Post: #1

Fellas,

I've recently retained a local tax attorney who's been into crypto since January and is looking to specialize in the field.

Together, we've done some research into what little guidance the SEC and IRS have put out regarding cryptocurrencies, and I've used this data to help form my investment strategy when it comes to managing my crypto portfolio.

Keep in mind I'm a U.S. citizen; this will of course differ by country and likely even by state within the U.S.

Please consult a local professional yourself before making any financial decisions. I am not a financial or legal adviser and any investment decisions you make are done entirely of your own volition.

That being said, there were two big takeaways for me.

1) Currently the IRS classifies cryptocurrencies as property (NOT currencies, or securities like stocks/bonds), and as such any profit derived from the sale of crypto assets is subject to capital gains tax.

Sell within a year of purchase = short-term capital gains, which are taxed as income at whatever bracket you happen to fall under.

Sell after holding (hodling?) for at least a year = long-term capital gains, 15% for most people (20% for the top tax bracket, and it's actually 0% for those in the two lowest brackets!)

So ideally, one would wait at least a year from the purchase of a crypto asset to sell in order to pay long-term capital gains taxes on the profit.

2) Because cryptocurrencies are classified as property, crypto-to-crypto trades fall under IRC Code Section 1031 concerning "Like-Kind Exchanges".

Basically, if you sell Bitcoin for Ethereum (or make any other crypto-to-crypto trade) it is NOT a taxable event. The only time you're taxed is when you cash out to fiat (USD).

Cashing out to fiat also means the next time that money gets put back into crypto, the capital gains timer restarts (and you establish a new cost basis for your potential profit). So in order to minimize taxes you'll want to keep your money in crypto/avoid cashing out to fiat for at least one year post-purchase.

This brings up the obvious question: while crypto over the long term has the potential to disrupt multiple industries and take over the world, many (myself included) believe the market as a whole to be in a short term bubble (I'd put us somewhere between "Media Attention" and "Enthusiasm").

So is there any way of selling/escaping the volatility of crypto assets without actually cashing out to fiat?

The short answer is "yes," although I'm still researching this and would appreciate help from anyone who may have a better solution.

My current plan is to utilize a cryptocurrency called Tether (USDT), which is pegged to the value of the US dollar.

Tether is paired with most major cryptos on Poloniex (the top crypto-only exchange) and can be cashed out 1:1 for USD either through the Tether company itself or via other exchanges that host it (Kraken I know does, I'm not sure about others).

Tether does charge some fees, but only if you redeem your USDT for actual dollars.

When it comes time to sell my crypto assets, my plan is to sell the alt coins into BTC or ETH (or anything paired with Tether) in order to sell those for USDT, which I'll then hold until it's time to either cash out (depending on when I hit that one year mark for long term capital gains) or start buying back once there's blood in the crypto streets.

From the reading I've done it seems that Tether has had some issues in the past. Wells Fargo and other banking partners temporarily stopped providing wires back in April (apparently it had something to do with KYC/AML regulations), and the value of USDT actually fell into the low $0.90s. So I'm still looking at other alternatives in addition to making sure that Tether remains a safe place to store value in the short-to-medium term. I'll update this thread as I learn more.

In the meantime, if anyone else has anything to add please do so. Just be sure to back it up with solid evidence; we don't want people forming trading strategies based on guesswork or assumptions.

And yes, I know the IRS has its head up its ass when it comes to crypto, and that many people will likely be able to avoid paying taxes entirely. But this industry just grew 10X in the last year (with few signs of stopping), and I'm sure it's only a matter of time before Uncle Sam comes around looking for his cut. I recommend everyone here keep a strict record of all your trades (dates, times, fiat and crypto amounts bought/sold, on which exchange, etc.) just in case.

Besides, anyone who's used an exchange to purchase assets likely had to provide enough personal info for the government to eventually track them down. Personally I'm going to pay all my taxes, but I'll pay as little as legally possible and then sleep well the rest of my life.

If anyone has questions, please post them here instead of shooting me a PM, so the rest of the Forum can benefit from the discussion (unless it's a private matter, in which case don't hesitate to reach out).

If you've found this information useful and want to leave me a tip:

ETH: 0x1C79221595B5c023492f03D8cD9f07c9d2aAf814
BTC: 18mC6knWHyVnfhCTWkHupUicQuHiS6T9vu

Thanks, and happy trading!

Post: #2

I'd like to add Tether isn't a pure risk free crypto money market alternative. Tether is backed by Bitfinex which is having issues themselves. Google it for the drama.

Issac Jordan's plan will work, but there is counterparty risk to this. Go in with your eyes open gents.

Post: #3

It's a very good idea, as long as Tether is position to survive a crash that takes down the whole market.

It's definitely something to think about, and thanks for putting this together.

Post: #4

Any idea how this would differ in Canada?

Post: #5

Great info, as usual OP +1. My research points to exactly how you lay it out: crypto-fiat is a taxable event and crypto-crypto is a 1031 like-kind exchange, but another solid contributor on this forum also consulted with a tax attorney and he was told that like-kind treatment would not likely hold water. Whatever the case, I agree with your suggestion that one keep excellent records of purchases/sales no matter what the method.

In the unlikely event that you're audited, you can state with support that you tried your best to adhere to IRS regulations in good faith and you'd likely be able to make good with little to no penalties and interest. My CPA is annoyingly conservative but even he told me that he could hang his hat on that stance.

Post: #6

To avoid taxes, couldn't someone just buy as many things online as possible with BTC to avoid transferring the BTC to USD?

Post: #7

(06-13-2017 07:58 PM)Hyperflux Wrote:  Any idea how this would differ in Canada?

Wish I could help you but I have no idea. I'd suggest consulting a local tax attorney, or attend a crypto meetup in your area where folks may be able to provide guidance/point you in the right direction.

(06-13-2017 08:37 PM)Seth_Rose Wrote:  To avoid taxes, couldn't someone just buy as many things online as possible with BTC to avoid transferring the BTC to USD?

From what I understand, the IRS currently considers that the equivalent of cashing out however much Bitcoin it costs to get the fiat amount required to buy the item (which is a taxable event).

Although you could probably get away with doing it and not reporting anything, should you be so inclined to take that risk.

Post: #8

I've been doing a terrible job at keeping records of all buy/sell events... I must have had hundreds or thousands of transactions. It's going to be a huge clusterfuck come 2018 tax time.

Is there any chance the exchanges are going to report all transactions to the IRS going back a few years? If not, maybe I can just simplify everything -- as in how many fiat dollars went in and how many came out for the calendar year?

Post: #9

Quote:Posted by CleanSlate - Today 09:16 PM
I've been doing a terrible job at keeping records of all buy/sell events... I must have had hundreds or thousands of transactions. It's going to be a huge clusterfuck come 2018 tax time.

Is there any chance the exchanges are going to report all transactions to the IRS going back a few years? If not, maybe I can just simplify everything -- as in how many fiat dollars went in and how many came out for the calendar year?

Looks like the IRS is trying and Coinbase/some investors/a law firm are playing hardball. This is a little dense for me, maybe someone can explain in a bit better.
https://www.forbes.com/sites/kellyphilli...coin-info/

Post: #10

Outstanding job.

I'm actually the one that was incorrect and stated 1031 may not apply. I'll take being wrong on this all day long. This is good news.

I think the USDT strategy is very good too, people should consider this route. But the .90 debacle made me a bit uneasy holding any amount for extended periods of time.

Exchanges are currently not issuing 1099s, i.e. no one is reporting your activity. But you can download transaction activity for almost all exchanges.

Post: #11

(06-13-2017 11:28 PM)Armogan Wrote:  Exchanges are currently not issuing 1099s, i.e. no one is reporting your activity. But you can download transaction activity for almost all exchanges.

Right, but what I'm worried about is if I simplify my reporting strategy to "X dollars in --> Y dollars out", and then 3 years later, the IRS wins the hardball fight and then they see 4,357 transactions on the exchanges I'm using... going all the way back to this year.

Post: #12

That's why I wouldn't do that, but I'm conservative.

You can say all you got is an excel and the exchange you traded on is defunct, or anything really. I don't put myself in those shoes though.

Doesn't need to be to the T like you said. Make it "reasonable".

Plus they really gonna find you? The gonna go after the Gee's of the world that buy on the way up and sell the way down. 1000x the amounts of transactions as you.

Post: #13

CleanSlate a friend recommended this site to me recently; I haven't had time to check it out yet but it sounds like it might help solve your problem.

Post: #14

Great sheet, was just starting to research myself. Great place to start!

Post: #15

These transaction under the current codes are not likely to fall under 1031 Exchange rules as currently written.

Quote:Like-Kind Exchanges Under IRC Code Section 1031....


Finally, certain types of property are specifically excluded from Section 1031 treatment. Section 1031 does not apply to exchanges of:
Inventory or stock in trade
Stocks, bonds, or notes
Other securities or debt
Partnership interests
Certificates of trust

Over the years Ive used 1031's and reverse exchanges too many times to count for real estate. There are a few overarching things I know is that when it comes to their applications as tax deferral vehicles in real estate.

1. There is more gray area in the codes' applications than there is black and white. How aggressively you use them ultimately becomes a matter of risk tolerance ie... How much do you trust your CPA and tax attorney and the strategies you've implemented.

2. The chain of service providers that facilitate these transactions all are guaranteed their slice

Since capital gain liabilities are incurred when "boot"(profit) is realized/taken and tax deferral has value as a business solution:

Is there such a thing as an "accommodation service" analogous to 1031 X-change accomodator in the crypto-currency space? If not...there's a niche worth exploring

Post: #16

(06-14-2017 12:14 AM)PapayaTapper Wrote:  These transaction under the current codes are not likely to fall under 1031 Exchange rules as currently written.

Quote:Like-Kind Exchanges Under IRC Code Section 1031....


Finally, certain types of property are specifically excluded from Section 1031 treatment. Section 1031 does not apply to exchanges of:
Inventory or stock in trade
Stocks, bonds, or notes
Other securities or debt
Partnership interests
Certificates of trust

Good thing cryptocurrencies aren't included in that list

But seriously, that's why I suggest folks find a local professional and do their own DD. This is all one big grey area at the moment, and I imagine a large part of keeping the IRS at bay will come down to leveraging a logical and consistent application of existing laws to one's personal situation.

Post: #17

(06-13-2017 07:58 PM)Hyperflux Wrote:  Any idea how this would differ in Canada?

Considered as capital gains that you need to convert to CAD.

http://www.advisor.ca/tax/tax-news/taxin...ncy-138805

https://turbotax.intuit.ca/tips/how-bitc...-taxes-333

Post: #18

With the S.1241 being introduced into the Senate -- which essentially outlaws cryptocurrencies -- would you ironically get in trouble for doing the right thing, which is to report your gains from trading cryptos?

Post: #19

^^ The problem isn't an issue of taxes, but more of a problem of convertibility. The government could very easily disallow Coinbase's operations stateside.

If the US disallows cryptocurrency convertibility you'll have to go through more hoops to convert your bitcoins to a foreign currency and then into dollars.

This would destroy the value of bitcoin and other cryptocurrencies in the short term. Whether it rebounds is to be seen.

Post: #20

(06-14-2017 10:33 PM)The Beast1 Wrote:  ^^ The problem isn't a problem of taxes, but more of a problem of convertibility. The government could very easily disallow Coinbase's operations stateside.

If the US disallows cryptocurrency convertibility you'll have to go through more hoops to convert your bitcoins to a foreign legal currency and then into dollars.

This would destroy the value of bitcoin and other cryptocurrencies in the short term. Whether it rebounds is to be seen.

I don't know about your logic, here... or maybe you are missing some facts or you are assuming some fact differently from me?

In the USA, there are a few vehicles in which folks can go through banks to trade in crypto currencies, including Coinbase, Gemini and possibly a few others.

There are also ways to trade in crypto currencies without going through banks, such as local bitcoin or just meeting people directly.

It seems that when other countries have attempted to make bitcoin's illegal then the use of direct trades and local bitcoins increased.

Sure making cryptos illegal could cause a lot of suppression and cause a large number of folks to discontinue its use. It could also depress crypto value in some ways, and push uses into the black market or other jurisdictions. Such legislation to blanketly make cryptos illegal does not seem like a very likely and/or logical next play for legislators - even though they make such token gestures from time to time.

Post: #21

(06-14-2017 10:41 PM)JayJuanGee Wrote:  

(06-14-2017 10:33 PM)The Beast1 Wrote:  ^^ The problem isn't a problem of taxes, but more of a problem of convertibility. The government could very easily disallow Coinbase's operations stateside.

If the US disallows cryptocurrency convertibility you'll have to go through more hoops to convert your bitcoins to a foreign legal currency and then into dollars.

This would destroy the value of bitcoin and other cryptocurrencies in the short term. Whether it rebounds is to be seen.

I don't know about your logic, here... or maybe you are missing some facts are assuming some fact differently from me?

In the USA, there are a few vehicles in which folks can go through banks to trade in crypto currencies, including Coinbase, Gemini and possibly a few others.

There are also ways to trade in crypto currencies without going through banks, such as local bitcoin or just meeting people directly.

It seems that when other countries have attempted to make bitcoin's illegal then the use of direct trades and local bitcoins increased.

Sure making cryptos illegal could cause a lot of suppression and cause a large number of folks to discontinue its use. It could also depress crypto value in some ways, and push uses into the black market or other jurisdictions. Such legislation to blanketly make cryptos illegal does not seem like a very likely and/or logical next play for legislators - even though they make such token gestures from time to time.

Not sure why you're confused bud, you have reasoned everything correctly in your post.

Ease of conversion is why bitcoin is loved so much. Yes you can trade it in person. I don't know about you JJG , but i've never seen anyone ever perform a real life bitcoin transaction. While such an event would highlight the importance of bitcoin's more underused features (like in person currency), it would still be a psychological blow to the psyche of many investors.

The reasons for restrictions are numerous to count and it's an immediate threat to TPTB's abilities for control. I would be watchful for any rumors from regulatory agencies in the states about restrictions on companies that perform exchange operations.

It pays to be wary of such psychological triggers. Cryptocurrencies are unknown waters.

Post: #22

(06-14-2017 10:56 PM)The Beast1 Wrote:  

(06-14-2017 10:41 PM)JayJuanGee Wrote:  

(06-14-2017 10:33 PM)The Beast1 Wrote:  ^^ The problem isn't a problem of taxes, but more of a problem of convertibility. The government could very easily disallow Coinbase's operations stateside.

If the US disallows cryptocurrency convertibility you'll have to go through more hoops to convert your bitcoins to a foreign legal currency and then into dollars.

This would destroy the value of bitcoin and other cryptocurrencies in the short term. Whether it rebounds is to be seen.

I don't know about your logic, here... or maybe you are missing some facts are assuming some fact differently from me?

In the USA, there are a few vehicles in which folks can go through banks to trade in crypto currencies, including Coinbase, Gemini and possibly a few others.

There are also ways to trade in crypto currencies without going through banks, such as local bitcoin or just meeting people directly.

It seems that when other countries have attempted to make bitcoin's illegal then the use of direct trades and local bitcoins increased.

Sure making cryptos illegal could cause a lot of suppression and cause a large number of folks to discontinue its use. It could also depress crypto value in some ways, and push uses into the black market or other jurisdictions. Such legislation to blanketly make cryptos illegal does not seem like a very likely and/or logical next play for legislators - even though they make such token gestures from time to time.

Not sure why you're confused bud, you have reasoned everything correctly in your post.

Ease of conversion is why bitcoin is loved so much. Yes you can trade it in person. I don't know about you JJG , but i've never seen anyone ever perform a real life bitcoin transaction. While such an event would highlight the importance of bitcoin's more underused features (like in person currency), it would still be a psychological blow to the psyche of many investors.

The reasons for restrictions are numerous to count and it's an immediate threat to TPTB's abilities for control. I would be watchful for any rumors from regulatory agencies in the states about restrictions on companies that perform exchange operations.

It pays to be wary of such psychological triggers. Cryptocurrencies are unknown waters.

I suppose that I am confused because your post seems to be an attempt at logic that is not really in touch with a large number of material and relevant facts.

Bitcoin is used all over the world and expanding, and even if it is not widespread in a consumer sense, there is a large amount of adoption. The same is true for other cryptocurrencies, and generally, they are not being used in day to day transactions.

The theme of government regulations comes up a lot, and there are frequently various threats to regulate in some jurisdictions and various attempts at implementing regulations, but there are reversals of those regulatory attempts too. Bitcoin and cryptocurrencies continue to grow, and if you had not noticed, there has been more than a 10x increase in the total crypto market cap in less than a year, and sure some of that market cap is fake and smoke and mirrors, but it adds up to quite more than $100 billion just in the coins - and that is not including the multitude of surrounding investments and infrastructure.

In other words, to me it seems as if you are over simplifying how "easy" it would be for any government(s) to wave their magical wand and go "poof" to crypto, and if you ever heard of wack-a-mole, you might hear about that soon, no?

I don't want to be patronizing, but I guess I was suggesting that your facts do not seem to support your logic, but you still seem to want to argue whatever facts that you have provided, so in that regard, maybe we can just agree to disagree because it does not seem that we are on the same page in terms of material facts.

On the other hand, if some other guy wants to chime in here, to explain in one direction or another, then maybe that could help this threat of government regulations topic that seems to be part of the point you are raising?

Post: #23

(06-14-2017 11:21 PM)JayJuanGee Wrote:  

(06-14-2017 10:56 PM)The Beast1 Wrote:  

(06-14-2017 10:41 PM)JayJuanGee Wrote:  

(06-14-2017 10:33 PM)The Beast1 Wrote:  ^^ The problem isn't a problem of taxes, but more of a problem of convertibility. The government could very easily disallow Coinbase's operations stateside.

If the US disallows cryptocurrency convertibility you'll have to go through more hoops to convert your bitcoins to a foreign legal currency and then into dollars.

This would destroy the value of bitcoin and other cryptocurrencies in the short term. Whether it rebounds is to be seen.

I don't know about your logic, here... or maybe you are missing some facts are assuming some fact differently from me?

In the USA, there are a few vehicles in which folks can go through banks to trade in crypto currencies, including Coinbase, Gemini and possibly a few others.

There are also ways to trade in crypto currencies without going through banks, such as local bitcoin or just meeting people directly.

It seems that when other countries have attempted to make bitcoin's illegal then the use of direct trades and local bitcoins increased.

Sure making cryptos illegal could cause a lot of suppression and cause a large number of folks to discontinue its use. It could also depress crypto value in some ways, and push uses into the black market or other jurisdictions. Such legislation to blanketly make cryptos illegal does not seem like a very likely and/or logical next play for legislators - even though they make such token gestures from time to time.

Not sure why you're confused bud, you have reasoned everything correctly in your post.

Ease of conversion is why bitcoin is loved so much. Yes you can trade it in person. I don't know about you JJG , but i've never seen anyone ever perform a real life bitcoin transaction. While such an event would highlight the importance of bitcoin's more underused features (like in person currency), it would still be a psychological blow to the psyche of many investors.

The reasons for restrictions are numerous to count and it's an immediate threat to TPTB's abilities for control. I would be watchful for any rumors from regulatory agencies in the states about restrictions on companies that perform exchange operations.

It pays to be wary of such psychological triggers. Cryptocurrencies are unknown waters.

I suppose that I am confused because your post seems to be an attempt at logic that is not really in touch with a large number of material and relevant facts.

Bitcoin is used all over the world and expanding, and even if it is not widespread in a consumer sense, there is a large amount of adoption. The same is true for other cryptocurrencies, and generally, they are not being used in day to day transactions.

The theme of government regulations comes up a lot, and there are frequently various threats to regulate in some jurisdictions and various attempts at implementing regulations, but there are reversals of those regulatory attempts too. Bitcoin and cryptocurrencies continue to grow, and if you had not noticed, there has been more than a 10x increase in the total crypto market cap in less than a year, and sure some of that market cap is fake and smoke and mirrors, but it adds up to quite more than $100 billion just in the coins - and that is not including the multitude of surrounding investments and infrastructure.

In other words, to me it seems as if you are over simplifying how "easy" it would be for any government(s) to wave their magical wand and go "poof" to crypto, and if you ever heard of wack-a-mole, you might hear about that soon, no?

I don't want to be patronizing, but I guess I was suggesting that your facts do not seem to support your logic, but you still seem to want to argue whatever facts that you have provided, so in that regard, maybe we can just agree to disagree because it does not seem that we are on the same page in terms of material facts.

On the other hand, if some other guy wants to chime in here, to explain in one direction or another, then maybe that could help this threat of government regulations topic that seems to be part of the point you are raising?

What are you trying to argue JJG? Relax, you're in agreement with me.

Take some time to re-read my post. I wasn't attacking your emotional investment in cryptocurrencies. Instead I was merely bringing up concerns that should be weighed and considered.

Governments around the world can and have very much waved their regulatory wands to make our lives more difficult . The US government was able to make foreign banks spit up private information on citizens abroad and desecrate the basic fabric of trust every US based tech vendors' security. When it comes to digital anything, it's best to be err on the side of caution, especially when it has such a strong ability to usurp the financial systems of the rich and powerful.

Don't think for a second uncle sam can't make things wicked miserable for us. I'd be quite unhappy if my investment collapsed in value because some nitwit at the SEC made some arbitrary ruling.

First it's taxes, but what's next? I constantly scan the horizon for changes in the regulatory atmosphere. Shit like this can change on a dime!

Post: #24

(06-15-2017 12:35 AM)The Beast1 Wrote:  

(06-14-2017 11:21 PM)JayJuanGee Wrote:  [edited out]

What are you trying to argue JJG? Relax, you're in agreement with me.

This is my relaxed state.

Seemed to me that you were suggesting that Governments have some ability to snuff out or stifle crypto, and I largely disagree that either they will do it or that they really are able to do it and the facts are also that they tend to chicken out. They threaten without really being able to do anything. At least so far, and you seem to be giving a lot more credence to their threat in a sort of hypothetical and theoretical sense that makes little sense to me.

(06-15-2017 12:35 AM)The Beast1 Wrote:  Take some time to re-read my post. I wasn't attacking your emotional investment in cryptocurrencies. Instead I was merely bringing up concerns that should be weighed and considered.

I think that you are confusing emotional investment with experience and research.

So, if you do not have much if any experience or research then you will make hypotheticals that make little to no sense, but if you have experience and research, the hypotheticals and theory cause confusion when they seem to be floating in some kind of world that is not tied to facts on the ground... That is what I am suggesting about your theories.

(06-15-2017 12:35 AM)The Beast1 Wrote:  Governments around the world can and have very much waved their regulatory wands to make our lives more difficult .

That is true, but apply that to crypto. Yes, they may be plotting, and yes there may be certain things that they can do, but there is also wack-a-mole, too.

Sure, I am invested in bitcoin, and I am prepared for the price to go either direction, and I am still thinking that your theoretical suggestion about what goverments might do is a bit of a stretch in terms of directly affecting price.

Currently our most tangent and imminent material threats to price seems to be something other than government regulations..

(06-15-2017 12:35 AM)The Beast1 Wrote:  The US government was able to make foreign banks spit up private information on citizens abroad and desecrate the basic fabric of trust every US based tech vendors' security. When it comes to digital anything, it's best to be err on the side of caution, especially when it has such a strong ability to usurp the financial systems of the rich and powerful.

No one is suggesting that the government might try things, and surely they can go after various centralized systems and quasi-centralized systems. There are parts of crypto that are centralized and parts of crypto that are decentralized. They are going to have a lot more difficulties with the decentralized components of crypto, and we will see how some of this plays out... in other words, the government threat to decentralized systems does not appear to be imminent at the moment, except the extent to which they may be attempting to manipulate behind the scenes.. which is a bit of another story.

(06-15-2017 12:35 AM)The Beast1 Wrote:  Don't think for a second uncle sam can't make things wicked miserable for us.

Of course governments can go after individuals, and of course they can pass laws to make confusion. No one is saying that they cannot do those kinds of things.

(06-15-2017 12:35 AM)The Beast1 Wrote:  I'd be quite unhappy if my investment collapsed in value because some nitwit at the SEC made some arbitrary ruling.

Of course, they make arbitrary, unjust and biased rulings all the time.. We have heard of Ross Ubricht, right? in prison for his involvement in silk road and apparently a scapegoat who is serving time in order to serve as an example of government power over individuals.

Post: #25

Thanks IJ!

Question:

Couldn't we just hold USD on the exchanges (Coinbase, GDAX, etc.)? As long as it's not being transferred to ACH, it shouldn't be a taxable event. Similar to a stock exchange, you're just keeping it in "cash market" until transferring out. The money is still in the hands of the exchange.

Also, I don't think we paid taxes on PredictIt until we cashed out.