On H1B,if I decide to transfer to US exchange,withdraw as USD some of my crypto which I bought on an international exchange when I was in my home country,how to file tax?

[chinmay-ashok]

Will it be considered as Short or Long term capital gains? And how would the profit/loss be determined and how much % would I have to pay tax? Filing as an employed single.

[pk]

@chinmay-ashok  is this a hypothetical question or have you already  committed to these actions/scenario ?  Are  you already a resident for tax purposes  ( 183 days in the country counting all the days in 2021, 1/3 days in 2020 and 1/6 days in 2019 ) ?  If yes  then the  this is taxable gain/loss (?), if not then this is outside US tax purview.  So please help with answers.

[chinmay-ashok]

@pk For now it is a hypothetical question because I am planning on the best and correct way to perform the transaction this year(2022).

For 2021 I am not eligible for US tax purview as I haven't been here for 183 days in 2021.

And this would be a taxable gain transaction.

More info: I will be filing as employed single.

[pk]

@chinmay-ashok  Namaste

1. Till you become  a Resident for Tax purposes i.e. pass the  Substantial Presence Test--SPT-- ( and be taxed on your world income ), you can keep all Non-US sourced  income out of US taxation.  Once you become a  "Resident for Tax Purposes", you have to report and be taxed on your world income --  at that point whether the Crypto or any other assets  are held in the US or  elsewhere are all taxable to the US. Thus if you  dispose off your assets  and  incur a gain/loss before passing the SPT, it is not  a tax event  for the US.  On the other hand your home country ( India?)  may tax these gains/losses. Also note that unlike India , US does not have an indexing regime for the asset-- thus the gain with respect to the original basis  is taxable  income.

2.  While it may be easier to deal with assets  that are locally reported/ controlled, all depends on your longer term plans -- if you expect to go back to your home country ( India?) then why change things -- taxwise there is no benefit from a US perspective.

I hope I am not missing your point.  Is there more i can do for you ?

Namaste

pk

[chinmay-ashok]

@pk   Thank you so much for the detailed explanation! The reason I am doing research about this is because the laws on crypto taxation are not fully clear yet back in my country but are more well defined in the US. And also so that I can do it the right way and abide by the laws here if I decide to go ahead with disposing off crypto assets here.

Another question: How will the cost basis be calculated for a crypto asset that was bought in a fiat currency other than USD on an international exchange? Do I have to consider the forex rate of the fiat with USD on the date I bought the particular crypto and then calculate the cost basis?

Your responses are much appreciated! Thank you!

[RobertB4444]

That is exactly how you would calculate the tax basis.

[pk]

@chinmay-ashok    having gone through your answer/post and response by @RobertB4444 , 

1. I agree that the  cost basis of the crypto holdings is  the amount you paid to acquire these in US$ of the day i.e. if you bought at different times then you need to use dollar of the day for each transaction -- use any  published  rates  

2. Depending on your longer term goals for  yourself  and the holdings ( Crypto) : if you sell and re-buy these  then any gains may be outside US tax purview ( assuming you affect the transaction before  you pass the  Substantial Presence Test  and therefore have to contend only with India Income Tax ); if you do not  sell  and hold  these as  you are today, for US tax purposes ( once you become a Resident for Tax purposes ), it is immaterial whether  the Crypto was bought in US currency or another  or when  -- US will still tax you on any gain on DISPOSITION.  Thus there is no urgent need/ advantage  by selling/transferring the Crypto to US exchange. 

Does this make sense ?  Is there more I can do for you ?

Namaste ji

pk

[chinmay-ashok]

@RobertB4444  Thank you!

@pk   Thanks a lot, that did make sense. I did some more research on what I want to do for now. 

This is my current scenario:

Since I am new in the US, I do not have a car to commute and having to depend on uber/lyft to commute, which I feel is adding up to my expenses. And I can't get a loan, or even if I do, the apr is high as I literally do not have a credit history, I received my SSN 2 weeks ago and yet to get a credit card to start building my credit history.

And as you know, the used car market right now is really not good for buyers. So, I thought if I can sell some of my crypto and withdraw as USD, I can get a car(if possible, a new one itself) and that should solve a lot of my daily problems right now. But I wanna do it right, to ensure I am following the rules here by paying any income tax I am liable to pay.

Which brings me to my next question. To avoid the confusion of calculating cost basis for my crypto holding, I do have some amount of the stable crypto "USDC" and "USDT", which are pegged 1:1 with fiat USD.

So, if I transfer this to US exchange and withdraw, I guess there won't be anything to calculate, as 1 USDC = 1 USD and I will have to just add the amount I withdraw to my total taxable income and pay the tax as per the tax slab I fall under when I file my tax returns for 2022 in Jan 2023. Correct?

For example, say my annual taxable income as per W2 is $20,000. And say I send 10,000 USDC to US exchange and withdraw that to my bank account as $10,000. So when I file my returns in January next year, my taxable income will be $30,000. So my tax slab would be as below.

12%	$10,275 to $41,775

Which means, income tax I need to pay will be 1027.5+2367=3394.5

I haven't considered the already withheld tax by the employer here, above is just a calculation to confirm if my understanding in this scenario is correct.

Next question: I understand the above scenarios will be applicable once I have passed SPT and become a Resident Alien for tax purposes, so if I do the above transaction before I pass SPT, does that mean I don't have to pay tax on this in US and will only be dealing with paying tax in India? How do I show that I did this transaction while I was a Non Resident Alien during filing of tax return in Jan 2023?

Once again, thank you so much for taking time out to answer my queries!

[pk]

@chinmay-ashok , I will come back to you on Tuesday -- can you wait ?

Namaste

pk

[chinmay-ashok]

Sure, sounds good!