Cryptocurrency traders, relatively new to the “investing” game and coming off a year of incredible gains, are getting a crash course in what traditional stock flippers have known for a long time: Uncle Sam’s prying fingers can seriously ding profits.
So how do they feel about it?
Well, Latex-man, for one, is feeling burned by the discovery of his hefty tax burden. He summed up his frustration in Reddit’s burgeoning cryptocurrency group , which counts more than 500,000 members:
“F**k taxes man. This is so f**ked, it’s like I didn’t earn anything.”
Welcome to the real world, Latex-man .
His post, of course, was met with a flood of commiserating responses — not exactly surprising given the amount of money that was made in the space in 2017.
Bitcoin BTCUSD, -11.42% by far the biggest crypto, rallied 1,318%. And that’s nothing compared to Ripple at about 36,000% and NEW at 30,000%.
Clearly, lots of profits were booked.
And lots of taxes are owed.
According to the IRS, Latex-man isn’t the only one taking the “f**ck taxes” approach. The agency alleges only a tiny fraction of hundreds of thousands of users at the Coinbase crypto exchange , actually reported gains and losses from bitcoin trades.
Sounds about right, considering the feedback he received:
“Leave your shithole and go to a country that doesn’t tax cryptos, enjoy life” — stront1996 .
“Use a vpn, buy btc on localbitcoins.
com Sell on the same website & don’t tell your accountant” — mambo-australiano .
It’s getting trickier to hide from the U.S. government, however, after a judge ruled in November that Coinbase, which initially refused to voluntarily turn over the information, must now report all transactions worth $20,000.
One voice of reason, Urc0mp , advised:
“ This is why you should understand tax code before trying to git rich trading internet monies. You should have set aside your tax burden from the original sale.”
So let’s understand the basics real quick.
Simply put, if you sold your crypto for more than you bought it for, you owe money, despite what you might hear in some corners of the internet. If you held it for less than a year, you’re taxed at your ordinary income-tax rate.
If you held it for more than a year, you probably pay somewhere between 15% and 20% in capital gains.
If you lost money — doubtful in 2017 — you can use that to offset gains.
Now, the part that really irks crypto enthusiasts. Any time you divest your digital asset, it’s a taxable event, even if you’re buying something with it.
For example, say you bought $50 worth of bitcoin and then, when it doubled, used it to buy something worth $100. You’re on the hook for a $50 gain.
Also, want to exchange your bitcoin for Ethereum? That’s now a taxable event, as well. There’s no longer the sort of exchange relief you’d find in real estate.
Or you could just take Searchlight’s advice on Reddit : “Let’s dress up like Native Americans and dump all the bitcoin in Boston harbor.”.
