“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” Satoshi Nakamoto
Times are changing as technology and popular cryptocurrencies establish that they are here to stay, so to speak, and they will act as the remedying accelerants to many of the technological inefficiencies of our time. Bitcoin (BTC) was the undying, decentralized Che Guevara of the crypto space who started the revolution; when cynical and dependent minds doubted validity, we reached just under $20,000USD in Q4 2017, but more importantly some of the use cases of cryptocurrency were brought to light as a result. Ripple (XRP) alone threatens the banking system, as we know it, with more timely, cost-effective transactions, unparalleled by today’s banking giants. Ethereum (ETH) was the Blockchain “Fonzie” enhancing our tech peripherals and ultimately lead to paradigmatic innovation & use case, such as that seen in Ziliqa (ZIL), or ChainLink (LINK) “providing reliable tamper-proof inputs and outputs for complex smart contracts on any blockchain,” as mentioned on ChainLink’s website (https://chain.link).
I’m bullish on humanity. Would you still call it ‘disruptive’ technology if it ultimately bettered humanity to the misfortune of a few monopolies? The answer: a categorical, Yes. I argue that disruption can be the grounds for evolution and should be viewed optimistically on a macro level. I digress. Notice 2014-21 is the only IRS guidance to date, so I am here to give you a few facts that can help you avoid IRS scrutiny. If you dabble in this arena (trading/investing cryptocurrency), be mindful of the following misconceptions that could help you in relation to reporting cryptocurrency transactions:
Misconception #1) If I buy a tangible good with my cryptocurrency, it is a non-taxable event.
False. If you buy $300 of BTC on 1/1/18, and @ 1/2/19 the value of that initial investment is @ $400, and you buy a pair of Ferragamo shoes for $400 in BTC, you must report $100 as a long-term capital gain on your personal tax return. Now you can see how this becomes nuanced and layered if you were to make multiple cryptocurrency purchases at different times of the year, multiple consumer purchases, and multiple conversions back to USD. From a tax strategy perspective, you want to hold out for the long-term gain recognition (which is a holding period of 366 days from purchase), otherwise your short-term capital gains will be taxed at a less favorable rate.
Misconception #2) Transferring BTC to another person's wallet is a non-taxable event.
False. I’m sorry to be the bearer of bad news but I hear a lot of clients, friends, and people in the space get tripped up on this. In the eyes of the IRS, transferring existing cryptocurrency (with no new investment or purchase of cryptocurrency) to another wallet is a recognizable event. The key takeaway from this misconception is for long-term investors to just keep your cryptocurrency in the same wallet. If you buy BTC on Coinbase or any other exchange, keep it on there if you are in this for the long haul. If you transfer BTC to another wallet YOU own, it is a non-taxable event, so this is a silver lining.
Misconception #3) If I day trade BTC and on January 1st, Year 1 have 0.1BTC in my trade account and through a series of trade @ December 31st, Year 1 I have 0.2BTC in my trade account, and convert this 0.2BTC into 20 ETH, I have no gain realized.
Unfortunately this is a taxable event. You would recognize the gain of 0.1BTC at the date of conversion and it would carry the short-term character.
If you have any questions or need help with basis tracking, gain calculation, or IRS help, please give us an outreach, we do it all.
댓글