1040 Tax Form Crypto Questions

edicted (72) in irs • 5 years ago

1040 IRS Form Crypto Changes.

Wow, just wow. It might not seem like much, but every single person that fills out a 1040 tax form is now going to see that the IRS cares about Bitcoin? Not just Bitcoin; all crypto. Kinda makes you wonder what kind of pump we are going to get in December right at the end of the year only to dump in January or February.

All your crypto are belong to us, noobs!
_{---US govment}

Whatever month we get action in, be it December and/or January, I believe the dump will be pretty sharp. I think a few traders are going to get overzealous and start pricing in the halving event 5 months in advance as the FOMO sets in. I expect this extra pump will make the market dump even harder when it comes crashing down (Hopefully January/February).

However, there is another wave coming in after that.

The Bitcoin halving is going to be priced in for real.

The Bitcoin halving will be mid May, so we might expect the event to start getting priced in around 2-3 months in advance (Feb/March), starting to dump around a month in advance (mid April), and continuing to dump for 2-4 weeks after the event (June). (If history repeats). Hopefully that would then lead into a summer bull run (in which I expect Litecoin to do quite well, being 10-12 months after the Litecoin halving event this year).

The problem is that the Bitcoin Halving hype wave in Feb/March might mash up with the Winter dump if they both end up happening during February. Feb 2020 might show some batshit market volatility, or the bottom of the market will be placed quickly and spring board up from there.

November has always been a really good month for crypto, this is exactly why I am not taking profits during this month unless they are quite extreme. The real money gets made in December/January if you can time when the dump is going to happen. In our cases, we time it with cost-average selling back into the stable hedge. Take no unnecessary chances.

Back to the actual topic.

I'm still a bit blown away that they are going to put crypto questions on the 1040 tax form at this time. Are they trying to create another April Tax Crisis? Don't be surprised... April is going to be a terrible month anyway from the halving dump. Taxes will just add to that.

Conclusion

I've made a lot of predictions here.

November/December are almost guaranteed to be good months.
Dump in January/February.
Bitcoin halving pump in February/March.
Bitcoin halving dump + tax dump in April/May.

The plan is to greatly increase my hedge in December so I have a lot more wiggle room to trade the into the rest of these waves.

As far as the IRS tax form is concerned... government changes like this are not trivial (because no government change is trivial) and we should take it seriously. Thanks for the free advertising and possibly tip off to the future, IRS.

irs busy palnet steemleo idiocracy news speculation

5 years ago by edicted (72)

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taskmaster4450le (66) · 5 years ago

I am trying to follow your logic with the IRS.

The changes will be on the tax forms brought out in 2020 for Calendar year 2019.

The question is going to pertain to ownership in 2019, any point. Hence selling in December or February is not going to matter. It does not apply to holdings at time of filing since it is always in arrears.

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3 votes

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edicted (72) · 5 years ago

If Bitcoin gets pumped in December and than dumps in January, then all of a sudden everyone owes taxes on value that don't exist. This is exactly what happened in 2017/2018 and a lot of people blamed poor price action in April 2018 for this reason.

If your Bitcoin is worth a million dollars in December and is then worth 100k in April, you still owe taxes on a million dollars.

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preparedwombat (70) · 5 years ago

If your Bitcoin is worth a million dollars in December and is then worth 100k in April, you still owe taxes on a million dollars.

But you don’t owe taxes until you sell. For now it’s taxes on capital gains, not on held assets.

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4 votes

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edicted (72) · 5 years ago

I thought the law was a little more complex than that. I remember reading a bunch of stuff about when capital gains doesn't apply. Antiquated clusterfuck.

Either way I'm still counting on people to be lazy, do their taxes at the last minute, and be forced to burn down liquidity early April.

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nealmcspadden (69) · 5 years ago (edited)

@preparedwombat is correct. You only have a capital gains event when you sell.

What people screw up though is what constitutes a sale.

Sent some BTC for some animation work? That's a capital gains event.

Mined some BTC? That's an ordinary income event.

Exchanged BTC for ETH? That's a capital gains event.

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1 vote

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markkujantunen (74) · 5 years ago

Correct.

How is income earned on gaming or entertainment platforms taxed in the USA? If some kid builds something in an MMOG and sells it and gets some amount of that game's internal currency in exchange for it, at which point in time is that considered taxable earned income? At the moment that exchange is made? Or when the internal currency is exchanged for dollars?

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taskmaster4450le (66) · 5 years ago

The taxable event occurs at the time it is earned, in your example when the MMOG is sold. It doesnt matter when the currency is swapped for dollars. At the time of sale, the currency value needs to be converted into USD for tax purposes (although still could be held in the game's currency).

This is presuming the kid did not set up a business which the MMOG was under. If that was the case, a completely different part of the tax code would apply.

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markkujantunen (74) · 5 years ago (edited)

It may not be that simple.

The Tax Resolution Institute had this to write about income earned on MMOG's (Massive Multiplayer Online Games) on June 30 2013:

At the request of Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), Congress’s U.S. Government Accountability Office (GAO) just wrote and filed a 23-page report on the tax implications of earning gold in MMORPGs. Titled “Virtual Economies and Currencies,” the report focuses on buying, using, and selling virtual currencies like WoW gold. The key point in the taxing World of Warcraft plan for WoW players is that the in-game economy is a “closed-flow system” where a player can’t exchange gold for U.S. dollars. As a result, most players will never need to worry about claiming those 177 gold pieces and diamond rings earned from completing a quest on a 2013 income tax return.
If, however, a player chooses to sell accumulated WoW items through a third-party exchange, then that player “may have earned taxable income from the sale of these virtual goods.” Selling such assets and currency is against the game rules, but such rules are seldom enforced by Blizzard Entertainment. Players do it all the time, and it has become a big business. Several players reportedly earn a large percentage of their outside income through such sales. The Internal Revenue Service is going after this tax free income.

With Diablo 3, it is even more complicated because such exchanges are allowed. With an “open-flow system” at the heart of the game, a player can easily exchange in-game currency for real-world money. A player cashing out of Diablo 3 “may have earned taxable income” that should be reported to the IRS. As a result, the U.S. Government Accountability Office (GAO) has instructed the IRS to go after such forms of income tax evasion. If you think you could be in trouble, please take action before it is too late. Contact the Tax Resolution Institute for a free consultation by calling 818-704-1443.

https://www.taxresolutioninstitute.com/taxing-world-of-warcraft-income-taxes-online-gaming-diablo-irs/

The tax authorities of some other countries have clear rules in place for taxing MMOG income. For example, in Finland, income earned by selling assets in an MMOG is only considered taxable when it is swapped for fiat, goods or services, or virtual currencies external to the platform in question:

Section 2.7 in the following guidance settles the matter:

https://www.vero.fi/en/detailed-guidance/guidance/48411/taxation-of-virtual-currencies/

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practicalthought (65) · 5 years ago

This, or when you trade and the coin being traded gained value from the time you purchased it.

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taskmaster4450le (66) · 5 years ago

Taxes are not owed on assets unless sold.

Plus it is only on the gains so if someone paid $500K for the $1M BTC, the gain is only $500K. If the BTC was held more than a year, it is capital gains, less it is considered earned income (different tax rates).

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2 votes

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crypto.piotr (70) · 5 years ago

Interesting read @edicted

I wonder how does all of it works in europe. At least in entire US you will have one law. In europe every country will have their own policies. So confisung ....

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1 vote

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stayoutoftherz (68) · 5 years ago

And because of exactly this reason I don´t think that the tax laws of a specific country (even US) have any influence on crypto prices.

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edicted (72) · 5 years ago (edited)

It was quite an often occurrence during the last bear market that every movement was because of some such piece of news. Meanwhile, the price-action graph looks like a very predictable wave.

I still count on the dump in mid April as the halving approaches.

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stayoutoftherz (68) · 5 years ago

Lucky you that it is predictable for you :)
For me there too many conflicting news.

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preparedwombat (70) · 5 years ago

I have no idea how one would be able to figure out the tax implications of the thousands of micro transactions done in a year with a Steem account. For what it’s worth, my CPA thinks most people at the IRS would be just as lost.

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markkujantunen (74) · 5 years ago (edited)

Steem users in countries where every such transaction is a tax event triggering earned income tax have an incentive to remain anonymous. If you need to cash out some, you’d only want to pay tax on what you’ve cashed out. What is the likelihood that your account would be audited to verify that you have not earned significantly more than what you cash out?

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