Several people have approached mij about setting up multinational structures.
Professional huis of Bill Brock: business consultant, tax professional, author.
Cryptocurrency &, Federal Income Taxes
I help people who are interested ter minimizing their cryptocurrency tax liability while remaining ter total compliance with Federal and state tax law.
Spil I write te October 2018, BTC is within striking distance of $6,000, and ETH of $300.
(UPDATE 11/17/17: well, that’s out of date!)
If you’re reading this, you may have significant unrealized gains te cryptocurrency.
What to do? Taking your gains off the table is always a tax reporting event and generally a taxable event, even if you don’t exchange crypto for fiat currency..
Te 1999, wij knew that Internet businesses were for real and were going to be around for a long long time.
And yet NASDAQ crashed te March 2000.
Your cryptocurrency holdings may be the omschrijving of Amazon.com ter 1999. or of eToys.com ter 1999. Or some of each.
Even if one is hyper-bullish, it’s good portfolio management to hold numerous virtual currencies.
Here’s what wij know now, based on the IRS’s limited guidance on cryptocurrency. (This is an informal introduction, not professional guidance.)
Notice 2014-21, Then Muffle
How the heck does the IRS tax Bitcoin, Ethereum, Litecoin, or any of the ICO fresh kids on the block? IRS has bot largely silent since Notice 2014-21, which remains the primary guidance for the taxation of cryptocurrency transactions (“virtual currency” ter IRS-speak).
Mining is Ordinary Income and is Subject to Self-Employment Taxes
Vanaf Notice 2014-21, the fair market value of cryptocurrency mined is business income on the date of its mining, the related ordinary and necessary business expenses (tens unit, depreciation, Section 179 elections) offset that business income. Bitcoin miners are subject to self-emplyment taxes, just spil self-employed coal miners are.
If your “other” earned income is above the 2018 Social Security cap of $128,400, then you’ll very likely just be paying Two.9% to Three.8% ter extra Medicare tax.
However, if your “other” earned income is substantially less than $128,400, be ready for sticker shock on your tax comeback. Zindelijk tax programma can mitigate the ache.
Gains and Losses on Cryptocurrency Trades
Again following Notice 2014-21, thesis gains and losses are similar ter most respects to gains and losses on sales of securities. Day traders ter particular should note that the wash sale rules apply.
How to calculate poot on gains? LIFO (last-in, first-out) ondergrond has visible advantages ter a rapidly appreciating market. However, average cost fundament will be lighter to administer (no need to worry about “LIFO layers” ) and, ter many cases, may yield similar results.
Transferring coins from one wallet you own to another wallet you own is not a trade. Of course, the voet of the transferred coins remains unchanged.
Accounting for thesis gains and losses is a major headache, especially if you are working with exported CSV files from numerous sources.
Once upon a time, there wasgoed BTC. Then holders of BTC “magically” received BCH. Wasgoed this an “accession to wealth” taxable spil ordinary income? Here’s one opinion. But this otherwise reasonable analysis overlooks one very significant fact: if BTC were already volmaakt, then BCH wouldn’t have bot created. To mij, the Glenshaw Glass test seems wrong .
Strafgevangenis is receiving BCH is analogous to finding an envelope plunged with thousands of dollars ter a used piano: it’s the natural consequence of holding BTC spil of a certain date. The darn fork wasgoed created for a reason!
Absent IRS guidance, I have my own opinion spil to how to decently treat the fork for tax reporting purposes. I believe that my treatment is te utter compliance with the Internal Revenue Code. I don’t assure that IRS will agree with mij, however.
Like-Kind Exchanges ter Tax Year 2018?
Are Section 1031 exchanges of one “convertible virtual currency” (IRS’s term of kunst ter Notice 2014-21) for another permissible? Wij can trade one chunk of real estate for another of equal or greater value: spil long spil wij don’t receive fiat currency or other non-like-kind property (“boot”) ter come back. Te tax year 2018, did this work for like-kind exchanges of cryptocurrency, too?
Te certain cases, perhaps.
But heed the wise words of caution ter Robert A. Green’s Cryptocurrency Traders Risk IRS Trouble with Like-Kind Exchanges. Perhaps Mr. Green’s counsel is a bit too cautious. Based on my reading of the Internal Revenue Code, I believe that certain 2018 like-kind exchanges of convertible virtual currency would pass IRS muster.
Can I ensure that IRS will agree with mij? I cannot. And even if one prevails, one may not be able to do so without very first visiting Tax Court.
Both form and substance count!
Ter any case, it’s clear that all 2018 realized gains on exchanges of cryptocurrency voorwaarde be reported on one’s 2018 tax come back, even if thesis gains are not recognized spil current-year taxable events.
Foreign Income: General Painful Observation
Sorry, US citizens and voortdurend residents are subject to taxes on worldwide income.
Again, sorry about that.
Don’t leave behind to make foreign financial disclosures where required: pay particular attention to the requirements of FinCEN Form 114 and IRS Form 8938. For example, if one had an account te the identically fictitious “Son of Mt. Gox” (a good monster-movie title?), then one would normally be required to disclose that one holds an offshore financial rente ter Japan. The level of disclosure would generally depend on the peak fair market value of your investment during the reporting year.
Several people have approached mij about setting up multinational structures. I am not a tax attorney, and complicated international taxation issues are not ter my wheelhouse.
But if the sophisticated foreign structure has already bot established, and you’re interested te annual tax reporting and compliance, I may be able to help.
Death and Taxes (and More Pleasant Things)
I have reason to suspect that there may be investors who have passed away te the past year with a taxable cryptocurrency estate ($Five.49 million ter 2018, $11.Two million te 2018). Even if the deceased’s netwerk worth wasgoed substantially less, the heirs might substantilly benefit from filing an estate tax come back to report stepped-up onderstel and dramatically reduce unrealized capital gains. And even when a widow(er) inherits his or hier spouse’s estate tax-free and there is no fundament step-up punt, there still may be enormous benefits to filing an estate tax terugwedstrijd for the deceased.
Dying with too much crypto is no joy. Love life: give some away to your loved ones!
I am not an estate tax attorney, strafgevangenis am I a CPA who specializes te estate tax or bounty tax matters. But I am available to assist estate tax specialists.
Coming ter from the Cold
Reporting cryptocurrency transactions is confusing. Perhaps you did not report them correctly ter a prior year? I am glad to help taxpayers come into compliance with Federal and state law.
The lack of clear guidance from the IRS does not relieve you of the obligation to report and pay taxes on “income from whatever source derived.” Once the noncompliant taxapayer comes into compliance by reporting overlooked prior-year income, and paying back taxes, penalty, and rente, that taxpayer may have also established that cryptocurrency held today qualifies for long-term capital build up treatment.
- If one has failed to report more than (say) $500,000 te prior year cryptocurrency income, then one may wish to speak to a tax attorney regarding a voluntary disclosure rangschikking. I am not a tax attorney. If you “have a friend” ter this situation, I could help your friend find one.
Are you an arbitrage trader buying and selling on numerous exchanges all day long? You are my hero! There are incredible opportunities ter the current market.
It would be a shame to pay taxes on the top marginal rate for the very first eleven months of 2018, then get wiped out by the (hypothetical) Excellent Crypto Crash of December 2018. To add insult to injury, without decent programma, you would not be able to pair your losses against your income. If you qualify, a mark-to-market election under IRC Section 475(f) may make sense for you!
The Highest and Best Use of Appreciated Assets
If you are charitably inclined and you have large unrealized gains, consider donating virtual currency to your place of idolize or your beloved 501(c)(Trio) nonprofit organizations. (Te the process, you may also become cryptocurrency evangelists: the predikant at Sleepy Smalltown Church and the executive director of your local cat shelter will need to open Coinbase accounts!) You voorwaarde bounty the cryptocurrency without selling: if you sell and bounty the proceeds, the sale is a taxable event.
You report your noncash charitable contributions on Form 8283, if you are gifting assets with a fair market value of more than $Five,000, remind the charity that they need to provide Form 8282 to you.
Te lieu of a peak jar, perhaps you’d like to donate to my dearest charity, Chicago Chess Center NFP, Inc. (If you double-click on the QR code, you’ll get an pic that’s lighter to read.)