What are the demographics of Credit Karma users? That seems like a limited and biased sample to extrapolate that "just about everyone with Bitcoin is Lying".
I've reported BTC income to the IRS in 2014 and 2017, will do so again in 2018...
If I had BTC income (which I don't) I'd make damn sure to use an accountant so someone else has their name on the line. And I certainly wouldn't use Credit Karma (and not only because I've never heard of them).
Yes, demographics for Credit Karma does play a role. But, given that IRS did raise under reporting as the main issue during the fight with Coinbase :
n 2013, 807 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin; in 2014, 893 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin; and in 2015, 802 individuals reported a transaction
Their data all comes from people who file taxes Credit Karma.
> The figure, reported by CNBC, comes from Credit Karma, a popular financial app through which people can view their credit score and file taxes. Of the more than 250,000 people who have filed through Credit Karma this year, a whopping 0.0004 percent have claimed to have money in bitcoin or other cryptocurrencies.
Could it be possible that people who file taxes with Credit Karma are not a random sampling of the population, and maybe bitcoin holders (and particularly those who report it on their taxes) have structural reasons to avoid CK? Lazy reporting to not even mention it in the article. Is it just me, or is there an increasing trend to take one statistic and stretch it out to a 5 paragraph news article?
(And that percentage is just a fancy way to say that 1 Credit Karma tax client out of 250,000 declared bitcoin.)
Also "Bitcoin traders have been less than pleased with the realization they have to pay taxes on any of their earnings" isn't a fair statement. I have spent a lot of time reading on crypto currency forums this last year. I think most people (aside from some of the more libretarian / anarchist "taxation is theft" folks) were aware that that would be some kind of capital gains tax on what they cashed out. What people didn't realize was that you would get taxed per transaction on unrealized gains.
Coinbase provided 1099-Ks to the IRS. If filers didn't also provide an 8949 (cost-basis statement) to demonstrate their net gain/loss, they're likely going to be on the hook for taxes on the entire amount reported in the 1099-K.
I am actually worried about Trump from a solvency standpoint. Hear me out on this.
Trump has unquestionably shaken faith and trust in government. To the point I’m willing more than a few voters are thinking “jeez, if these guys are gonna screw me, I’m gonna take what’s mine”. Hell, our president has admitted to avoiding taxes in multiple on-the-record accounts!
As a result, everyone I know has admitted to cheating a little bigger on their taxes this year, and omission of personal investments like Bitcoin is one of the easiest.
From what I’ve read in the past (I don’t know if this is true), it would only take a 2% decline in personal income tax filings to cause serious cash flow problems for the US government. The republicans have spent years weakening the IRS’ enforcement power, and now Trump has given a lot of people both motive and a role model to avoid paying taxes.
Maybe if it breaks our current social contract enough, we’ll get to create a new one appropriate for a 21st century world leader.
I don't think Trump ever claimed to have done anything fraudulent (whether he did or not is another matter). I'm not trying to get into a political debate or argue over Trump's flaws or merits, but there's a big difference between using legal loopholes that are available to you and deliberately not reporting things to pay fewer taxes.
>but there's a big difference between using legal loopholes that are available to you and deliberately not reporting things to pay fewer taxes.
Legally that's true, but I think the average person upset about this sees zero difference at all. Myself included, in my opinion using legal loopholes to get out of tax is morally just as bad, if not worse than deliberately not reporting things to pay fewer taxes.
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes.
Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
-Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465 (1935)
Especially with taxes, the area between “creative” and “fraudulent” is very murky.
I also doubt Trump himself has a distinction between the two based on every single account of the man I have heard.
And he’s been busted a few times in the past for doing verrrrry similar shady things; but there are different rules when you’re rich and you can just pay a fine and send a lawyer to jail instead (not a political comment; this works for the rich on both sides).
Everyone has always cheated on their taxes; thanks to years of cuts the IRS audit rate on individuals is so low that you never get caught unless your finances get reviewed for some other reason.
I don’t personally do it because my job audits my finances anyway; and the risk just isn’t worth it for me. But for the average person making less than $400k, risk of getting audited is basically nil.
Credit Karma's tax system couldn't even handle multi state tax filings so there is no way their tax filers could have been a good representation of anything.
I don't think most people are underreporting out of malice. I'm guessing most with money in cryptocurrencies fall into one of two buckets:
1) People - esp. millennials who have never paid capital gains taxes - who don't even realize that crypto gains are taxed. (They should, but that's a different issue.)
2) People who put money into crypto and had some decent gains (<$10,000). Come tax season, they realized how difficult it would be to report their gains and just gave up, betting that they wouldn't be audited by the IRS.
Obviously if you realized massive gains and are actively evading taxes, that's a problem. But I feel for the little players here - a whole lot of people would report their capital gains if there was an easier mechanism in place. The current process of trying to figure out the dollar value of each individual trade on exchanges lacking basic reporting infrastructure is a mess. I'm not surprised that a lot of people just throw up their hands and give up.
(And yes, I realize that putting an easier mechanism in place to pay taxes on crypto is inviting the sort of financial regulation that runs counter to the ethos of blockchain...but let's be honest, in their current form, cryptocurrencies are not what we were promised. They have by and large been co-opted by financial institutions and the very intermediaries they were meant to supplant.)
I wonder if there's an aspect of being in too deep already. I'm not sure I would have thought about reporting Bitcoin gains years ago when it was more of a technical interest. Now that it has skyrocketed, I can imagine scenarios where people wouldn't have enough USD to cover the taxes so instead of selling their Bitcoin they just keep quiet.
Oklahoma had a similar thing on their state tax forms for internet sales tax, everyone just checked the "I didn't shop online" box to the tune of about 90%.
You aren't taxed on the estimated value of your bitcoin.
If you bought bitcoin at $2 (for example) five years ago, and now it's worth $5000, you owe no taxes. However, if you sell the bitcoin for a gain of $4998 USD, now you owe tax on the $4998 you realized in gain.
Unless, you sell your bitcoin and just spend all the money, you should be fine just keeping your money in bitcoin.
I've been advised to report these as regular income, using the value of the asset on the day you received it. For example, if you were holding 1 Bitcoin on August 1 (and therefore received 1 Bitcoin Cash due to the fork) you would report regular income of $294.60 (value of Bitcoin Cash at time of fork). If you eventually sell it, your cost basis is then $294.60.
What if there's no active market at the time of the fork? For example, on October 24, 2017 for Bitcoin Gold, or on December 12, 2017 for UnitedBitcoin, there was no market. What do you do?
What if there's an illiquid market with crazy prices at the time of the fork. Do you use that market price even if you're physically unable to sell your forked coins on that market?
If you trade 1,000 BTC for 10,000 ETH and never touch fiat, is that a taxable event?
That trade on January 12 would have been worth $14 million. If you acquired the BTC years ago, you could have a tax liability of $5 million even though you never gained a single dollar.
Today that ETH is only worth $5 million. You would have to sell all of it to pay your taxes.
In some jurisdictions that is a taxable event. However isn't a gain only a gain when it is realised? If I have 10 BTC worth a $1000 and then they are worth $100000, do I need to report a gain if I don't sell them? My assumption is that I only have a taxable gain when I turn it into USD.
Some dude on reddit sold btc in December for ~$100k profit. Bought random coins in January and lost almost all of it. Is looking at a $30k tax bill. Can’t offset the loss because he crossed a year boundary between the transactions. His annual income was only something like $35k.
The figure, reported by CNBC, comes from Credit Karma, a popular financial app through which people can view their credit score and file taxes. Of the more than 250,000 people who have filed through Credit Karma this year, a whopping 0.0004 percent have claimed to have money in bitcoin or other cryptocurrencies.
Garbage in, garbage out - like basing the alcoholism rate for the US by surveying the state of Utah.
Check your scores anytime, anywhere, and never pay for it.
Bitcoin attracts people who can't stand the mess that credit cards have created. A person obsessive enough about a credit score to use an app that lets them view it anytime, anywhere won't be interested in Bitcoin to begin with.
This appears to be about people who filed taxes through Credit Karma, not normal users. You need to file your taxes somewhere, and Credit Karma is probably the best free option available.
This makes me realize I don't know how the American system works. You file your taxes to private companies? Then they send it to the IRS? You can't just fill a form, online or on paper, and send it to the administration yourself?
> You can't just fill a form, online or on paper, and send it to the administration yourself?
Yes, you can. There are both paper and fillable electronic forms (and, for simple cases with incomes under $66,000, tax prep software) available free from the government, and you can file them for free, by mail or electronically, as appropriate, with the IRS.
But of course the IRS probably isn't the only entity to which you owe taxes (states and the federal government are separate entities), so the IRS's forms only get you part of the way. What services like Credit Karma do is let you input your W-2 forms or similar (which indicate taxes paid), ask you questions to determine any adjustments you might need/want to make, generate the correct forms to send to the IRS and your state tax agency, and transfer the money you owe from your bank account.
As someone else mentioned, you are fully able to submit federal tax returns directly to the IRS.
The issue comes in with knowing which forms your situation warrants, which variants of those forms are most appropriate for your situation, whether or not your situation is eligible for favorable exemptions or credits for certain taxes, etc. The US tax code is dazzlingly situationally dependent; the same set of basic financial reporting data the IRS receives can result in wildly different interpretations of tax liability depending on the personal situation of the individual. And the tax preparation companies market based around their ability to understand all of the adjustments and how to interpret them as broadly as legally allowable and be able to minimize your tax liability better than the other one.
If you have a super standard situation, you don't get much benefit from using these services except ensuring that you checked off all the right boxes. And in fact, most of them offer a free service tier, with the goal of hoping they identify something about your situation in the process that would warrant "upgrading" you to a paid tier to save money on your taxes. CreditKarma offered free filing services this year, because they monetize not on the tax service itself but on the incredibly detailed and reliable knowledge of your financial situation which enhances their ability to sell you as a lead to financial companies (their core business).
Individual states may or may not have their own income tax you owe, which then follows the exact same process but with a completely different set of tax laws to adhere to.
It's a super messed up system, but the companies that own the tax preparation softwares (Inuit and H&R Block) pay incredible amounts of money in lobbying our representatives to prevent the tax policy from getting streamlined or funding IRS projects to provide public, free resources to allow individuals to better self-service. Both of which are existential threats to their business model and they allocate enough of their revenue to efforts that ensure the threat gets contained.
> The IRS has offered guidance on bitcoin transactions since 2014 and considers the cryptocurrency to be property, not currency. As such, every purchase, sale, trade, and mining effort is considered to be a taxable event.
Wait. So, cryptocurrencies are not taxed on capital gains? If it is considered property then do people need to calculate their base price, profit and then pay taxes?
A capital gain is a gain in capital made during the sale of property. Selling bitcoin for more than it was bought for and collecting the profit is the very definition of a capital gain.
42 comments
[ 3.8 ms ] story [ 89.5 ms ] threadI've reported BTC income to the IRS in 2014 and 2017, will do so again in 2018...
n 2013, 807 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin; in 2014, 893 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin; and in 2015, 802 individuals reported a transaction
it is a concern.
> The figure, reported by CNBC, comes from Credit Karma, a popular financial app through which people can view their credit score and file taxes. Of the more than 250,000 people who have filed through Credit Karma this year, a whopping 0.0004 percent have claimed to have money in bitcoin or other cryptocurrencies.
Could it be possible that people who file taxes with Credit Karma are not a random sampling of the population, and maybe bitcoin holders (and particularly those who report it on their taxes) have structural reasons to avoid CK? Lazy reporting to not even mention it in the article. Is it just me, or is there an increasing trend to take one statistic and stretch it out to a 5 paragraph news article?
(And that percentage is just a fancy way to say that 1 Credit Karma tax client out of 250,000 declared bitcoin.)
0.0004% is one person.
(which equals 1)
Trump has unquestionably shaken faith and trust in government. To the point I’m willing more than a few voters are thinking “jeez, if these guys are gonna screw me, I’m gonna take what’s mine”. Hell, our president has admitted to avoiding taxes in multiple on-the-record accounts!
As a result, everyone I know has admitted to cheating a little bigger on their taxes this year, and omission of personal investments like Bitcoin is one of the easiest.
From what I’ve read in the past (I don’t know if this is true), it would only take a 2% decline in personal income tax filings to cause serious cash flow problems for the US government. The republicans have spent years weakening the IRS’ enforcement power, and now Trump has given a lot of people both motive and a role model to avoid paying taxes.
Maybe if it breaks our current social contract enough, we’ll get to create a new one appropriate for a 21st century world leader.
Legally that's true, but I think the average person upset about this sees zero difference at all. Myself included, in my opinion using legal loopholes to get out of tax is morally just as bad, if not worse than deliberately not reporting things to pay fewer taxes.
-Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465 (1935)
I also doubt Trump himself has a distinction between the two based on every single account of the man I have heard.
And he’s been busted a few times in the past for doing verrrrry similar shady things; but there are different rules when you’re rich and you can just pay a fine and send a lawyer to jail instead (not a political comment; this works for the rich on both sides).
I don’t personally do it because my job audits my finances anyway; and the risk just isn’t worth it for me. But for the average person making less than $400k, risk of getting audited is basically nil.
1) People - esp. millennials who have never paid capital gains taxes - who don't even realize that crypto gains are taxed. (They should, but that's a different issue.)
2) People who put money into crypto and had some decent gains (<$10,000). Come tax season, they realized how difficult it would be to report their gains and just gave up, betting that they wouldn't be audited by the IRS.
Obviously if you realized massive gains and are actively evading taxes, that's a problem. But I feel for the little players here - a whole lot of people would report their capital gains if there was an easier mechanism in place. The current process of trying to figure out the dollar value of each individual trade on exchanges lacking basic reporting infrastructure is a mess. I'm not surprised that a lot of people just throw up their hands and give up.
(And yes, I realize that putting an easier mechanism in place to pay taxes on crypto is inviting the sort of financial regulation that runs counter to the ethos of blockchain...but let's be honest, in their current form, cryptocurrencies are not what we were promised. They have by and large been co-opted by financial institutions and the very intermediaries they were meant to supplant.)
Oklahoma had a similar thing on their state tax forms for internet sales tax, everyone just checked the "I didn't shop online" box to the tune of about 90%.
If you bought bitcoin at $2 (for example) five years ago, and now it's worth $5000, you owe no taxes. However, if you sell the bitcoin for a gain of $4998 USD, now you owe tax on the $4998 you realized in gain.
Unless, you sell your bitcoin and just spend all the money, you should be fine just keeping your money in bitcoin.
1. You buy into an ICO and it exit scams
2. You get staking / masternode payouts (but don't sell them to $ or another coin)
3. You trade futures - can you use Form 6781?
4. What's your cost basis on a futures trade if not (selling/buying bitcoin with borrowed bitcoin)?
5. You receive funding/interest payouts on an open leveraged trade
6. One of your coins forks
7. You have trades on a DEX with no downloadable history
8. You have trades on an exchange which no longer exists
9. You are awarded coins as part of an airdrop to holders of (other coin)
10. You get hacked (are you sure you aren't faking that to avoid taxes, citizen?)
I've been advised to report these as regular income, using the value of the asset on the day you received it. For example, if you were holding 1 Bitcoin on August 1 (and therefore received 1 Bitcoin Cash due to the fork) you would report regular income of $294.60 (value of Bitcoin Cash at time of fork). If you eventually sell it, your cost basis is then $294.60.
What if there's an illiquid market with crazy prices at the time of the fork. Do you use that market price even if you're physically unable to sell your forked coins on that market?
That means you have tax obligations on all potential future forks, regardless of whether you know it or do anything with that information.
IIRC the suggestion I found online was to pay capital gains tax on the full amount you sold or exchanged the coin for.
That trade on January 12 would have been worth $14 million. If you acquired the BTC years ago, you could have a tax liability of $5 million even though you never gained a single dollar.
Today that ETH is only worth $5 million. You would have to sell all of it to pay your taxes.
Garbage in, garbage out - like basing the alcoholism rate for the US by surveying the state of Utah.
Check your scores anytime, anywhere, and never pay for it.
https://www.creditkarma.com/
Bitcoin attracts people who can't stand the mess that credit cards have created. A person obsessive enough about a credit score to use an app that lets them view it anytime, anywhere won't be interested in Bitcoin to begin with.
Yes, you can. There are both paper and fillable electronic forms (and, for simple cases with incomes under $66,000, tax prep software) available free from the government, and you can file them for free, by mail or electronically, as appropriate, with the IRS.
Doing all that by hand is quite a bit more work.
The issue comes in with knowing which forms your situation warrants, which variants of those forms are most appropriate for your situation, whether or not your situation is eligible for favorable exemptions or credits for certain taxes, etc. The US tax code is dazzlingly situationally dependent; the same set of basic financial reporting data the IRS receives can result in wildly different interpretations of tax liability depending on the personal situation of the individual. And the tax preparation companies market based around their ability to understand all of the adjustments and how to interpret them as broadly as legally allowable and be able to minimize your tax liability better than the other one.
If you have a super standard situation, you don't get much benefit from using these services except ensuring that you checked off all the right boxes. And in fact, most of them offer a free service tier, with the goal of hoping they identify something about your situation in the process that would warrant "upgrading" you to a paid tier to save money on your taxes. CreditKarma offered free filing services this year, because they monetize not on the tax service itself but on the incredibly detailed and reliable knowledge of your financial situation which enhances their ability to sell you as a lead to financial companies (their core business).
Individual states may or may not have their own income tax you owe, which then follows the exact same process but with a completely different set of tax laws to adhere to.
It's a super messed up system, but the companies that own the tax preparation softwares (Inuit and H&R Block) pay incredible amounts of money in lobbying our representatives to prevent the tax policy from getting streamlined or funding IRS projects to provide public, free resources to allow individuals to better self-service. Both of which are existential threats to their business model and they allocate enough of their revenue to efforts that ensure the threat gets contained.
Wait. So, cryptocurrencies are not taxed on capital gains? If it is considered property then do people need to calculate their base price, profit and then pay taxes?
Stocks are also property, and they are certainly taxed on capital gains.
> If it is considered property then do people need to calculate their base price, profit and then pay taxes?
Yes.