of coins.
Imagine you put 5k into stock, make 100% gains, have 10k worth of stock now. Then you pull 5k stock out. How do you tell if it's principle or gains? How do you figure the taxes? You look at the number of shares. If you bought 2 shares for 5k and now you have 10k worth of stock, pulling out 5k means you pulled out 1 share. So you look at the purchase price of 1 share vs. the sale price. The purchase price of 1 share was 2.5k, the sell price was 5k. Capital gains are 2.5k, on which taxes are owed.
Now imagine you bought 5k worth of coins. For simplicity let's assume you only bought one type of coin. Let's say you bought 1.234 coins at 5k now 1.234 coins are worth 10k. To cash out 5k you need to sell 0.617 coins. You sell 0.617 coins to cash out 5k. What was the purchase price of those 0.617 coins? It was 2.5k, so again your gains are 2.5k on which taxes are owed.
tl;dr look at the number of coins you sold for fiat, figure out how much you bought that number of coins for and the difference is your gain.
Like I said but more NEET.
You sold your original 50$ investment for 100$. You don't tax your original investment. Only the gains /fit so the 50$ is taxed at your current income tax rate. Which if you live in a state that has income tax you have to report that as well.