Did you sell Bitcoin to diversify into Altcoins? If the answer is yes, please pay attention.
According to the Internal Revenue Service, anything purchased using a digital currency is liable to be taxed as a capital gain.
Do you have records when you bought and sold?
Sold includes trading Bitcoin for Altcoins or vice versa.
Both have huge Tax Consequences and fines.
What, Me Worry?
If you did anything like this: I just discovered that I owe the IRS $50k that I don’t have, because I traded in cryptos, you are in serious financial trouble.
I make $47k a year at my job as an office assistant.
At the advice of my friends, I took most of my savings and bought 8 bitcoins back in early 2017 for about $7200. You can imagine how I felt when it went up. Around December 2017, I got caught up in the altcoins frenzy and sold most of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn’t know this back then but it looks like I owe income taxes on those trades, which adds up to about $50k if I add up state (California) and federal. But with the crash that happened recently, I added up my altcoins and I only have like $30k worth. I only have about $5k in other savings.
How do I pay this? Do I have to sell my altcoins, and give them what I can? Or is there some workaround?
The biggest problem is having a huge tax liability in one year, without paying the taxes, with the losses happening in another tax year.
Oops. He owes $50,000 on coins worth $30,000.
Losses in 2018 can only be offset by gains in 2018. He has deferred losses ($120,000 minus $30,000) at the moment, but that cannot be used to offset his realized gain in 2017.
California Makes Matters Worse
Here is a pertinent comment: “In California, the Franchise Tax Board does not f*ck around and they have zero patience. The FTP put liens on me, froze my bank account, etc. The CPA who helped me get started said the IRS is way more patient than the FTB — the FTB will ruin your world for pennies, pay them.”