Reporting taxes on earnings from sports betting that were withdrawn in Bitcoin.
Hello. I am depositing money at a sportsbetting website via crypto since there are no fees for doing it this way. I need help figuring out which transactions here will be taxable so I can report my taxes correctly. I will list every transaction I believe I will be taking. Please tell me which transactions are taxable events and what forms I will use to report them to the IRS correctly.
Buy 5000 USD of Bitcoin on an exchange.
Send Bitcoin to sports betting website such as mybookie.ag.
mybookie.ag receives 5000 USD of Bitcoin and immediately converts it to USD.
Place bet in USD, win, payout is 15,000 USD.
Receive 15,000 USD in the form of Bitcoin, send to Coinbase, sell Bitcoin immediately, receive roughly 15,000 USD.
In this list of actions, my cost basis for Bitcoin was 5000 USD since I originally bought 5000 USD worth of BTC and then sent it to the sports betting website. I then received 15,000 USD worth of Bitcoin after winning the bet, which I sold on Coinbase, so my net profit from the trade was 10,000 USD. Now my question is - Do I report this on the Schedule D as a profitable Bitcoin trade, or do I report it on the W-2G as a profitable gambling winnings transaction? Do I have to report it on both, resulting in me being taxed twice on my 10,000 USD profit even though I should only be getting taxed once since it is a single winning? How does the IRS know I should only be getting taxed a single time and that the 10,000 profit from Bitcoin is the same as the 10,000 profit from winning the bet? I don't want to pay taxes on 20,000 USD when I only won 10,000 USD. Essentially from the IRS perspective, I fear they will incorrectly assume I won 10,000 USD AND 10,000 USD worth of BTC when in reality I only won 10,000 USD which I withdrew as BTC.
Airdrops and forks are income on controllable receipt at Fair Market Value (FMV). If you didn't have control, you don't have income.
FMV should be taken from the traded exchange, source or value of received services and not external sources, such as price aggregators. FMV for an off-chain transaction is the value it would have had if it was traded on the exchange.
Peer-to-peer or other transactions use FMV from a source that analyzes worldwide indices to calculate a value at that date and time. Or, you can use an accurate representation of the FMV.
Specific Identification is allowed (not just FIFO) when it can be documented. [new]
Gifts are not income and giftee can use the documented gifted basis for gains (but not losses).
Transfers are not tax events.
Generally, this is the same as the advice and common practice used by taxpayers and accountants. Although, the exception here is the clarification of the specific identification rule. We'll talk about that below.
IRS Cryptocurrency Tax FAQ
We have gone into more detail for some of the main points in their FAQ.
Hard forks and airdrops
Despite peculiar wording by the IRS, they have confirmed that receipt of crypto from an airdrop or fork is to be treated as income, and so subject to income tax.
ordinary income equal to the fair market value of the new cryptocurrency when it is received, which is when the transaction is recorded on the distributed ledger, provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency
However, these drops typically have no market (perhaps a futures market) until they have existed for a period of time, so establishing a value could be difficult. It is possible that the value could be zero right at that exact moment it is recorded on the distributed ledger. In order to receive income, you must have dominion and control over these new crypto. This effectively means you must be able to manage it; typically you would have the private keys or it is immediately available in a custodial wallet or online account, e.g. Coinbase. If the crypto doesn't appear in your wallet, or you don't get control of it until a later date, then that later date is used to calculated the USD income value. This had been a common question among crypto traders: if BTC was forked off into a new "BTC" coin, which you might not even have been aware of, do you still have income? The answer is no. Unless, you subsequently get access to those new coins, in which case you do have income on the date you receive control. When you have income for an airdrop or fork, this also sets the cost basis (value and date) for any subsequent capital gains calculations. Bitcoin.Tax already looks up any current value, if known, for forks or airdrop symbols when they are added to the Income tab, otherwise a zero basis is used.
Fair Market Value (FMV)
FMV is used to give something a value, i.e. what it's worth. If you list a bike for sale, you might research the prices for which other people are selling. Those prices give a FMV. But it you sell your bike and someone buys it for $100, then the bike's FMV was $100. With crypto, sometimes we need to know FMV because we are not trading directly for dollars. For example, if you sell 1 BTC for 150 LTC, you are disposing of the 1 BTC at FMV. You need to know the USD value in order to know the proceeds and to calculate any capital gains or losses. So, first, if this was traded on an exchange, we use the spot price on the exchange at that time. This is true even if the transaction was off-chain. However, where no FMV exists, such as a peer-to-peer transaction, then you have to get the value from elsewhere. So, secondly, use the FMV of the service or product you are exchanging. With the above bike example, say buying it with crypto, the FMV would be that of the bike itself (the price it would have sold for USD). Lastly, when no value can be obtained, then use a service that provides a consistent worldwide indices value (the IRS are calling this an "explorer" but that is a confusing term as blockchain explorers may not provide a USD value). If you do not use an "explorer" value, you can use an "accurate representation of the cryptocurrency's market value". Much like with fiat, this means using an establish and consistent source. Bitcoin.Tax already uses the exchange price data wherever possible, but otherwise combines crypto pricing for multiple worldwide sources to calculate a FMV.
FIFO and Specific Identification
Advice from most tax preparers and accountants has been to err on the side of caution and go with First-In First-Out (FIFO). Basically, if you bought 1 BTC for $9,000 and later another for $10,000, when you come to sell 1 BTC (or partial) you would use the cost of the first 1 BTC that you had acquired. This is the default IRS cost basis method and would not be challenged. Some taxpayers had filed using specific identification, where FIFO was not used and instead the "lot" that was sold was chosen from their wallets. Summary strategies could also be employed, such as Last-In Last-Out (LIFO), where the basis of the most recently acquired crypto is used instead. These other strategies, such as last-in first-out, closest-cost or lowest-cost, often try to minimize the gains per transaction and defer them until later. This is the biggest change in the new IRS guidance and confirms that specific identification can be used. However, you must be able to document this, which the IRS describes as:
You may identify a specific unit of virtual currency either by documenting the specific unit’s unique digital identifier such as a private key, public key, and address, or by records showing the transaction information for all units of a specific virtual currency, such as Bitcoin, held in a single account, wallet, or address. This information must show (1) the date and time each unit was acquired, (2) your basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or otherwise disposed of, and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.
There is no guidance if any extra information should be reported, but it is generally the same information that is added to the 8949 form where capital gains are reported. Bitcoin.Tax already provides automatic calculations using multiple specific identification strategies so you can choose your cost basis lots. Navigate to the Calculate tab and you can see the values for each crypto you have traded.
Gifts and Donations
Similar to gifts of stocks or property, the rules regarding cost basis have remained unchanged. Received gifts are not immediate income but you do still recognize an capital gains income when you later come to sell, exchange or dispose of the cryptocurrency. You can use the original basis (with documentation) from the giver in order to make use of long-term gains. However, your received basis becomes the lesser of the giver's cost basis and the FMV of the gift on the date you received it. This is to prevent from gifting losses. Also, if you do not have documentation showing the gift cost basis, then your basis is zero, i.e. you must declare 100% as capital gains. Donations to registered charities do not recognize income, gains or losses. The value of your charitable donation is the FMV on the date of the gift if you have held the crypto for more than a year. For a year or less, it is lesser of the crypto's cost basis or its FMV on the day of the gift. Bitcoin.Tax reports already splits out the basis for any gifts or donations that you make, which can be given to the recipient to provide them with the information they will require.
What was not mentioned
There are still some key questions and ambiguities that tax professionals have been looking for clarification. For instance, with hard forks and airdrops, if you have the private keys but no software, does that count as control? Airdrop and forks generally have no markets when they are created, so is there a zero FMV? And should you take the value only when you exercise control? Can specific identification be used at will or must it be done consistently? Were 1031 "like-kind" exchanges ever a valid approach before 2018?
Guidance is retroactive
Finally, be aware that IRS guidance is always retroactive, unless otherwise stated, and so should be applied to past and future crypto transactions. If you have not followed these rules then you should consult with your tax professional and may need to file an amendment.
[USA ONLY] What are some tax companies you recommend to compile tax documents from exchanges?
IRS is cracking down hard on bitcoin this year in 2020 for 2019. So I want to know if there are any companies you recommend that hopefully are consumer friendly when it comes to preparing and reporting bitcoin taxes. I also hate how bitcoin and cryptocurrency as a whole is taxed as property in the United States. That causes a lot of inconvenience.
09-28 03:26 - 'The system is broken: The POTUS, self-claimed "billionaire" doesn't pay any taxes by reporting massive fake loses, for decades, without going to jail or any consequences...' (self.Bitcoin) by /u/simplelifestyle removed from /r/Bitcoin within 191-201min
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If I make less than 100$ from selling bitcoin/stocks, do I need to report it on my taxes?
Title really. I sold some bitcoin and stocks from 2 different companies. The bitcoin had a gain of less than 100$ and the stock had a gain of less than 50$. Do I need to report these on my taxes? Is there a minimum you have to make to report on taxes?
I've tried reaching out to CashApp support with this, but they were no help. In 2018 I bought some bitcoin on CashApp. In 2019 I bought and sold bitcoin on Cashapp. I received a 1099 for 2019, but it only shows the dollars I gained from selling bitcoin, nothing about profits or cost basis or anything. A spreadsheet was generated which has this data, but only for transactions in 2019. Because I didn't sell in 2018, no spreadsheet was generated for that year. How am I supposed to properly allocate and report on this when I don't have enough info to document when I purchased and sold bitcoin, whst the price was at the time of each transaction, and how much profit or loss I made? Does anyone else have experience with this?
I didnt report the $1,500 I invested in a set of alt coins for 2018 following the crash of bitcoin. I lost around 80% of my portfolio. I did not report them in my taxes. If I report now will I face a penalty? I thought the economy took pity on investors? The tax laws for 2018 were weird
I think millions of average Americans did not report taxes. Though, I dont want taxes to be my downfall.
Filed my taxes but didnt report bitcoin on accident?
I had my mother do my taxes for me and she did my taxes for me. I recently scrolled down my phone and saw I had a text saying I used cashapp to sell bitcoin . I didn’t really have any gains on bitcoin though only loses. What do I do now?
ILPT Request: Will the IRS question where my bitcoin income is from if I report it on my Income Taxes?
I was wondering if I properly reported my bitcoin income to the IRS if they’d question where/what it was from. The only reason why I am reporting it is because I definitely don’t want to get arrested for tax evasion if I make a large purchase with income I shouldn’t have.
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