If someone sent me a specific amount of crypto on a certain day, and i sold it that day for almost the same amount, what would the taxes situation be like?

[dylpickle4]

I received 1.3 ETH to my coinbase account, later that day, i sold that 1.3 ETH to cash out and withdraw it. What would the situation be like when it comes to the taxes i will have to pay?

[rjs]

Why did the person send you the Ethereum? Was it a gift, payment for work that you did for them, payment for something you sold them, or something else?

You said you sold the 1.3 ETH "for almost the same amount." The same amount as what? You received 1.3 ETH and sold exactly the same amount, 1.3 ETH. Are you saying that the dollar amount that you received from the sale is almost the same as some other dollar amount? What other amount?

[dylpickle4]

I won a giveaway on twitter for the ETH from which it was sent to my coinbase wallet. Once the 1.3 ETH (valued at $4,600) was received into my wallet, i sold it for USD almost immediately on that same day. So yes, i received the 1.3 ETH and sold the 1.3 ETH within hours for equal value. So, i'm just curious how this would tie into taxes. Please help

[rjs · Accepted solution]

You have to report the prize as other income. Coinbase, or whoever paid the prize, might send you a Form 1099-MISC for it. You will report the amount that's shown on the 1099-MISC. If you don't get a 1099-MISC, you report what the value was when you received it. This is ordinary income that you have to pay tax on, just like additional pay.

You also have to report the sale of the Ethereum. Coinbase does not send Form 1099-B, but they will send you a transaction report. The report should show the basis and the sale price. Since you sold it immediately, the basis and sale price will be almost the same, so you will have very little gain or loss, if any. You have to report the sale, even if there is no gain or loss. Since you sold it the same day, the gain or loss is short-term. Any short-term gain is taxed as ordinary income. Any loss will reduce your overall taxable income. But again, the amount of gain or loss, if any, will be very small.

[dylpickle4]

Thank you very much, this cleared a lot of my questions up. 

[DanielV01]

It depends.  Cryptocurrency transactions can be tricky because a single transaction may or may not be able to be specifically allocated.  Rather, it depends on your treatment of all of your crypto transactions throughout the year.  This is because of what is known as the "accounting method" used to determine the coin's basis as well as the capital gain/loss in the coin.

In your case, @dylpickle4, your winnings of $4600 should be reported to you on a Form 1099-MISC (not subject to self-employment tax).  I say should, because (especially since you were paid the winnings in crypto), it is always possible that what should have happened didn't or won't necessarily happen.  (Crypto transactions and crypto exchanges are notoriously underreported to the IRS, and Congress has been working to crack down on this).  Regardless of whether it is reported or not, the USD value of the award on the day you received it is taxable.  And that forms the basis you will use for that 1.3 ETH coin when you do "cash it in"?  So here's the golden question:  is that what you did from a tax standpoint?

The answer to that is maybe.  This is where it needs to be determined what other treatment you give to the rest of your crypto transactions.  So, for instance, if this 1.3 ETH is the only Etherium you had in your wallet, then what you state is correct.  What you will report (and the crypto exchange will or should provide you a .csv file to assist you with importing the information into TurboTax), is a basis of $4600, and a sales price of (let's assume) $4600, which is a $0 gain/loss exchange.  Even if the price fluctuated a little bit in the day, it is appropriate to report the new price.  Also, if you pay a service charge to cash in the money, this adds to the basis, reducing gain (or increasing loss).  

Another scenario:  you have other Etherium (and crypto) transactions, but have chosen to use LIFO as your "accounting method".  LIFO means "Last In First Out", which means that the coin cashed in will be the last coin you bought/received.  This will almost certainly produce the same result as above.

Another scenario:  same facts, except you choose to use FIFO ("First In/First Out").  In this case, instead of using the basis on the 1.3 ETH for the date you received the reward, it will trace back to the oldest 1.3 ETH you have in your wallet, and calculate your gain/loss from that point.  If that particular coin cashed is more that 1 year old, the transaction will be classified as long term.

One final scenario:  you choose an "optimalization" method.  With optimalization, each and every transaction is analyzed to determine the best tax treatment for it.  Usually, either the most expensive "short-term" basis is used for the transaction (to reduce the gain or increase the loss of this "ordinary tax" transaction, or the most favorable "long-term" basis is used, so that any gain is reported under the much more favorable "long-term capital gains" rate.  In this scenario, there's no telling which transaction is used to determine the basis of the 1.3 ETH sale, but it will be what should best benefit your overall tax situation.

[dylpickle4]

Yeah so i would say my situation would be scenario 1, This was the first and only transaction regarding Etherium on my coinbase account. Before this, i didn't have any ETH or any other crypto if im being completely honest. So once i received the ETH, my account balance went from $0 to $4,600 after receiving until i sold the 1.3 ETH for usd, then cashed it out to my bank account. Thank you for all the scenarios so i could better understand the situation i was in.