Crypto Taxes in the U.S.
I'm going to discuss my thoughts on the implications of the tax laws that are going to enforceable going forward into 2018 and beyond. Without getting into it, I'll just say that I'm very familiar with handling taxes and crypto and I'm not really trying to debate anything here. You can review the new tax laws here. This post will not be a point by point breakdown, it's just going to be me pointing out some things, my thoughts about them, and thoughts on how they are going to change the way exchanges operate within the U.S.
The first big thing to make note of is that all crypto is going to be taxed as capital gains or losses. A simple way to explain that is: when it comes into your possession it has a U.S. dollar value and when it leaves your possession it has a U.S. dollar value. At the end of the year, taxes are going to based on the value of the asset when it came into your possession either via mining or payment and then there will also be taxes on the gains or losses after that point. It's going to make things like day trading crypto extremely tedious.
I see this playing out one of two ways with exchanges. The easiest is that exchanges move outside of the U.S. so that they are not subject to U.S. regulation and many companies already went that route preemptively. The other option is that I'm expecting exchanges that remain in the U.S., such as Coinbase, Kraken, Bittrex, and Poloniex, to start making spreadsheets available to customers of first-in versus first-out changes with prices in U.S. dollar value and we will have to use these sheets to file taxes. Compliance among crypto users is going to be extremely hit or miss because the law itself is extremely convoluted and subjective.
Important things to note are what is considered a taxable event and the best way I can put it is that anything related to crypto is going to be considered a taxable event. You mine crypto, it's taxable. You convert crypto into another coin, it's taxable. You buy crypto, it's taxable. You sell crypto it's taxable. You send crypto, it's taxable. You receive crypto it's also going to be taxable. If you hold your taxes will be significantly easier to handle, but they will not be cheap and now I'll give a brief idea of how capital gains work.
Capital gains taxes are used for things like the stock market or gold and silver. The U.S. tax laws related to capital gains work like this: Long term capital gains are based on anything you have held for more than one year. Short term capital gains are based on anything that you held for less than one year. When you convert one coin to another coin is going to reset that timer. Long term capital gains are taxed at 10% and short term capital gains are taxed at 30%. The issue with day trading is that you are now going to be fighting not only exchange and transaction fees, but if you plan to comply with the new tax laws, you also have to figure in which tax percentage you are going to be facing.
None of this is advice on how to proceed and simply my attempt to help understand the implications of the new tax law. I will not be making any recommendations on how to proceed nor discussing my intentions. If you have questions related to any of the terms that I've used feel free to ask and I may try to clear them up if I am able to, but I can not stress enough that this is in no way comprehensive or advice in any capacity. I personally feel the law is extremely convoluted and vague and going to be very subjective in how it will be enforced. Hopefully this helps to understand it in some way. Namaste.
Good info if you are from the US...
So they are not going to treat it like a currency for tax purposes.
So if you buy 1 bitcoin and 1 year later buy a car for 1 bitcoin you could be lugged with a massive tax bill relative to the value difference of the coin.
This could make it rather difficult to use Cryptos as a medium of exchange for buying and selling due to the obligation of tracking the tax implications of every transaction.
eg if you have your savings in bitcoin and do your weekly food shopping from your bitcoin account. You would have to track every expenditure and calculate the tax burden and then submit your yearly gain or loss to the Tax department.
This is not a very attractive prospect. Maybe they are setting us up for a new US coin or Aussie Coin ect.
My exact thoughts are that they want to prevent it being a legally acceptable medium of exchange. Classify it as a property and it's no longer possible to use it as a currency for exchange reasons simply due to the tax implications. Time will tell.
Personally I think most Cryptos will be killed off by the Governments once we have accepted the technology , we will be herded into Government coins sold as safe and employed by the banks as the only medium of exchange.
I'm really hoping that there aren't specific laws made that tax crypto gains higher than normal capital gains and losses that are made from the stock market.
Not sure if you know this, but would converting Steem on an exchange to a bigger alt coin and then selling to USD be considered a long term 10% tax or 30% tax?
The general rule is first- in to first-out. If you held the steem for over 1 year and then move it to an exchange, that's taxable at 10% when you sell it. If you haven't held that amount of steem for over a year then it's 30% when you sell it. The 10 or 30% tax is based on the value of steem when it came into your possession and then also on the difference in price. For example let's say you got 100 steem and steem is worth $1, you hold it for over a year and sell it into another coin, you would be taxed 10%. The real convoluted part is whether or not you are taxed 30% on the Bitcoin the exchange uses as the intermediary. There are a lot of questions that don't have answers.
I feel like that is near impossible to really figure out given the nature of Steem. People that are active users are receiving Steem and SBD multiple times throughout the day from posts they made a week ago! Plus there is no initial investment right up front either besides time for most of us...
Really interesting dynamic to think about. Thanks for elaborating on that!
Oh it's much fuckier than that. How do we tax voting on another person's post? Did we give them a gift or do we pay taxes on that because it's interest gained from our stake weight on the platform? My general thoughts are the government realizes how much money is in crypto and they want a piece of the pie. They just so happen to want the lions share, the buzzards share, the ants share, and if we're lucky there may be some maggots to feed on when all is said and done.
If we all consider ourselves on this site at least "adept" to "expert" knowledge people for crypto and blockchain and there are STILL things that we learn day to day, then how are politicians suppose to understand it AT ALL. Every point you raise just makes it sound worse and worse lol, hopefully the lack of understanding on capital hill doesn't screw us all over.
I know it might seems strange or risky but I actually think the most pragmatic thing to do is to just report what you cashed out and hope for the best. Because just owning a steemit account is fucking insane the moment you try to figure any of it out.
I am going to try the simplest approach first then if it gets more complex from there I will react accordingly. I don't view this as tax evasion I view it as sanity.
I think we are living in a very huge gray area. What Steemit Inc. ends up doing will determine what rest us need to do. Taxing stuff that was crated out of thin air before it’s even exchanged for money is insanity. All we know for sure is once its exchanged on the open market then taxes is owed and many places will be reporting that.
We literally will need tools to track and determine “gift tax” if we are even going classify upvoting another person in that way. There just way too many factors, countries, legal entities. I don’t even know from a legal standpoint where my Steemit account’s “wallet” is legally in the world. Heck if we try and go off logic of “where the transaction was processed” that’s a massive issue right there alone with possible of multiple countries trying lay claim to that.
For now I think you are on the right track.
I fear this is going be a very complex issue for a site like Steemit. Are we really gifting or are we really just participate in a “pay what you want.” I really like that blog and therefore I paid 4 cents for reading it. Then you have the issue of things being open for a total of 7 days and there being a price difference before it pays out.
I can see there are going be a lot of future courses being tied up in our legal system for years or even decades trying to work out what the heck is owed or even going on. Just far too many variables and not enough “clear as day” language since it can’t cover everything that is cryptocurrency without endless updates to tax law almost daily. It’s interesting they think they can just call it capital gains. Why some people are being paid directly in it for freelances work!
I’m just glad I am not a tax professional. My brain might melt.
Personally I think it's mostly strong arm tactics to bully people into paying money on shit they have no right to. Are those strong arm tactics effective and enforceable? That is another question entirely and one that I think we'll be quite the discussion over the next year.
Tax agencies are normally rather underfunded. Those being tossed into having work this out as well will require some major spending and increasing in funding to stay on top of things. That should be something easy to notice when people go to war from the political side of things saying they don’t need more funding they should just be “leaner.”
It is most definitely a sit and watch what happens event that is for sure.
I'm waiting for the phrase "War on Crypto" to start getting thrown around.
I can’t wait to start hearing about community’s forming on islands and creating “crypt tax havens!” That are entirely run on paying in cryptocurrency. Some amazing times are coming.
You really think they are going to try to go all the way down to trade for trade? I kind of figured it would be an over amount of what you actually pull out of the market, i didnt get think u got charged a tax as long as it still was in the market. Only capitol gains on what you pull out.
That's the assumption that many of us had until this document was released and the law changed. I think of this as the Patriot Act of crypto. They made it vague enough and thorough enough to basically "legally" tax you whatever they want.
Those sneaky basturds.. Looks like im moving to a country with no taxes this year! Lol
i need to read this like 5 times. and figure out how to get an offshore crypto account.
I believe an offshore account wont help you.
You have to pay your taxes where ever you earn your money , because you are owned by your government. The only way I can see you doing this is to form a Company in a country that has little or not tax. Then hold all your cryptos in that company name. Of course you cant transfer any money back to yourself without paying tax on that money. catch 33
i reject the idea that my government owns me. and companies seem to get away with earning 100x more than me and paying less tax.
Its good to reject the idea you are owned by your government. However just do or say something to upset your government and they may just lock you up forever or just kill you. The Government may own you but who owns the Governments.Your taxes are collected by your owner and handed over to their owners.
ah but they cant collect taxes when they cant find my profits. and right now i havent made any
Great post @clayboyn we have a similar system down here in Australia and the concept itself is sound. The best way to think about taxes is its benefitting the community as a whole, if we didnt pay them then the whole community would suffer. So pay as little as you have to for the sake of your family and as much as you are required for the sake of your community.
What a pain, and I was just getting going and doing very well and enjoying it. What if I use Binance for trading as I like using Binace a lot?
From what I can find the Binance headquarters is currently located in Shanghai, however, the company itself is registered in Hong Kong
The exchange probably won't be forced to comply with U.S. laws, but they may blacklist U.S. customers.
I hope they do not blacklist us as I do a lot of trades on Binance
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Hope this helps!
Namaste and thank you for information sir 😌
will the law be enforce to only U.S citizens alone? please i will like to know if the law has effect on non U.S citizens like us. how about a U.S citizen trading crypto with non U.S citizen. why taxes on crypto
The U.S. government has no authority over other countries, but who knows maybe next they'll be invading China for their Bitcoin reserves once there's no more oil to plunder. If you don't live in the U.S. I think it's safe to ignore this post for the time being, but who knows what other countries will follow suit.
You generally only pay tax in the country you reside or earn your profits. If you are in the US you will pay the US taxes on your profit. I will have to pay Aussie taxes on my profits.