Taxes - Clearing up some Questions (USA ONLY)

For the capital gains portion this is how you would do it. It's the same as in the stock world. Substitute currency for stock shares. Use the first-in first-out method. A spreadsheet can manage this. Remember you only need to worry about capital gains in the tax year you sell currency into fiat. You also don't mail out a tax check when you sell - you settle when you file your annual income tax return (If you make quarterly estimated payments, then that's another story).

When you sell shares that were purchased at the same time, the cost basis is easy to determine. Your cost basis is simply the share price on the date of purchase. When you sell shares of a stock from multiple purchases, your cost basis will be based on several different stock prices. The first-in, first-out method will let you calculate the cost basis of a stock with multiple purchases.

1. Divide your needed proceeds from the sale by its current market price to calculate the number of shares you need to sell. For example, if you need $10,000 and the current share price is $100, you will need to sell 100 shares.

2. Look up the share price and number of shares purchased on each of your past stock purchases. This information can be found online on your brokerage account's website, or you can call your investment company and be mailed this information.

3. Rank your share purchase dates from earliest to latest.

4. Consider the earliest shares as the one's sold first. Multiply the purchase price from this sale by the number of shares sold to calculate this portion of the cost basis. For example, if you purchase 50 shares at $50 during the first purchase, your cost basis is $2,500.

5. Continue the basis calculation using the second earliest purchase if you do not have enough shares from the earliest purchase to cover the sale. Add this basis to the cost basis of the first purchase.

6. Continue the calculation until you have sold enough shares to cover the sale. Add up the cost basis from all sold purchases to calculate your total cost basis.

There is a company that has software that will parse your wallet and match all the transactions to the blockchain and give you a detailed accounting that you can use for your tax filing.

Now, I have not used them myself (yet), so I cannot validate their service, but at least you can check it out for yourself.

https://www.node40.com/

CryptoDamon wrote:There is a company that has software that will parse your wallet and match all the transactions to the blockchain and give you a detailed accounting that you can use for your tax filing.

Now, I have not used them myself (yet), so I cannot validate their service, but at least you can check it out for yourself.

https://www.node40.com/

This seems interesting.

Aura89 wrote:All of this has pretty much just made me want to stop mining completely.

Not because i'm afraid of paying taxes. I was under the understanding when i started, though apparently very bad understanding, that nothing was taxable until you convert it to USD, in which case was told to provide whatever you converted to USD as "other income". From this post, this is definitely, and absolutely wrong.

The reason i want to just stop, is because it is exceedingly and unnecessarily complicated, to the point that i know for certain i can't do my own taxes now. This wouldn't be a problem, if i thought i could just go to any tax place to do my taxes, but considering cryptocoin is unknown to most people still, and i live in an area that definitely will be unfamiliar with it, i feel i have nowhere to turn to, to make sure anything and everything gets submitted correctly, the correct taxes get paid, and i don't get audited.

I have 1 L3+ and am holding onto my coins, probably at least for another 1 and a half years, and do not convert to USD even for electricity. As well i have purchased coin.

So basically, i feel screwed. Oh well.

This is by no way a suggestion, however, the IRS doesn’t have nearly the manpower needed to find and punish a miner with a single unit, especially if you don’t cash out. I personally will be doing everything I can to account for it all, since I’m pretty sure I can really lower my taxable earnings for the next few years and write off a TON of expenses. Like my car use/time could easily be 50% since I bus to work, so if I can write off 50% of my car payment, part of my mortgage payment, etc., you can really really lower your taxable earnings and benefi a ton by accounting for it now, while eliminating long term risk. Odds are high that when people cash out they will have the IRS looking (if it’s a lot), but another thing some of the people aren’t mentioning is that you could still buy goods with your currency. So you could pay taxes when you mine, then years from now use the crypto to buy a house or something (or other things as it gets adopted), and for point of sale you would be fine since you are spending it, and not converting it to USD. Since they treat it as a good and not a currency, you have some long term wiggle room until they actually adjust the laws and figure out the best way to approach it (or at least that’s my take on it).

The question is, is that the take the IRS has on it?

My understanding is as soon as you spend it you owe on it what the equated value of it was at the time of the exchange.
If you use the coins to buy $1000 on newegg.com, you owe taxes on that $1000 as captial gains, and then you also owe the sales tax on the newegg purchase.

AppleMiner wrote:The question is, is that the take the IRS has on it?

My understanding is as soon as you spend it you owe on it what the equated value of it was at the time of the exchange.
If you use the coins to buy $1000 on newegg.com, you owe taxes on that $1000 as captial gains, and then you also owe the sales tax on the newegg purchase.

I would say that the IRS' stance on that is probably that you still owe the taxes, same as people who buy stuff in a sale-tax state, through a website that is based in a non-sale tax state, and end up not spending any taxes, even though the IRS states you still owe taxes on the item even though you were not charged it at the point of sale.

The problem is no one ever (at least i have never seen a single person do this) pays the taxes or reports it.

Harrison wrote: This is by no way a suggestion, however, the IRS doesn’t have nearly the manpower needed to find and punish a miner with a single unit, especially if you don’t cash out. I personally will be doing everything I can to account for it all, since I’m pretty sure I can really lower my taxable earnings for the next few years and write off a TON of expenses. Like my car use/time could easily be 50% since I bus to work, so if I can write off 50% of my car payment, part of my mortgage payment, etc., you can really really lower your taxable earnings and benefi a ton by accounting for it now, while eliminating long term risk. Odds are high that when people cash out they will have the IRS looking (if it’s a lot), but another thing some of the people aren’t mentioning is that you could still buy goods with your currency. So you could pay taxes when you mine, then years from now use the crypto to buy a house or something (or other things as it gets adopted), and for point of sale you would be fine since you are spending it, and not converting it to USD. Since they treat it as a good and not a currency, you have some long term wiggle room until they actually adjust the laws and figure out the best way to approach it (or at least that’s my take on it).

I'm not giving any advise or defend any behavior one way or the other, I do my best to minimize my legal tax liability - but just keep in mind - when you declare expenses - you also leaving a bread crumb to the revenue side of any business. Remember in 2017, it's not "man-power" but computer-power that will most likely flag a return or series of returns. I guarantee you that the IRS if you have revenue is looking for a schedule D to go along with it. It would be like me reporting that I had $10,000 in dividends from stock - but had zero capital gains? Not even one cent? That wouldn't make any sense.

My opinion and view: Failing to report capital gains could really be a kick in the ass if you get under the microscope with all your records in an auditor's office. You should really confirm that whole "treat it as a good" --- crypto currency (from what I've read) is treated as property, like a stock. This has very little to do with state sales tax over the internet. Pretty certain it has nothing to do either with converting to USD or not. Apples and Oranges. The conversion (buy/sell/exchange property) is the event - point of sale not relevant - if I took 10 shares of NVIDIA stock down to a store and exchanged for some GPU cards - that stock exchange would be recorded by my no longer owning the shares per SEC rules. I would take a capital gain (or loss). If the IRS determined you've converted crypto-currency in an exchange to another property, they will determine you take a capital gain (or loss) on that property. The only exception would be wash-sale rules (but they are very narrow). There is no Section 1031 like-exchange, as stocks and other properties are expressly excluded by the IRS. So yes - you buy 1 LTC for $10, sell it later on for BTC for $30, you have a capital gain. You sell 1 LTC in exchange for a case of tomatoes you have a capital gain (or loss) depending on the worth of the tomatoes.

It's been tried ... of course it has. If stocks could be used to avoid capital gains by performing exchanges then it would be done all over the place.

Hope this helps.

AppleMiner wrote:The question is, is that the take the IRS has on it?

My understanding is as soon as you spend it you owe on it what the equated value of it was at the time of the exchange.
If you use the coins to buy $1000 on newegg.com, you owe taxes on that $1000 as captial gains, and then you also owe the sales tax on the newegg purchase.

You owe DO taxes at the point of mining.

You MAY owe a second tax (capital gain / loss) depending on the price change between the point of mining AND the conversion into sale at newegg.

Whau, this is so complicated!

Lucky I'm not from the USA. And lucky I have a personal accountant, that takes care about my taxes!

In case anyone finds it helpful I've been using https://bitcoin.tax/ since 2013 and have found it extremely helpful. For mining, you are able to point at the wallet address to indicate that the activity is for mining. My first year mining I didn't separate out my mining income, now I keep wallets explicitly for mining deposits only and separate them from trading wallets and it makes reporting much easier. Nearly all of my income has come in the form of BTC/LTC payouts. They don't support a huge variety of coins, so depending on what you're getting paid in your mileage may vary. Your also able to import trading activity from many of the exchanges via API. In the end, I have a report that I give to my accountant that shows my income (from mining) and my capital gains/losses from trading. It's been a life saver for remaining compliant.