Op Ed: Cryptocurrency Capital Gains Taxes — Slimming the Problem

Capital gains on crypto transactions are simple to track, one at one time. What about when there are thousands?Cryptocurrency capital gains taxes are getting to be a point of interest for authorities. In 2017, that will likely come to be referred to as the year crypto went mainstream, the combined market cap for all cryptocurrencies rocketed up from 15 billion to over 600 billion dollars. This sort of growth is difficult to dismiss — not just for the day traders and blockchain evangelists but for authorities also. This report concentrates on how the United States specifically approaches crypto taxation.Don Fort, the leader of the IRS criminal investigation unit, speaking on a current taxation conference panel, mentioned at length “cryptocurrency is becoming a new field of enforcement due to him. ” Additional events such as the IRS Coinbase Summons along with the IRS warning delivered to tax filers reveal the clear goals of the U.S. government. Because cryptocurrency is treated as land (not as currency), it’s subject to capital gains taxes — just like shares, bonds, property and other forms of private property. Then you report this profit on your yearly taxes, which ’therefore the end of this. The exact same goes for cryptocurrency. While the goals of the authorities are clear — they want you to record your crypto gains — busy crypto traders know that the sheer volume which is included with trading crypto brings about a slew of headaches and challenges for tax reporting purposes. Before diving in these challenges, we should break capital gains. For crypto assets, it includes the purchase price and all other costs associated with buying the cryptocurrency. Other costs usually comprise things such as transaction fees and brokerage commissions out of the exchanges where you purchased the crypto. So to compute your cost basis you’d carry out the following:(Purchase Price of Crypto + Other fees) / Amount of Holding = Price BasisStep two – Determine the Fair Market Value in the Time of the TradeThe reasonable market value is the next data point you want to calculate your capital gains. An example might look something like the following: You purchased 0.05 Bitcoin for $100 dollars in June of 2017. You paid a $1.49 transaction fee to the exchange that you purchased from. At November of 2017you offered that same 0.05 Bitcoin for its reasonable market value that was 500 at the time. The IRS says that coin-to-coin trades are also taxable events. This usually means that when you trade BTC for every other altcoin, you pay for a capital gain or capital loss that you have to file on your taxes. I need to lay out one more example to show how a coin-to-coin trading situation would perform out.Let’s say you buy $100 value of bitcoin, such as transaction and broker fees. That $100 currently purchases about 0.01 BTC. Now, let’s say two months later you trade all your 0.1 BTC for 0.16 ETH. It depends on what the average market value of bitcoin was in the time of the transaction. Let’s say in the time of the transaction, 0.01 BTC has been worth $160. You would then have the ability to calculate your capital gains based of the info:$160 — 100 = 60.00 funds gainFor which crypto-to-crypto commerce, you’d owe the government a percentage of your $60.00 gain.The Huge Problem and the Elephant from the RoomIt’s no secret that some people are investing in crypto a great deal. Many just automate their trading plans by utilizing crypto bots to trade on their behalf. A number of the folks make tens of thousands of trades every single month. This absolute volume makes calculating and reporting every single transaction for taxation purposes virtually impossible. Just think: You want to retroactively return on each trade you have made and decide what the reasonable market value in U.S. dollars was in that time of the transaction, then use that to compute your profit or loss. It’therefore no question that an extremely few of active traders paid taxes on their crypto activity in 2017. However, with any problem comes the chance to present a solution, and several businesses and providers are sprouting up to deal with this one.How Do I Actually Report It? In terms of how to record cryptocurrency on taxes in the United States, you will need two particular forms. To begin with, you want to fill out the IRS kind 8949, that will detail each crypto trade which you made during the calendar year, as well as the date offered, date acquired, cost basis and capital gain. You then should complete up each one of these things to reach your total gains and record that number on your 1040 Schedule D.As always, when in doubt, consult with a tax professional who is comfortable and has dealt with cryptocurrency.What Does the Future Look Like?I think I am preaching to the choir when I say that crypto isn’t going away anytime soon. That is a technology that is going to change the world in ways that we currently cannot even fathom. But on the flipside, the taxation consequences behind it aren’t moving out . If you come to grips with this reality, it’s not difficult to get prepared for the future. Produce a plan, do your homework on all the solutions currently on the market, and prepare today. This will save you time and nervousness once next April rolls around.Tax talk , I am very excited about the near future of cryptocurrency along with blockchain technology. These are extremely exciting times that we dwell in; chance is right across the corner.This is a guest post by David Kemmerer; it’s for information purposes only and should not be construed as tax or investment advice.  Views expressed are their own and don’t necessarily represent those of Bitcoin Magazine or even BTC Inc..

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