[Daily Discussion] Friday, October 11, 2019 Bitcoin Markets |
- [Daily Discussion] Friday, October 11, 2019
- [Altcoin Discussion] Friday, October 11, 2019
- Summary of the new IRS guidelines (TLDR include)
- How to trade crypto for crypto and not pay fees
| [Daily Discussion] Friday, October 11, 2019 Posted: 10 Oct 2019 09:05 PM PDT Thread topics include, but are not limited to:
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| [Altcoin Discussion] Friday, October 11, 2019 Posted: 10 Oct 2019 09:05 PM PDT Thread topics include, but are not limited to:
Thread guidelines:
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| Summary of the new IRS guidelines (TLDR include) Posted: 10 Oct 2019 11:07 AM PDT Hey all - I know there's a dozen posts about the new crypto tax deadlines - so apologies for making it a dozen plus one. Full disclosure, I work for Bitcoin.Tax, where this article was published. I've included the link to our summary, as well as our actual summary. Also - I'll be talking with a crypto tax pro on our podcast about these guidelines soon. I usually post links to our podcast on this subreddit, so stay tuned (if you want...) for that in the next few days. Hopefully this helps some folks, as parts of the new guidelines are fairly ambiguous. Link: https://bitcoin.tax/blog/irs-crypto-tax-faq/ TLDR:
Generally, this is the same as the advice and common practice used by taxpayers and accountants. Although, the exception here is the clarification of the specific identification rule. We'll talk about that below. Summary: The IRS has issued their long-awaited guidance on the tax treatment for cryptocurrencies. You can read their FAQ On Virtual Currency Transactions on the IRS website. This is the first official guidance since the original 2014-21 notice in April 2014. IRS Cryptocurrency Tax FAQWe have gone into more detail for some of the main points in their FAQ. Hard forks and airdropsDespite peculiar wording by the IRS, they have confirmed that receipt of crypto from an airdrop or fork is to be treated as income, and so subject to income tax.
However, these drops typically have no market (perhaps a futures market) until they have existed for a period of time, so establishing a value could be difficult. It is possible that the value could be zero right at that exact moment it is recorded on the distributed ledger. In order to receive income, you must have dominion and control over these new crypto. This effectively means you must be able to manage it; typically you would have the private keys or it is immediately available in a custodial wallet or online account, e.g. Coinbase. If the crypto doesn't appear in your wallet, or you don't get control of it until a later date, then that later date is used to calculated the USD income value. This had been a common question among crypto traders: if BTC was forked off into a new "BTC" coin, which you might not even have been aware of, do you still have income? The answer is no. Unless, you subsequently get access to those new coins, in which case you do have income on the date you receive control. When you have income for an airdrop or fork, this also sets the cost basis (value and date) for any subsequent capital gains calculations. Fair Market Value (FMV)FMV is used to give something a value, i.e. what it's worth. If you list a bike for sale, you might research the prices for which other people are selling. Those prices give a FMV. But it you sell your bike and someone buys it for $100, then the bike's FMV was $100. With crypto, sometimes we need to know FMV because we are not trading directly for dollars. For example, if you sell 1 BTC for 150 LTC, you are disposing of the 1 BTC at FMV. You need to know the USD value in order to know the proceeds and to calculate any capital gains or losses. So, first, if this was traded on an exchange, we use the spot price on the exchange at that time. This is true even if the transaction was off-chain. However, where no FMV exists, such as a peer-to-peer transaction, then you have to get the value from elsewhere. So, secondly, use the FMV of the service or product you are exchanging. With the above bike example, say buying it with crypto, the FMV would be that of the bike itself (the price it would have sold for USD). Lastly, when no value can be obtained, then use a service that provides a consistent worldwide indices value (the IRS are calling this an "explorer" but that is a confusing term as blockchain explorers may not provide a USD value). If you do not use an "explorer" value, you can use an "accurate representation of the cryptocurrency's market value". Much like with fiat, this means using an establish and consistent source. FIFO and Specific IdentificationAdvice from most tax preparers and accountants has been to err on the side of caution and go with First-In First-Out (FIFO). Basically, if you bought 1 BTC for $9,000 and later another for $10,000, when you come to sell 1 BTC (or partial) you would use the cost of the first 1 BTC that you had acquired. This is the default IRS cost basis method and would not be challenged. Some taxpayers had filed using specific identification, where FIFO was not used and instead the "lot" that was sold was chosen from their wallets. Summary strategies could also be employed, such as Last-In First-Out (LIFO), where the basis of the most recently acquired crypto is used instead. These other strategies, such as last-in first-out, closest-cost or lowest-cost, often try to minimize the gains per transaction and defer them until later. This is the biggest change in the new IRS guidance and confirms that specific identification can be used. However, you must be able to document this, which the IRS describes as:
There is no guidance if any extra information should be reported, but it is generally the same information that is added to the 8949 form where capital gains are reported. Gifts and DonationsSimilar to gifts of stocks or property, the rules regarding cost basis have remained unchanged. Received gifts are not immediate income but you do still recognize an capital gains income when you later come to sell, exchange or dispose of the cryptocurrency. You can use the original basis (with documentation) from the giver in order to make use of long-term gains. However, your received basis becomes the lesser of the giver's cost basis and the FMV of the gift on the date you received it. This is to prevent from gifting losses. Also, if you do not have documentation showing the gift cost basis, then your basis is zero, i.e. you must declare 100% as capital gains. Donations to registered charities do not recognize income, gains or losses. The value of your charitable donation is the FMV on the date of the gift if you have held the crypto for more than a year. For a year or less, it is lesser of the crypto's cost basis or its FMV on the day of the gift. What was not mentionedThere are still some key questions and ambiguities that tax professionals have been looking for clarification. For instance, with hard forks and airdrops, if you have the private keys but no software, does that count as control? Airdrop and forks generally have no markets when they are created, so is there a zero FMV? And should you take the value only when you exercise control? Can specific identification be used at will or must it be done consistently? Were 1031 "like-kind" exchanges ever a valid approach before 2018? Guidance is retroactiveFinally, be aware that IRS guidance is always retroactive, unless otherwise stated, and so should be applied to past and future crypto transactions. If you have not followed these rules then you should consult with your tax professional and may need to file an amendment. --- Edit: According to /u/BitcoinTaxesMe:
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| How to trade crypto for crypto and not pay fees Posted: 11 Oct 2019 12:37 AM PDT Disruptive project — Element Zero (EZ) SmartSwap will allow anyone to exchange crypto for crypto, without the hassle, risk, or expense of using an exchange. Most exchanges charge trading fees based on a "maker-taker" model, under which "takers" place orders that are executed immediately (read: market order), removing liquidity from the market, while "makers" place orders that sit on the books, below the ticker price for a buy and above it for a sell (read: limit order). Makers create more liquidity in the market and are often rewarded with lower fees and rebates. Takers are typically charged higher fees, which in these exchanges generally hover around 0.1% or 0.2%. Smart Swap is still in beta, however, much attention has already been given to this disruption. Element Zero (EZ) SmartSwap allows anyone to exchange crypto for crypto, without the hassle, risk, or expense of using an exchange. By swapping your crypto using EZ SmartSwap, your crypto will be traded for the exact value needed. Say you need $100 BTC, but you only have ETH? Simply send your ETH to the EZ SmartSwap Contract and receive the exact value in BTC. See how it works and subscribe for launch details https://www.elementzero.network/ezo-beta/ [link] [comments]  |
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