Cryptocurrency

Bet your bottom dollar, you’ll want to keep a clear account of your cryptocurrency income.

In its recent IR-2018-71, the IRS warned that virtual currency transactions are taxable by law and that people who fail to report their cryptocurrency income, file cryptocurrency late, or file crypto taxes improperly may incur penalties and interest.  

When the IRS speaks, you should notice!

Which accounting model should you use?

You may think that virtual currency is a digital asset and, therefore, should be recorded as such, but since cryptocurrency has no status as legal tender, the IRS requires us to treat it as a property transaction.

Among other things, this means that cryptocurrency investments are bundled under short and long-term capital gains. The amount of tax you pay depends on how long you hold your cryptocurrency.

Thus:

  • Short-term capital gains:  If you hold Bitcoin or another cryptocurrency for less than a year, you’ll be paying regular income tax as with regular property tax. This is anywhere from 10 to 37 percent of your cryptocurrency income depending on your income level.
  • Long-term capital gains: If you hoard your cryptocurrency for longer than a year, you’ll pay long-term capital gains tax, which caps at 20 percent of your cryptocurrency income.

The crazy implication of this plan is that the longer you sit on your Bitcoin, the fewer taxes you pay – which is more reason to “hodl” your currency.

7 other IRS implications and rules

  • Payment made using virtual currency has to be reported using the same rules as any other payment made in property. This means the taxpayer who receives virtual currency as payment for goods or services reports how much that digital currency was in USD on the date that cryptocurrency was received. All transactions are converted to and reported in U.S. Dollars.
  • Payment made to an independent contractor, or freelancer, of $600 USD or more has to be reported on Form 1099-MISC using the fair market value of the virtual currency in U.S. Dollars of the date of payment.
  • As with all property tax, it is the payee, not the payor, who deducts tax. For that reason, the payor must ask the independent contractor for a  taxpayer identification number (TIN) and can only pay his worker once that is received.
  • Gain or loss depends on whether the virtual currency is a capital asset, like stocks, bonds, and other investment property. If it is merely a utility token, i.e., a token used by ICOs to operate their system, there’s no tax. Tax only incurs on virtual currency that can be converted to USD, Euros or other money, namely if the coin has economic value. The IRS refers to this kind of cryptocurrency as “convertible virtual currency”.
  • Someone who mines virtual currency needs to report the exchange value of any income received from that mining in USD. He uses that current exchange value on the day his income was received. Income is reported on either an IRS Form W-2 or an IRS Form 1099, depending on whether the miner works for himself or others.
  • Wages paid in cryptocurrency are reported by an employer on a Form W-2.
  • Wages using virtual currency to independent contractors and freelancers are taxable and the regular self-employment tax rules apply. Payers must issue Form 1099.


    Foreign Asset Reporting Requirements

If you have more than 10,000 bitcoins in a non-US/ offshore account, use the following forms to report your stash:

Donating Helps you Save

Make some Bitcoin, Ether, or Dash donations to some non-profit charity, and you may be able to see some deductions on your taxes as well as avoid tax on your gains. This applies only to cryptocurrency that has recognizable value.

Cryptocurrency Amendments since Jan. 1, 2018

  • No More Like-for-Like loophole

Like-for-like allows you to swap one item for a similar one within a certain time period (typically 180 days), so you may be able to avoid taxes. Since the IRS pegs cryptocurrency as property, and since property investors use the like-for-like loophole for assets like real estate, art, or racehorses, you’d think we’d have this loophole for Bitcoin too.  The loophole existed until the current administration did away with it in January 2018. 

  • No more Cryptocurrency Tax Fairness Act

Before the Trump administration, there was a Cryptocurrency Tax Fairness Act (CFTA) that waived tax from cryptocurrency transactions under $600.  So, say, you used Bitcoin to buy a cup of coffee, you didn’t need to add tax to that Bitcoin transaction. The new tax rules added tax to every itty-bitty purchase – that cup of coffee too.

Bonus: 3 cryptocurrency tax resources

  • Coinbase – A free tool for calculating cryptocurrency taxes that, more or less, works as long as you use it for simple hoarding, rather than trading, and as long as you stash your cryptocurrency with Coinbase. (Warning: The moment you send your coins to an external wallet or another site, Coinbase may inaccurately report these transactions as “sales”).
  • BitcoinTax – There’s a free version for transactions done by any cryptocurrency, as long as the transactions are simple and deal with small amounts, For unlimited and more complex transactions, BitcoinTax offers a 19.95 version per tax year.  This option is your closest to a qualified accountant and may be valuable if you trade in cryptocurrency.
  • Bitcoin Tax Attorneys, CPAs, and Accountants – For complex trading and accounts, you’ll likely want a qualified tax attorney, CPA or tax accountant who knows Bitcoin and digital currencies. That’s where the Directory of Bitcoin Tax Professionals helps you.

 

 

facebook

July, 11, David Garrity the chief executive of crypto asset finance consultancy, GVA research, gave a Bloomberg Radio talk where he suggested Twitter use blockchain to axe its splurge of fake news.

Facebook is the place for gossip, LinkedIn for business connections and Twitter where you go for news. Unfortunately, Twitter has also become a Russian troll farm where, in March, 2018, its CEO, Jack Dorsey, found that a staggering number of 70 million fake accounts impersonated identities and that, at least, 48 U.S. newspapers had been replaced by fake accounts that spread their own news.

In the beginning, information operatives who worked out of the Internet Research Agency in St. Petersburg tweeted real local news. They borrowed handles like @ElPasoTopNews, @MilwaukeeVoice, @CamdenCityNews and @Seattle_Post, and gathered hundreds of thousands of followers. All the time, they groomed their U.S. readers for the 2016 election, when they slanted reports to favor Donald Trump and to harm Hillary Clinton.

False news on social media, a massive MIT study published by Science found, spreads faster than true news. If Putin’s attempt is to fragment the United States of America, he’s doing a mighty fine job.

Twitter’s solution

Between May and June, Twitter purged 70 million accounts, roughly 21 percent of its 336 million monthly active users.

At the same time, Alex Taub, CEO of the social media analytics company SocialRank, had been trying to build an algorithm for Twitter that separates true accounts from false. His problem?

“We keep buying fake followers,” Taub told NBC News earlier this month, “and then we go to make the formula and basically two-thirds of these followers are gone.”

Worse still, fake accounts spring up as old ones are removed. Just this last week, an anonymous Twitter user fooled thousands into believing that Harley-Davidson’s CEO Matthew Levatich called Donald Trump a “moron.”

Harley Davidson fake Twitter post

The false information was retweeted more than 35,000 times, including by prominent Twitter users, such as author Stephen King.

Garrity’s solution: A Twitter Blockchain

Shake any twig and, sooner or later, blockchain technology is bound to drop out as the proposal to any problem.

A few months ago, IBM recommended it for Facebook, so why not for Twitter?

“Blockchain,” said Garrity, “would verify user identity when accounts are opened and also to update that record as new posts are added.”

“Blockchain technology,” Bridget van Kralingen, IBM’s senior vice president of global Industries, platforms and blockchain, said on Fortune’s latest episode of Balancing the Ledger, “fits very well with some of the business model challenges that social media  is facing, and I think they’re very right to take this very seriously.”

Because blockchain uses cryptography, the technology enables users to plug in permission for who can access, or use, their accounts, their usernames, or any derivative related to their brands. This disables impostors from impersonating famous individuals or companies, or from hacking Twitter accounts.

According to van Kralingen, “We would then control our own identities, versus somebody controlling our data today, which I think is very powerful.”

Here’s how your Blockchain Twitter would work

“My concept here,” Garrity explained, “is that Twitter would develop a utility token which users would have to employ to access their platform.”

On the one hand, Twitter wants its investors. The company, also, wants to carry on convincing users that its site imposes few rules and regulations.

On the other hand, Twitter wants to guarantee users that only real people are using its site.

“If they wanted to adopt a solution that allows a better tracking and verification around what activities are taking place on their site, blocking, more than anything else, has possible application and value.”

Twitter has a system in place to verify accounts. Accounts of public interest have blue verified badges next to their profiles and next to the account names in search results. Thus:  . Accounts include government, politics, religion, journalism, media, music, acting, sports, or business. This badge is always the same color and always placed in the same location. Accounts that don’t have the badge next to their name but that display it somewhere else, for example in the profile photo, header photo, or bio, are not verified accounts.

Blockchain would take Twitter’s verified accounts project to a new level, also verifying posts.

The time-stamping encryption features of blockchain would automate the process, relieving Twitter workers of spending hundreds of hours matching tweets against events to fact-check their truth.

Twitter, too, is naturally a distributed network, which plays well into the decentralized distributed technology of blockchain.

“This is because you have many parties who are actually interested in establishing and affirming and upholding the veracity of what’s going across social media platforms. It’s easier for Twitter to consider a blockchain application.”

AUGUR

Our new Twitter platform could also copy Silicon Valley-based company Augur, which, while still in Beta, shows how it can feed real-world truths into its online application by paying reliable users to verify tweets and news. Augur has an Ethereum-based token called “REP” that tracks its users reputations and encourages them to be accurate. Consistent purveyors of true information are rewarded with REP that they can convert into cash.

An Augur-based model sounds rather an expensive proposition for Twitter, but it does illustrate how blockchain technology can signal some interesting solutions for purging inaccuracies.

“If this is what the Russians have done now,” Garrity said, “the main question becomes what are they going to do on an ongoing basis? Do we have a consensus potentially in Congress? Or do we have a consensus overseas, say in the EU to make sure that these practices are stopped, that the bar is being raised?”

Just last week, Director of National Intelligence Dan Coats warned that cyber threat warnings are “blinking red” with daily attempts by Russia and other foreign actors trying to undermine American democracy.

The Russian disinformation campaign continues as you read this article.

“If we can find a technology to enable this kind of verification of identity and veracity of content,” insisted Garrity, “we would all benefit.”