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IRS says you trade bitcoin for [XRP for example], that is a taxable event.

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Any American bitcoin investors who were hoping to avoid paying taxes for their profits this year by trading them for altcoins are in for an unpleasant surprise. New regulations have been tailored specifically to make sure U.S. taxpayers can’t use this method to avoid giving the IRS their cut.

Bitcoin to Altcoin is Not a “Like Kind” Exchange

Until today a crafty tax attorney or accountant could have tried claiming that trading bitcoin for another cryptocurrency is not a taxable event, but U.S. authorities are now moving in fast to plug this loophole. The latest tax bill contains clarifications which make this a non-valid tax-minimizing strategy going forward.

The issue arises from the IRS categorizing bitcoin as property, which can be argued makes crypto to crypto trades “like kind” exchanges under Section 1031 of the Internal Revenue Code. The new tax bill defines “like kind” exchanges to pertain only to real estate deals. To make things as clear as possible, this means that if you trade bitcoin for tether (USDT) for example, that is a taxable event.

“Some people think, ‘I’m taking my bitcoin, which the IRS has deemed to be property, swapping it for another property and doing it for investment reasons,’ so it sounds like it could be a 1031 exchange,” Evan Fox, tax manager at New York accounting firm Berdon, told CNBC. “I think it’s a stretch.”

The Current Framework

According to the current tax framework, Americans need to self report their bitcoin trading profits and calculate their dues according to their tax brackets. Selling after holding the asset for less than a year qualifies as a short term investment and is taxed between 10% to 39.6%. Selling bitcoin after holding for over a year is qualified as a long-term investment and taxed up to 20%. Conveniently, if you traded over $20,000 with Coinbase the IRS already has your records.

“If you put money into the cryptocurrency space, and you decide to buy (an altcoin), and you one day monetize it and show up with a $2 million house, the IRS is not stupid,” Fox said. “Money doesn’t just appear out of nowhere.”

The IRS can also decide to audit someone’s tax going up to three years back and is known to use the services of  Chainalysis, a blockchain analysis specialist, to hunt down bitcoin users for evading taxes.

“If a few years from now the IRS is able to decode what happened, and you made a significant amount of money in 2017 and didn’t report it, you’ll face interest and penalties that have been accruing,” Fox explained. “It might be a risk some people want to take, but there are some bad consequences if you get caught.”

http://www.altcointoday.com/trading-bitcoin-altcoin-wont-shield-irs-anymore/

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23 minutes ago, Skippy said:

Not bad news for non-Americans :)

Whenever I hear or see someone talk/write about USA (and a-like) tax rules, I remember quadrouple facepalm meme.

The amount of that needs to be done and then how much % you have to give, FFS.

And here I am, in a fckty country, most probably will pay 20% at most. Many people never heard of bitcoin, even bankers lol.
Heck, if I wanted to, pretty sure if I could send all to Skrill, my bank would never know about it :spinlol:

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I mean, it's double dipping at its finest. We get taxed on our income (whether it be regular wages or bonuses). Then if we decide to turn around and use that income (that has already been taxed) and invest it (in my case to make up for what they already took) they tax any gains we make off of our money that has already been taxed. It's the most ridiculous thing, and logically doesn't make a whole lot of sense. *sigh* the government will always get theirs, be it fair or not. 

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So...since we have to buy ETH or LTC or BTC in order to exchange it for XRP then we immediately take a tax haircut just to acquire the XRP?

Absent the Coinbase $20k transaction notification...how on earth would the IRS ever know you have a desktop, hardware, or paper wallet? (not suggesting any nefarious activity here just curious)...

 

 

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What if you basically instantly bought and traded BTC, LTC, or ETH for XRP and never really held on to any long enough to make a profit between purchase and sale?

Or if someone did make some gains of a few bucks while sending between exchanges but not enough to cover all of the fees associated with the purchases? Or the fact that for the most part those gains are basically a wash with the losses due to volatility also?

Would be nice if they came up with a specific worksheet that allows you to figure that out

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To make it even . more confusing, in the UK you are not taxed on 'speculative' investments, as they are deemed gambling. At what point is investing in say, Ripple deemed speculative? I mean, if you bought some cryptos in an ICO, then that is probably deemed speculative. But what if you just traded one for another hoping that that would be the right horse to back?

-Matt

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4 minutes ago, meegwell said:

So...since we have to buy ETH or LTC or BTC in order to exchange it for XRP then we immediately take a tax haircut just to acquire the XRP?

Absent the Coinbase $20k transaction notification...how on earth would the IRS ever know you have a desktop, hardware, or paper wallet? (not suggesting any nefarious activity here just curious)...

 

 

There are some bills going through congress, that havent passed yet, which would make it a requirement for US citizens to report any cryptocurrency accounts that they have. Much in the same way that it is your responsibility to report foreign bank accounts to the IRS

 

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10 minutes ago, FixnUrPowerline said:

What if you basically instantly bought and traded BTC, LTC, or ETH for XRP and never really held on to any long enough to make a profit between purchase and sale?

Then you would not have to pay tax on any gains because there were none.  All my transactions are almost immediate so I will not be reporting any gains from currency swaps because I did not have any.  The only time someone would get caught in this is if they had a huge BTC profit that they moved into XRP. If you bought 1 BTC for $100 and then swapped 1 BTC for 20k xrp you would have to report the $17,900 as a capital gain.

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7 minutes ago, meegwell said:

So...since we have to buy ETH or LTC or BTC in order to exchange it for XRP then we immediately take a tax haircut just to acquire the XRP?

Absent the Coinbase $20k transaction notification...how on earth would the IRS ever know you have a desktop, hardware, or paper wallet? (not suggesting any nefarious activity here just curious)...

 

 

If you trade at a gain, then yes.  The IRS sees a BTC->XRP exchange as the same as selling BTC for USD (taxable event) and then buying XRP with that USD.  The IRS will not know what crypto investments or vehicles you hold, but if you ever plan to sell those investments and use the money returned they'll have no problem finding you.  They get bank records yearly so they'll see any $$$ that goes into a checking or savings account.  Any kind of securities exchange will report your investments so if you magically buy millions in blue chip stocks they'll see that too.  Probably can't buy a car for cash anymore and even if you buy a house for BTC/LTC/XRP outright the legal documents pertaining to the purchase are public record and visible to the IRS as well.  Very hard to launder money today.

This next part is not directed at you @meegwell - but I'm a little scared for the amount of US-based investors who are going to get absolutely mauled by the IRS in the coming years over these 1000%+ gains that might not be reported correctly from a tax perspective.  The IRS is no joke and keep in mind if the IRS deems a person as having purposely evaded taxes in a taxable event then there are no statute of limitations.  They can hunt you down 20 years later like the event happened yesterday.

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21 minutes ago, FixnUrPowerline said:

What if you basically instantly bought and traded BTC, LTC, or ETH for XRP and never really held on to any long enough to make a profit between purchase and sale?

Or if someone did make some gains of a few bucks while sending between exchanges but not enough to cover all of the fees associated with the purchases? Or the fact that for the most part those gains are basically a wash with the losses due to volatility also?

Would be nice if they came up with a specific worksheet that allows you to figure that out

It's just like accruing interest on your savings account.  if you make $40 from money sitting in your savings over the course of the year the IRS wants to know about it.  Probably it's negligible and there is no taxed event, but they still want to know and the bank still gives them the account information.  You are better off reporting everything.  You could maybe get away with not listings the ones you know are wash trades with no gains, but imho if the IRS ever hit you with an audit you might be looking at some penalties for non-reporting even if the report wouldn't have generated a measurable tax.  I am not a tax expert...this is just my opinion.

Edited by Zedy44
spelling...

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