Can turbo tax help me claim taxes on bitcoin?

[Opus 17 · Accepted solution]

Cryptocurrency involves two possible taxation schemes.

1. Every unit you mine, no matter which type, is taxed as ordinary income at the US$ conversion rate as of the date it is available to you to spend (credited to your wallet). (Even if you cash out in Euros or any other national currency, you report the income at the US$ value for that day.)  This is reported as miscellaneous "other income", unless you want to file a self-employed return with "mining" as a business.  (This has pluses and minuses.)

"Other income" is entered as one of the items at the bottom of the Wages and Income page.

Trades between different cryptocurrencies have no tax implications.

2. Any time you convert a cryptocurrency to something "real" (US$, gold coins, other assets), you have a capital transaction that is either a capital gain or a capital loss.  The selling price is the US$ conversion value on the day you bought it and your cost basis is the purchase price or the value you paid tax on when it was created.  If you cash out for more than your basis, you have a capital gain and if you cash out for less you have a capital loss.  This is reported under "Sales of stocks and other assets."  You will need to report the purchase date, purchase price, selling date, and selling price, for each transaction.

So, unless you immediately cash out every coin you mine, you have two transactions to report -- ordinary income when the coin is created, and a capital gain or loss when it is converted to real currency or other assets.

Stock brokers issue a form 1099-B that tracks the purchase price and sales price of your stocks to make tax reporting easier.  Because cryptocurrency exchanges are not required to do this, you need to keep really good records of all your transactions so you can determine the cost basis of the coins you convert to cash or tangible assets.  If you are audited and don't have adequate proof of your basis, the IRS can determine that the entire proceeds is a taxable gain.

[marcusrose-busin]

The IRS has indicated that trades between different cryptos is a taxable event.  And that 'like kind' exchange exemption only applies to real estate.  See <a rel="nofollow" target="_blank" href="https://news.bitcoin.com/trading-bitcoin-for-an-altcoin-wont-shield-you-from-the-irs-anymore/">https...>

[anassz]

This does't clear if this new tax rules are for 2017 or 2018  ?

[joyninja]

It's completely wrong in point #2. Trades between different cryptos are absolutely a taxable event and always have been.

[alexiva76]

Do I claim crypto tax on state form? Do I add it to my income from federal tax?

[wl105]

This is the information I got today from TurboTax:

While there has been some controversy on that point of transfers, I think it is rather slim. The argument was that a crypto transfer was a like-kind exchange, which allows tax deferral of gain/loss when transferring tangible property.

Personally, I don't think this ever qualified, but the IRS hasn't directly addressed the issue (but they have specifically addressed it). Just as when you trade with stocks, sales are reportable. Therefore, transfers of cryptocurrency are reported as well (especially since basis increases or decreases based on the transfer).

This is no longer a debate for 2018 and beyond, because the new 2018 tax law declared that Like-Kind Exchanges are for real estate property only.

[briggitte]

I have received some bitcoins from my father as part of my inheritance. He is still alive but he has decided to do it this way. Do I have to pay tax on these bitcoins that I haven't paid for them and I haven't sold them?

[Anonymous]

bad move on his part.  you will need to get from him his cost basis. what he did was gift you those bitcoins and that affects the cost/FMV  you use when you dispose of them.

if his basis was greater than the FMV at the date of the gift, your basis for determining loss is limited to FMV and you use his basis for determining gain.  what this means.  say his basis is $12 and FMV is $10.  you sell for $11

his basis was greater than FMV so you use $10 (FMV) to determine loss. but using this results in a gain. and for determining gain you use his cost. but using this results in a loss.  thus you have neither a taxable gain nor a taxable loss. you would still need to report the sale on your return.  

[briggitte]

Thanks so much, Mike! Truly appreciate your help.

B. 

[fanfare]

If bitcoin moves as they're expecting it to, in ten years your basis will be down in the noise.