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RE: IRS Tax Rules for Cryptocurrency in 2018
I really do not see how taxing cryptocurrency at the exchange level or on the blockchain level (e.g., Steemit, Ethereum) is going to be done currently. The systems are not in place to make it easy for folks to be tax compliant so I envision a tremendous amount of non-compliance not because people don't want to be (although some surely don't) but because it's extremely difficult to calculate manually. You alluded to this point re: tax accountants.
I'm not aware of any US regulatory agency providing an easy solution to the exchange challenge. For fiat gateways like Coinbase and Gemini, this tax compliance should be easier because they are already regulated financial institutions so they should have the systems in place to assist their users.
Well the law exists and can be enforced, without crypto being practical. Widespread compliance is unlikely, but any individual person can be audited by the IRS. When the IRS does a personal audit of your taxes, they are going to ask for our documentation to support our tax filing. If we reported capital gains from crypto, then they're going to want to calculate the basis themselves... at which point we can show them our exchange accounts on bittrex and they can wade through the transactions and fair market values if they desire. Or the auditor themselves has the authority to reach an individual compromise with the person they are auditing.
Now, if you never disclose crypto earnings, the way a normal IRS auditor would catch it is they would be looking at your bank records. It depends on the type of audit, but they may ask for your checking account records to substantiate everything. If you got large sums of deposits from coinbase.com they're going to ask about it. From there they can figure out you have cryptocurrency capital gains or revenue.
The IRS would make life so much easier on themselves and everyone else if they just taxed the crypto to fiat exchange. As it stands right now, that's how I plan on reporting.
I agree its the law and can be enforced. I was just suggesting that it's likely going to be some time before everyone can actually be compliant.
Also, if someone opened a tax compliant crypto exchange, I think they would be very successful. A lot of people want to be compliant even though it is difficult.
A very very good point - someone opening up a tax compliant crypto exchange and being successful. I would definitely open up an account with that exchange that would do all the calculations for me (just like any ordinary online stock trading exchange would) so I never have to dread being audited by the IRS on my crypto currency trades - knock on wood! Oh I just wanted to add that in South Korea (one of the most active crypto currency trading hot pots in the world) one does not have to pay any capital gain tax when trading crypto currency. This is probably one of the reasons why South Koreans account for heavy percentage of all trading even though their total population is about 1 / 7 of that of the US.
Yeah, I'm searching the net right now trying to get a clear idea of how to file this year... it's really frustrating and it's kind of making me angry.
edit: Oh, and then you get to go figure out how to do the state taxes. Bureaucracy is an old French word that means "we are here to rob you AND make you do paperwork, too."
I agree with this. In Europe we are having a lot of talk at the moment about how Cryptos are going to be taxed or how they actually taxed. Since there is no clear indication on the side of the most Gouvernments of the EU, others already worked out clear directives (like Austria and Germany). Even the European Cour of Justice had already a case about taxation regarding mining. It is a very interesting new field, for investors as well as for business people that organize the exchanges. If we would have a clear legal framework how investors would be taxed, it would also become more interesting for the average investor to go into crypots. Since at the moment he is in a grey zone where he actually can´t really calculate the risk and the earnings after taxes. I predict that 2018 will be the year of Crypto taxes, at least in Europe.
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