Crypto and taxes

Investment Analysis Clubs Macro Economic Trends and Risks
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I think that cryptocurrency is the tulip bubble of the 2020s and wouldn’t touch it with the proverbial 10 foot pole.

But in case any METARs have speculated in crypto, be aware of the tax ramifications. The Form 1040 has a little box that you have to check if you bought any cryptocurrency.

First Came the Crypto Crash. Now Comes the Taxman.

Cryptocurrency investors may need to act within the next few weeks to reduce their tax bill—and get ahead of an increasingly aggressive IRS

Laura Saunders hedcutBy Laura Saunders, The Wall Street Journal, Nov. 11, 2022

…
The Internal Revenue Service hasn’t lost interest in cryptocurrencies, and investors need to focus on key tax issues before year-end.

New rules and enforcement actions are coming to ferret out crypto transactions that often went unreported in the past. There’s a bit of good news as well: This year’s painful selloff brings an opportunity for crypto holders to harvest losses to offset future taxes. …

The 2021 Infrastructure Investment and Jobs Act included a provision requiring crypto brokers to report customers’ sale proceeds to the IRS on a 1099 form, if it’s held in a taxable account. The requirements are akin to what brokerage firms report for investors’ stock sales…

In August and September federal judges approved two new summonses requiring a crypto exchange and a bank to turn over customer information to the IRS to uncover tax cheating using cryptocurrency… [end quote]

All investors who have ever had capital losses (probably most of us) know that a capital loss can be used to offset future capital gains on winners. If an investor with capital losses has no capital gains to shelter, the losses can offset up to $3,000 of ordinary income such as wages per tax return, per year. These losses don’t expire. This rule applies to crypto as much as any other asset (stocks, bonds, real estate, etc.).

PBS NOVA has just released a program on the roots of crypto, emphasizing its origin in the fear of Big Brother by a small coterie of programmers.

Well, Big Brother (in the form of the IRS) is definitely watching now. They can and will impose penalties on crypto traders who don’t pay their taxes on gains. They can and will go back years once they get their act in gear.

Wendy

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Crypto currency creation is expensive in terms of energy used as well as notoriously being used by citizens of many nations to hide their wealth from the taxman. That said, the bit chain methodology can be used by national governments as a practical way to manage their own currencies.

China, one of the world’s two largest economies has handled that as follows:

Digital Dynasties: How China’s Cryptocurrency Could Unseat the Dollar.

As officials started banning and regulating cryptocurrency, they also saw its potential. By 2021, all private cryptocurrency activity was banned and the Chinese economy had also largely transitioned away from paper yuan.

The current problem with making crypto illegal in the West is that the funds “invested” in it are now large enough to buy polioticians in order to prevent the massive “losses” which would take place if it was banned.

IMHO, despite money being what people think is money (whether crypto or massive rocks), the massive waste of valuable resources and climate damage to create what are essentially video game tokens should be completely unacceptable to rational society.

Jeff

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I have bought $360, check the box. I have not sold it especially because this year I do not want to complicate my return over $360. I have transferred some of the $360 into Ar which is the Arweave token. I need to find out if a transfer is considered a sale. It more than likely is. I have impeccable records of the transactions. It amounts to four transactions. The big thing is to have the specific value in USD as the very point of purchase, sale or transfer. The IRS will ding anything less.

Oh and when I sell my NFTs probably in 2024, Coinbase has a program that fills out the IRS Form 8949 for asset sales. While the NFTs will be income, the form 8949 is a complete record of the transactions for the IRS.

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That’s brings up something interesting. What about massive multi-player games that have tens of millions, or hundreds of millions, playing and using massive amounts of energy to power their video cards as they play. Should those be acceptable to rational society?

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They are fine. After all, that is what people using TMF do.

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Mark,

It is a lot less energy and cost than giving 16 year olds your car and letting them socialize and crash it several times over. Sitting on a sofa is low energy.

The bills then belong to the kids when they are adults with diabetes.

I can never understand why Baby Boomers can not see their own foibles before knocking anyone else.

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Nope. I am referring to things that use video processing power in a massive manner. That pretty much includes video-centric games and crypto generation (at least the bitcoin PoW kind). It may also include video rendering, but that is itself a business with end customers paying for the product.

(I suppose you could say the same for crypto, people actually pay for bitcoins produced using massive amounts of energy.)

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It employs the game publishers and the users get entertainment value. Blockchain has no use cases except for looking for a greater fool.

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The “bread and circuses” used to keep the public from revolting uses the most power of any other system on the planet.