The Taxman Cometh...
taxmad
Posts: 980 ✭✭✭✭
The Internal Revenue Service (IRS) is making it harder for taxpayers to conceal cryptocurrency transactions — whether intentionally or not — by adding a new question about it near the top of the new Form 1040.
The form released last week asks: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The only option is to mark yes or no.
If you answer inaccurately, you could find yourself in hot water with Uncle Sam who is rooting out tax evaders, tax professionals warned.
“When you sign the form, it’s under the penalty of perjury,” said Ryan Losi, a certified public accountant and executive vice president of PIASCIK, a tax firm. “The IRS is just gathering the data, changing the forms to expressly say you did or didn’t, and setting the trap, so in the coming years, the hammer can come down.”
https://money.yahoo.com/irs-bitcoin-and-virtual-currency-tax-form-193503386.html
Comments
True, but the IRS already started asking that question on the 1040 for tax year 2019. So it's not new. This is a major reason cryptocurrency for US citizens is practically useless as a means of payment. Purely a speculative, FOMO play. But ultimately putting faith in central banks may be far more dangerous.
One is required by law to file the return and one is required by law to sign the return. What happened to fifth amendment protection against self-incrimination?
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Try it and let us know the result!!
I don't stiff paypal (lol) and I don't stiff the tax man.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Bought a little in 2017. Considering answering yes .... but the wife is adamantly against me putting any more money into it. It only took 3 years to break even.
Owning crypto-currency isn't in and of itself a crime, so affirming or denying such ownership isn't incriminating yourself.
I don't know why gov.com would be interested in taxing income anymore. They just "poof" whatever they need into existance, and tax revenues are becoming less and less significant in comparison to the magic "poofed money" that they hand out to their cronies and families.
I knew it would happen.
'Poof' money eventually becomes a 'poof' economy.... Knowing that is one thing...Knowing when will make all the difference. Cheers, RickO
This "poofed money" is secured using MMT which stands for Modern Monetary Theory or more accurately Magic Money Tree.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
Being required to affirm or deny would become self incrimination if one doesn't follow thru with properly reporting the crypto income. Affirming ownership of crypto gives probable cause to get a court order to dig into one's financial records. Is that not self incrimination?
Isn't the whole point of asking if one bought or sold cryptos to get them to self incrimate if not now, but later?
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Taxation is the means by which MMT is supposed to deal with an overheating economy. Gov't doesn't need tax revenue to pay for things with MMT; taxes exist and can be increased to make it so that YOU aren't able to pay for things. "Worst case" anyone can have a gov job and get a "living wage", but I don't think MMT explains who will be left to cook you a burger, or worse... what happens to those who just decide they don't want to work since things like hunger or homelessness can't possibly exist under such a system.
Under MMT, taxation is the gas pedal (or brake) for disposable (available for spending) income which can be used to fuel (or reduce) inflation. Higher taxes equal less disposable income and vice versus.
Increased spending of disposable income is what generates inflation which also increases the velocity of money. Velocity of money creates further tax revenue as money changes hands more often. Every time money changes hands it generally creates new tax revenue.
The wheels on the bus go round and round. . .
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Year-end interview with Art Cashin I saw on the CNBC app, he discussed money velocity briefly. Condensed version - once it starts, look out inflation!
Most crypto players are not directly buy and selling the cryptos. They are buying and selling derivatives (such as I do in paypal and in Robinhood) that will result in end of the year1099s. I guess the 1040 crypto question, while it covers all forms of crytpo plays, is to really bring into the sunlight the crypto "wallet" players who don't have a middle man (broker) handling (or reporting) the transactions.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Please correct me if I am wrong, but I don't think PayPal cryptocurrencies are derivatives. You own the coins, you just don't have access to the private key. Similar to holding PMs in an allocated account. Your BTC, etc., is stored in PayPal's whale-sized wallet. Not sure how/whether they somehow bundle transactions, but the wallet is so large that it is likely. PayPal probably won't issue a 1099 unless you transfer $20K back into dollars in a given year. Since cryptocurrency is a solution in search of a problem (i.e., practically no utility) PayPal was probably a good place to initiate a position (no fees for 2020) for US citizen speculators.
Paypal owns the coins if they are actually backing your investment with coins. They could be foolishly backing your investment with their massive fee funded profits. You have a paper claim against their coins. Derivative? Debateable.
Investopedia defines a derivative as a a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index).
Normally a broker, which Paypal is in this case, will issue a 1099 any time their is income from a transaction(s) in a given year. Remains to be seen if Paypal (or the SEC) considers Paypal a broker when it comes to trading in cryptos. In my limited book, they are acting as a broker.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Investopedia defines a derivative as a a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index).
Is physical gold a derivative of the Comex paper contracts then? That seems to be what they are trying to tell us, but we all know (and so do they) that the market will make the final decisions about what backs what.
I knew it would happen.
Say I want to sell some btc held in my PayPal account. Let's assume that a month ago I bought 0.00100000 btc for $20, and made some additional btc purchases as well. Those same 100,000 sats might be worth around $28 today. Let's assume I'd like to employ a FIFO strategy to account for cap gains. Easy, right? Sell 100,000 sats and realize an $8 gain. Wrong! Inexplicably, Pay Pal only seems to allow you to sell crypto in your local currency by specifying a dollar amount or buy selling everything. It's bad enough crypto is useless as a payment system in the US, but PayPal's buy/sell mechanism makes it even difficult to speculate.
Approach all PP crypto transactions in dollar amounts, not in crypto units. Remains to be seen what PP's annual 1099 will show but keep in mind you paid a percentage of dollars (fee/commission) to buy and a percentage of dollars to sell. Percentage amount is determined by transaction dollar amount based on PP's fee schedule. Their lowest fee is 1.5% for transactions involving more than $1000. To get this lowest fee with every trade always trade in dollar amounts higher than $1000. For income tax purposes treat their fees as purchase and sale commission expenses.
Selling all holdings at once simplifies record keeping and tax reporting as long as all holdings were sold as either short term or long term and not both. Your initial purchases, and subsequent repurchases can be done in increments. My purchases are done in increments greater than $1000 ea. and are funded only with ebay sales proceeds that get paid into my PP account.
An investment total of $10K (where all individual purchases are greater than $1000 ea.) will have a combined fee of $150. If full investment is sold for $15K it will have a sales fee of $225. Total gain is $5K, net taxable gain is $5K minus $375 in fees.
With the ease and quickness of getting into and out of a PP crypto, there is really no reason not to always liquidate the complete holding in one transaction. The PP crypto account can currently be used for speculation only and nothing else; there is no advantage to keeping a balance other than to turn it into profit. When you take profit, take all of it. This will simplify your record keeping and your tax reporting. Wash, rinse, repeat.
Get back in at the moments (the dips) and amounts as you see fit.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
@derryb, There are no PP transaction fees until 2021. Your strategy described above doesn't make sense from a risk mitigation perspective. Would you take all your PMs and sell them all at once and then re-establish a position at a later date when you would have preferred to sell just a portion? You'd have to be a market timer, and a good one at that. A round trip in PP crypto will cost, best case, 2-3% to buy and another 2-3% sell because of the spread in addition to the minimum 1.5% transaction cost. It would be foolish to liquidate your position all at once considering the fees, not to mention short term capital gains taxes, if your intent is to hold at least some crypto over the longer term. My goal is to sell small portions into any rally, ultimately having withdrawn at least my principal. Then hold the rest to the moon (or more likely, 0).
With cryptos my goal is to maximize profit. I do that by selling the entire crypto postion at a high and buy it back at a low. Adding to a position in pieces makes sense as funds to do so become available. If you're gonna take profit on a speculation play, why take only a piece of it?
The fantastic jumps in crypto prices keep it from being foolish to liquidate. Fees are nothing when looking at 25%+ gains. Who wants to hold cryptos for the long term. They are strictly a speculative play that should be bought and sold as such.
With PMs my goal is to maximize holdings. They are not my speculation play, they are dollar protection in a real, physical asset that I hold in MY HANDS for the long haul. I have no counter party risk with them. I sell what I can (collector gold and silver) at the highs (unlike cryptos, I set the sell price/premium) and buy what I can at the low. This is how my stack grows. Crypto prices are set by the market; when the market says "large gain, selloff ahead," why sell only a portion knowing that, unlike with PMs, there is a chance they do not recover? Cryptos are not protection. They carry unknown risks and require full time attention.
You and I obviously have different expectations and goals when it comes to cryptos. What works for you will not work for me.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong