Tax season is right around the corner, and if you have been buying and selling cryptocurrency assets in recent years, you need to attend to a few things.
I recently listened to an episode of The Crypto Street Podcast, something I highly recommend you subscribe to.
I will attempt to summarize a few things, but I do so warily, as this will most definitely NOT constitute tax advice, or a comprehensive checklist of the things you will need to take care of.
1. Yes, your crypto gains are subject to tax. Cryptocurrencies are considered property, thus they are subject to short and long term capital gain taxation. There are different tax rates for short and long term gains, and there are different rules and parameters that define a short or long term capital gain. If you are familiar with FIFO (First In First Out) or LIFO (Last In First Out) or other similar tax parameters relative to traditional investments, these aspects will apply to crypto. If you are not familiar with these things, get thee familiarized or find a tax professional who is.
2. Your past crypto trades are subject to tax. It doesn't matter when you got into the space, if you have bought and sold cryptocurrencies, those transactions are most likely subject to tax evaluation. The United State government might not have it's tax machine in full working order right now with regards to tracking those older transactions, but it is getting there and will get there. This, from Coinbase back in February:
"In December 2016, the Internal Revenue Service issued a summons demanding that Coinbase produce a wide range of records relating to approximately 500,000 Coinbase customers. Coinbase fought this summons in court in an effort to protect its customers, and the industry as a whole, from unwarranted intrusions from the government.
After a long process, the court issued an order that represents a partial, but still significant, victory for Coinbase and its customers: the order requires Coinbase to produce only certain limited categories of information from the accounts of approximately 13,000 customers.
We are writing to let you know that the above-described court order requires us to produce information specific to your account. "
3. Fiat to crypto to crypto moves are ALL taxable. Say you live in the United States, and Coinbase is your preferred exchange. You really want to buy an altcoin, such as say VEN, which you can buy on the Binance exchange, which is based overseas. At present, you cannot convert your fiat currency (in this case, USD) into VEN without first uploading your fiat to your Coinbase account, buying one of the few cryptocurrencies on the exchange (you should buy Ethereum as the transaction times are faster).
So you upload $100 to Coinbase, and then you buy $100 worth of ETH. you then transfer the ETH to your Binance account's ETH address, which is taxable. Then in Binance, you buy the max volume worth of VEN, which is taxable. Then in a year (unless Coinbase has VEN at that time, which it may well have), you convert the VEN back into ETH to send to your Coinbase account, taxable. Then in Coinbase, you convert the ETH to USD, taxable.
This tweet, from CryptoTaxGirl, sums it up more succinctly. Don't focus on the ICO part, focus on the last few words:
Purchasing an ICO is not a taxable event. Like other coins, you are not taxed until you sell, trade, or use it!— Crypto Tax Girl (@CryptoTaxGirl) March 28, 2018
You are not taxed until you sell, trade or use it. Oh yeah, if you pay for something with crypto, apparently that is taxable, too.
Yeah, that is a mess, and this is something the IRS is going to need to take a long, hard look at and streamline, otherwise this could be one of the biggest barriers to entry for the future of the space.
As I wrote earlier, you need to get familiar with crypto and taxation, as tax day approaches in America.
Contact a tax professional, as not paying taxes on crypto gains will be deemed as tax evasion...and you do not want to go out like that.
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