My 1099 lists "Gross proceeds investment expense" and this is being listed as sales profits. How can this be fixed?

[monica b]

thank you... very helpful.

For each share sold to pay expenses, I used the earliest purchase price and date to calculate my cost.

[kire589]

So here I am in 2023 and still am perplexed how this works. It's a nightmare.

So it seems like there isn't going to be a 1099B Tax Form from my Brokerage (sale of proceeds taken each week for mgmt fees for GBTC). Therefore there is no cost basis factor that I can use to calculate the gains/losses for each tax lot. I opened a case with my brokerage and they said there wouldn't be one and sort of alluded to a section in the 2022 GBTC Tax document. It also seems that Wealthfront won't provide a Tax Calculator for this year for GBTC

From the GBTC Tax document:

"Because the Trust paid out only a de minimis amount of BTC for payment of Trust expenses during the year and made no distributions of sale proceeds to its Shareholders, under Treas. Reg. Sec. 1.671- 5(c)(2)(iv)(B) neither the Trust nor brokers are required to report the gross proceeds of Trust sales to Shareholders on Form 1099B. In lieu of Form 1099B, this information is contained in the attached 2022 Gross Proceeds File together with an example illustrating how a Shareholder should calculate gain or loss."

Did anyone else not receive a 1099B with the Undermined tax lot proceeds w/ cost basis factor?

I suppose I technically don't need it if I do all the steps in the form and use the adjusted cost basis of last year.

There are a few questions that still remain in my mind that I am still not 100% clear on:

1.Are these gains/losses tax deductible of the underlying bitcoin in GBTC (used for mgmt fees)? I think I reported these as deductible last year.

2. When you eventually sell the GBTC stock, you're supposed to adjust the cost basis of the tax lot when calculating the capital gains/loss of the stock itself. Use the new cost basis that you calculate every year instead of using the original cost basis when you purchased the stock through your brokerage. Is this correct?

[GeorgeM777]

Question 1 - No, the management fees you paid in connection with owning the GBTC are akin to miscellaneous investment related expenses, and as a result of the Tax Cut and Jobs Act, are no longer deductible.  Miscellaneous investment related expenses include such things as fees for investment advice, IRA custodial fees, and accounting costs necessary to produce or collect taxable income.  

Investment interest expenses, such as the interest paid on money borrowed to purchase taxable investments, is deductible but only if, among other things, you itemize your deductions.  

Question 2 - Yes.  Based on the 2022 Grantor Trust Tax Information, a shareholder in the GBTC needs to compute--by following steps one through six-- the sale of their pro-rata share of Bitcoin to pay trust expenses and also to determine their adjusted cost basis.  

@kire589 

[Sunny007]

I received corrected 1099-B form with GBTC related expenses and 16 comment which says

16  This transaction represents the sale of assets from a Widely Held Fixed Investment Trust (WHFIT). The cost basis allocation factor is the value of the assets sold divided by the total net asset
value of the trust. If you know your cost of the assets sold, use that to determine your gain/loss. Otherwise, determine your cost basis by multiplying your adjusted cost basis by the cost basis
allocation factor. For example, if your adjusted basis is $1,000 and the cost basis allocation factor is 0.005 your cost basis allocated to that sale is $1,000 * 0.005 or $5. If there are subsequent
sales of trust assets, your adjusted cost basis for the next sale is $995. Sales are reported based on when and for how much the trust sold the asset. This may differ both in timing and amount
from what is distributed. There are cases where the proceeds are used to pay expenses and there is no corresponding distribution. For more information refer to regulations section 1.671-5.

When checked. the GBTC tax letter calculation amount matched the amounts under colum "1d- Proceeds &
6- Reported (G)ross or (N)etDate "  column.

So the cost basis seems to be  No of shares of GBTC held * Cost basis * Cost basis factor'

I am going with this logic for now unless someone gives better approach or explanation.

https://grayscale.com/wp-content/uploads/2023/01/Grayscale-BTC-Annual-Reporting-12.31.22-Final.pdf

[GeorgeM777]

Your approach seems reasonable and given that the results/process you obtained/employed match the steps (see below) provided in the GBTC Grantor Trust letter, your gain/loss and basis adjustments should be accurate.  

Step 1: Identify the shareholder’s pro rata ownership of Bitcoin.

Step 2: Calculate the Bitcoin paid out from Shareholder XYZ’s account during 2022 to pay expenses

Step 3: Calculate Shareholder’s cost basis in Bitcoin paid out from Shareholder’s account

Step 4: Calculate Shareholder’s gain or loss on Bitcoin payout for each lot purchased 

Step 5: Calculate Shareholder’s investment expenses

Step 6: Calculate Shareholder’s Adjusted Bitcoin Held and Cost Basis

@Sunny007 

[d9w9c9]

So this has been an issue for several years now.  TurboTax automatically calculates everything else automatically for me.  Wealthfront had a calculator last year, so we know it can be done.  Why can't TurboTax have a calculator for this and just let me enter my information and then TurboTax calculate it like they calculate everything else? I am paying TurboTax to be the expert so that all I need to do is enter information, but nope...not on this issue.  Why?  This is a serious question that I would love to have answered by someone from TurboTax.  

[davidcjonesvt]

I think the issue here is that it is a relatively unique and uncommon issue, and they would have to take the table Graystone provides and digitize it and then track you individual circumstances. It isn’t trivial. Once I saw how it worked, I just made myself an excel spreadsheet. I have 5 or 6 lots of GBTC that I purchased, and to keep it simple, when they are saying they sold off X many bitcoins per share, I figure how many BTC were sold based on my total holdings but then sell the oldest BTC first (kind of like selling your oldest lots of stock first). That will keep the math simple for now. THe only minor complication was making sure I kept the long term vs short term BTC sales until that oldest lot was held long enough that it was all long term capital gains or losses. I figure that by the time this asset turns around and is profitable again, I will really have this system down!

[d9w9c9]

@davidcjonesvt I think you and I had some back and forth on this issue last year and I appreciate your insight. Your last sentence is so true, but hopefully this thing will be an ETF soon and the gap will be closed on the discount it is trading at right now.  The Grayscale folks seem confident that the discount will essentially go to zero if they win against the SEC, but I'm not sold on that either.  But at this point, I really don't see much of an option other than to continue to hold, hope the court gets it right, and continue to jump through these flaming tax hoops in the meantime.

[davidcjonesvt]

I agree. I would love to see the ETF, see the value of the “stock” go to the value of the underlying BTC holdings, have BTC itself recover and see all this expense shenanigans go away. I only bought this because it “appeared” to be an easy way to buy BTC without needing the digital hardware wallets or trusting an online holding company. I decided not to sell because i realized there was a huge upside if the “stock” was every valued at the value of the underlying BTC they held. While I since have a few accounts and a digital wallet, I like the ease of handling BTC like a stock. Someday it really will be “Ease!”

[d9w9c9]

@davidcjonesvt It looks like you and I have had similar crypto journeys. However, I did flirt with disaster twice. First with Celsius...I got out about 10 hours ahead of their shutdown. And then with FTX...I got out 24 hours ahead of their shutdown. With those scares, I was kind of glad that my risk as a bit diversified by holding GBTC. I'm still not 100% sure I'm in the clear on either of those because of clawback possibilities, but I feel a lot better having most of my assets (other than GBTC) on multiple hardware wallets now. 

[djldc]

I'm in a simliar situation.. but the question I have is what to do if I did not sell any GBTC during that tax year (2022)?  I still reveived a form 1099B from Vanguard but I didn't sell anything. 

[AbrahamT]

Just to clarify, what exactly is showing up on that 1099B? There is usually a summary and a detail supplemental itemizing what and how much was sold. Check it out.  You may want to call Vanguard and just ask them if you see transactions on that 1099B that you can't identify.  

[davidcjonesvt]

The issue is that while you hold GBTC, they sell off small amounts of the underlying bitcoin holdings to pay expenses of the trust. You are supposed to accept for the profit/loss of the sale of the underlying bitcoin assets in the tax year they sell them, even though you didn't sell the stock itself. If you have held the stock long enough that all underlying sales throughout the year are "long term" capital gains/losses, it is pretty straightforward, and it is really easy if you bought all your GBTC at once and not in several lots on different dates.

Once you figure your profit/loss on the sale of underlying bitcoin and declare that income/loss with the IRS, then you change the basis (eg, original value) of your stock investment by that much. You need to continue to track the remaining basis and the amount of underlying BTC. It is just a pain to do.

[GeorgeM777]

Even if you did not sell any of your GBTC, you still need to report the GBTC transactions that appear on your 1099-B.  GBTC issued a Grantor Trust Tax document, a link to that document is below, and it explains the process you need to use in order to determine whether you have a gain or loss.  As explained in the Grantor Trust Tax document, a pro rata share of each shareholder's bitcoin was sold to cover Trust expenses.  

Here is a summary of the steps outlined in the Grantor Trust Tax document.  While that document is lengthy--it is 17 pages--scroll to page 15 to review the steps to follow. 

Step 1: Identify the shareholder’s pro rata ownership of Bitcoin.

Step 2: Calculate the Bitcoin paid out from Shareholder XYZ’s account during 2022 to pay expenses

Step 3: Calculate Shareholder’s cost basis in Bitcoin paid out from Shareholder’s account

Step 4: Calculate Shareholder’s gain or loss on Bitcoin payout for each lot purchased 

Step 5: Calculate Shareholder’s investment expenses

Step 6: Calculate Shareholder’s Adjusted Bitcoin Held and Cost Basis

2022 GBTC Trust Tax Information

@djldc

[d9w9c9]

@GeorgeM777 and then do what with that information in TurboTax?