Bitcoin issues

[Burke]

Had one this year. Young girl in her 20's who had bought over 2 years, sold in 2020. Thank God, she sold it all! But then she starting buying again. She sent me 11 screenshots of the purchases, which I told her she had to start saving for future transactions. They were all on her phone. Some were long term, some were short-term. Since she sold it all, I didn't have to deal with FIFO, LIFO, and HIFO. I recommended a tracker service but she probably won't go for it. They don't have a clue of what's involved. Sounds like your software is trying to provide basis for you by logging purchase info. Mine didn't have that option that I could see.

[BOB W]

I just reviewed Coin Tracker video and it appears Coin Tracker, for tax reporting, spits out a report like a brokerage eoy statement showing profits and losses.

At one point they claimed some countries don't tax cryptocurrencies held more than one year. Humm....

[Dude]

Basis keeping is up to the buyer.

[Rapid Robert]

Wonder if the IRS will assign a default basis to those who sell but did not report the purchase?

There is no place on the tax return where one is required to report the amount of a cryptocurrency purchase in the year of purchase (with no corresponding sale).

[BOB W]

So this "Coin Tracker" will spit out a report like a bank statement or Credit Card statement and you pick what you want for business expenses or personal? What exactly will the transaction tell you and what or how do the statement have to do with a tax return, gains or losses on transactions? Are we talking about a "Basis" per transaction?

[BP.]

oh yes, there's more than just . . . .

Oh yeah, lots to track. Client is using a paid service (Coin Tracker) to manage all this for him. Otherwise, I wouldn't want the file either.

[Lion]

Bob W, oh yes, there's more than just selling, at least what our clients will think is selling. There's exchanging virtual currency from one kind to another, using it to purchase goods and services, and other uses and changes and dispositions that the IRS considers as "selling." And, there's receiving virtual currency in exchange for goods and services and receiving it via "mining" and receiving it by letting an exchange lock up/use your coin and receiving partial coins for watching a video or ad and...so many ways to receive virtual currency other than buying a coin with cash/cash equivalent. So far, none of my clients have virtual currency. But I think I'll send them elsewhere if they start. Too much to learn with all the tax law changes I'm already dealing with!

[Dude]

IRS's usual default basis is ZERO.

my point exactly

[BOB W]

IRS's usual default basis is ZERO.

[Dude]

Wonder if the IRS will assign a default basis to those who sell but did not report the purchase? Considering the volatility of virtual currency ramifications could be significant.

[BOB W]

No, if you sell it, you've sold a capital investment that gets reported, gain or loss. But, if you buy it for cash, like buying a capital investment, the purchase is not a reportable action. Think stocks. It's not currency, per the IRS.

Well that is simple enough for simple me to understand, Thanks............. But I think there is more to this bit coin question than just selling.

[Anarchrist]

The Y/N question on the 1040 asks, "At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

The 1040 instructions state on p. 16, "A transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control."

The answer to the OP's 2020 situation is "no".

Obviously, if one received or purchased bitcoin in 2020, the logical and truthful answer to the Y/N question on the 1040 is "yes". The instructions state that the answer in this situation is "yes". The FAQ currently on the irs website says the answer is "no". FAQs are not recorded in the permanent record. The irs changes FAQs on a weekly basis. How much are you willing to bet the FAQ still states the answer to the question in this situation is "no" two years from now when the client is being audited?

[Lion]

No, if you sell it, you've sold a capital investment that gets reported, gain or loss. But, if you buy it for cash, like buying a capital investment, the purchase is not a reportable action. Think stocks. It's not currency, per the IRS.

[BOB W]

Here is my simple mind again, are you saying bitcoin can be SOLD and exchanged for legal currency and still answer NO?

[RWG1950]

I checked the IRS website and looked up virtual currencies. They have a Q&A on this subject.
Apparently, I can safely answer NO to the virtual currency question (even if Bitcoin was acquired in 2020) as long as
it was acquired with "real" (legal tender) currency and not used, redeemed or sold or involved in any other transactions.