Case Study 1-1: Taxation of Cryptocurrency (Tax Liability)

Index - https://steemit.com/tax/@alhofmeister/tax-blog-index

To complete my earlier examples, I've decided to calculate the tax due on each one.

Problem
(1) Taxpayer A decides to invest in Bitcoin. In January, Taxpayer A buys 100 coins at the price of $9 a coin with a transaction fee of $1 a coin spending a total of $1,000 to acquire the coins. (2) In March, Taxpayer A panics at a drop in the price of Bitcoin and sells off 10 coins for $6 a coin with a transaction cost of $1 a coin making a total of $50 off the sale. (3) In October, Taxpayer A decides to sell off 20 coins when the price of Bitcoin spikes to $16 at a transaction cost of $1 a coin making a total of $300. (4) In February of the next year, Taxpayer A decides to sell off his remaining Bitcoin at $21 a coin with a transaction fee of $1 a coin receiving $1,400.

Solution

Note that I am not considering any outside income in an effort to focus on the tax effect of the transaction. Additionally, I am breaking out the tax consequences if a taxpayer is in the 2017 (2018) 10% (10%), 15% (12%) and 25% (22%) tax brackets.

Note that the long-term capital gains rate was not substantially changed by the new tax bill (0%, 15%, and 20% brackets based on income).

Disclaimer
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.