GBTC and ETHE trusts on 1099B Proceeds from Broker and Barter Exchange Transactions

[MikeP90s]

Not Tax Advice:

Ditto @barry13 the @rudyrabbit proposed formula, yields the wrong units (and wayyy to low of a cost basis amount/transaction), which is what tripped me up last week.  Turbotax was of course no help.    Also concur, that if one has a small total # of proceeds then probably worth it to bite the bullet and put $0.00 for the basis on each transaction.   For a large # of shares purchased then it maybe worth the pain. 

Here's a quick detailed example for a single transaction.

The wealthfront spreadsheet and Grayscale pdfs are a reasonable places to start for a single transaction (see links below) but gets complicated and time consuming beyond that.   

The formula for cost basis factor*total_purchase_price_of_shares for the single transaction summed for the entire year (in the weathfront spreadsheet) seems to yield the correct result for the cost basis for each transaction (at least IMO).  

For example.  Here's a simple single transaction case of 20 shares of GBTC bought on 1/7/21 for a total cost/share of $46.00 ((Share purchase price + (My brokerage Commission/# of shares purchased)) and NOT sold for entire year of 2021.    Note this would result in a net unrealized loss on these shares at the end of 2021).

20 shares of GBTC bought on 1/7/21 for a total cost of $920.0  and not sold for all of 2021. 

Here is what the entry would look like in the wealthfront spreadsheet:

"Date Sold" Cell C15 ->   2/4/22         

"Quantity"   Cell D15 ->   20

"Date Acquired" Cell E15 -> 1/17/21

"Cost Basis"    Cell F15 -> $920.0 

NOTE:   the "Date Sold" cell entry of 2/4/22 tricks the wealthfront spreadsheet to compute the proceeds and cost basis columns for the entire year (from purchase price to end of year)

This gives me a total payout of $17.90 (Cell F68 in the "DO NOT EDIT - GBTC Calculator" Worksheet) with a cost Basis $18.38 (Cell G68 in the "DO NOT EDIT - GBTC Calculator" Worksheet).    Note I copy pasted the the full 8 digit "Proceeds Rate" column for each date as the wealthfront sheet was off by a little bit (8th digit) from the  grayscale website tax forms.   Thus you would get slightly different #'s (def < $1.00 difference in the #'s I display here). 

In this case the Cost Basis ($18.38) is higher than the payout ($17.90) and one is taking a net loss on these payouts, thus it should reduce the overall tax liability.   I did something similar for ETHE and definately got similar #'s and a net gain on these but the key takeaway is that the overall the cost basis was much higher than the formula by rudyrabbit.  I'm hoping this makes sense to everybody.   

Additionally, I'm thinking to delete all the individual transactions and just put one lump sum transaction with the cost basis and payout for sake of time but idk if that will cause issues going fwd. Any thoughts from anyone on this thread on this approach??

If you have multiple transactions throughout the year, then it gets even more complicated (especially there are buys and sells).  It took me a couple hours, but I've finally got a spreadsheet cobbled up for this.

Now to create these type of spreadsheets for ETHE, LTCN,etc for multiple transactions.....  sighhh == aneurysm..

Hopefully, this helps folks out.

Useful links

GBTC Trust Tax document:

https://grayscale.co/wp-content/uploads/2021/02/Grayscale-Bitcoin-Trust-BTC-2020-Tax-Information-v2....

https://grayscale.com/wp-content/uploads/2022/01/Grayscale-Ethereum-Trust-ETH-2021-Tax-Information-F...

Wealth front Available Spreadsheets:

https://support.wealthfront.com/hc/en-us/articles/[phone number removed]2-How-do-I-report-taxes-for-...

[JP2112]

OK I haven't read through all of these posts but what I did find on my 1099 from TD is the same transactions are listed twice once as a gain with no basis, and then as a loss at the bottom of the 1099 since it's a management fee. I'm really not happy with turbotax this year. It couldn't even transfer over the info from last years return from turbotax. Absolute garbage I'll hire someone next year. Don't even get me started on importing CSV files or trying to convert them to TXF files 😬

[barry13]

I don't believe that you even need the wealthfront calculator.  You can just do this in Excel.

1. Find the Cost Basis Factor for each of these ridiculous, nonsensical, lousy GBTC transactions in your 1099-B that apparently occur every week you hold this pile of junk.

2. Begrudgingly calculate your total investment in GBTC in dollars up to the date of the Undetermined Uncovered Useless transaction (add up the total $ you used to buy the GBTC up to this date while swearing under your breath). 

3. Then multiply this amount by the Cost Basis Factor in the 1099-B to get your cost basis for that individual transaction and then tediously put that into each stupid "sale" entry that Turbotax is asking for extra info (cost basis field highlighted with red borders).

Finally, remember never to buy GBTC/ETHE or any of that sort of crap again!  (Also, avoid any Proshares ETF which all generate vast K-1s and K-3s that will drive you insane).  

[berndog]

I agree, I have used TTAX for years and am more disappointed now than ever, they do nothing to improve this product. Need to look elsewhere.

[knienab1]

I think you, me, and MikeP90s are all coming to the same conclusion.  The previous mentioned equation was close, but didn't get to the actual cost basis. It's also extremely frustrating that the few resources out there don't seem to help much with how this is being reported on our 1099s.  The Wealthfront calculator is only really useful for when you sell GBTC or ETHE.  The Grayscale tax document is helpful, but it calculates your cost basis for all transactions together, which doesn't help when you're trying to do it for each individual tiny transaction throughout the year.  What I ended up doing was the method mentioned in the Grayscale document, but using it for each individual transaction with the much smaller amounts.

What I ended up doing in excel is below:

1. Use the Bitcoin per share on the day you bought the shares from the Grayscale document to figure out how many of the Grayscale Bitcoins you "own" through your shares (do this for each time you bought or sold and follow FIFO/LIFO/whatever) to figure out how many Bitcoins and how much total investment you have when each of these dumb "transactions" occurred.

2. Use the "Number of BTC Sold per share" from the Grayscale document on each day that one of the transactions occurred and multiple that by your number of shares at that time to figure out how many of "your" Bitcoins were sold by Grayscale for each transaction.

3. Take what you got from step 2 and use it in this equation: (step 2 number/total Grayscale Bitcoins owned) * cost of the shares when you purchased.  Do this for each time you had purchased GBTC since the cost of the shares and the Bitcoin owned from each purchase is different.  Add them all up for each transaction and that's your total cost basis.

I did a quick calculation using my method and yours and got pretty much the same number, so I think we're doing the same thing in 2 different ways (your using the shares and price whereas I'm using the BTC and corresponding price, but the BTC/share is converting it so the units all match up).

If you want to have even more fun with all of this, I think we are technically supposed to reduce our cost basis with each individual transaction since technically our Bitcoins are being "sold" each time and we have less for the next transaction... but I don't have the brain power to do all of that right now.

I know some people are saying they are lumping all the transactions together or just saying it's all a wash, but I'm going to painstakingly input the cost basis for each transaction, because each is listed on my 1099 and I don't want to look like I'm hiding something, especially when it comes to anything crypto related.  Obviously in this strange scenario, to each their own, but that's what I'm doing.

[ysb2000]

@JulieS  -Just to make sure I have N/A on the data acquired and nothing in the cost or other basis and nothing is shown on the accrued mkt disk or gain or loss. I show principal payment. so in turbo tax, i enter the same amount in the cost bases as the proceeds?

[ysb2000]

just trying to see if am suppose to be calculating something or not as @JulieS says that i am suppose to enter in the same amount as proceeds. do you have some number in the 1e box?

[barry13]

No, you need to compute these yourself.  You can’t just put in the same number as what is in proceeds.  Looks like you have the Cost Basis Factor on your statement so you can use the method I posted earlier to make the calculation.

[ysb2000]

did you get an answer to your question? I have vanguard account and it shows total proceeds and then in the same document I see expenses that equal the total proceeds.

[barry13]

Yes, these proceeds are used to pay for the investment expense so that’s why you see them in two places.  GBTC is selling BTC to line their pocketbooks (“pay for their expenses”).

[richqw]

Here's what Grayscale says in their 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 2021 Gross Proceeds File together with an example illustrating how a Shareholder should calculate gain or loss."

So, it's de minimis and not required to be reported. Maybe the whole thing can be ignored.

I may just use zero as the assumed basis. That seems the simplest.

[barry13]

You can set the basis to zero but because there are so many transactions (one per week), it does add up.  Most of the cost basis does offset the proceeds unless you purchased GBTC many years ago.

[t1krzej0]

The whole thing is ridiculous, as they charge a proceed and then deduct it, so I didn't download that section of 

tax form seeing it all cancels each other out anyway but a pain to enter, nonetheless and turbo tax would not let me move forward saying I had errors so they need to fix this,  and I'm guessing the post about having to then not report is probably correct, and only for the trusts end

[p21]

Actually, the issue here is that you did not sell any shares of GBTC (or ETHE or ETHC or LTCN as the case may be) but the GBTC trust itself, in order to pay its expenses, sold Bitcoin (or Ethereum or Ethereum Classic or Litecoin as the case may be) tokens and those expenses and sales pass through to you.  So the number of shares that you have of GBTC remains the same, but you are on the hook for reporting these Bitcoin sales.

The net effect is that you have to calculate:

1) the total expenses that pass through to you (which happens to be equal to the sales price of the Bitcoin that was liquidated on your behalf to cover those expenses)

2) the number of tokens that were sold to cover those expenses

3) your cost basis in those tokens

If you are in a position under current tax law to deduct your investment expenses, then you can take (1) as a deduction.  In any case, you need to report the Bitcoin sales on Schedule D with sales price = (1) and cost basis = (3).

For detailed instructions on how to do all this, consult the tax reporting document on Grayscale's site at https://grayscale.com/tax-documents/.

And, yes, for those who bought GBTC thinking that it was a hassle-free way to own an interest in some Bitcoin, this is all a gigantic rude awakening.

[robbyja]

My 20 something year old kids had small amounts of GBTC and ETHE.

I spent HOURS looking for an answer to this question of how to report these because they appeared on their TDA 1099s.  Before I get into what I did, not all brokerage houses report this.

For example, they also have similar amounts in Schwab accounts and they didn't report ANYTHING on the 1099s for these trust transactions.

In an attempt to find out what to do with the TDA 1099, I spent hours browsing - to no avail.

Virtually nothing from TurboTax.

I emailed GBTC.  They replied that they don't answer tax related questions.  

I called TDA and was put on hold for 20 minutes only to get "you need to call a tax professional." 

The grand total for proceeds was $45 so there was no way I was going to call a tax pro.

As an explanation (you may already know), these investment trusts sell off some of the assets in the trust to pay expenses.  It effectively reduces the assets in the trust (by a small %) and that affects the trust investors (that's us).  That's why there are reporting proceeds that never make it to the investor.

But, what I found later in the 1099 was a page of "fees and expenses".  One line for each transaction that exactly matched the proceeds.

So, I imported the TDA 1099 which showed only the proceeds in TT (not the fees or expenses).

In the Investment Income section, under Stocks, Cryptocurrency... section, I clicked Update.

Editing the TDA section, I looked for all of the GBTC and ETHE entries.

There was one for each month.

I was going to replace the 12 lines with 1 summary line but you can't because there are 12 "Date Sold" lines.

So, for the first line item, I clicked the pencil icon (to edit).

Sales Section: Unknown Term Basis (matching the 1099)

What type of investment: Mutual Fund, index fund, or ETF

Description: I entered the CUSIP and the description (no quantity of shares)

Select the information type: Something other than a date - chose Various

Date Sold: match the 1099

Proceeds: match the 1099

Cost or other basis: $0.00

Put a check mark in "The Cost basis is incorrect or missing on my 1099-B"

Click Continue

Check mark in "I paid sales expenses that aren't included in the sale proceeds..."

Enter what was in the 1099 as a fee which matches the proceeds dollar amount.

Continue

Check mark in "I don't want to make any changes to my cost basis..."

Continue

Answer the question "did you acquire this investment..." (decides short or long term which doesn't matter because the investment expense completely offsets the proceeds).

Continue

This brings you back to the tally of individual transactions.

You will see that the gain/loss for that line item is now $0.00

Repeat for each line item of GBTC and ETHE.

Hope that helps anyone else who is in this same boat.

And, I hope it's the correct approach.  It certainly seems logical that the proceeds are offset by the expenses.