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What is Going On with BitCoin?


Corduroy Frog

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Why does the IRS need to know if you HAVE BitCoin? If it is treated as property, there should be no tax until BitCoin is sold.

We can buy 100 shares of Ford Motor Company, General Mills, or 50 acres of land, and we don't have to report it to the IRS until we SELL it.

What is the difference with BitCoin? I didn't have any customers tell me they had any when I asked them.

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If all they did was buy virtual currency with real currency, you answer No. If the did anything at all with it, you answer Yes. Then you have to find out if they sold, exchanged, mined, received it for doing something (I have one that watched videos and earned fractional coins), spent it on goods/services, etc.

 

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Cryptocurrency is a pain in the patootie.  I have only two clients that did anything with it and one earned fractional coins by doing something, bought some, converted some into something else, some into USD....

I told him he would have to convert it to a spreadsheet with gains & losses next year.

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1 hour ago, Corduroy Frog said:

Why does the IRS need to know if you HAVE BitCoin? If it is treated as property, there should be no tax until BitCoin is sold.

We can buy 100 shares of Ford Motor Company, General Mills, or 50 acres of land, and we don't have to report it to the IRS until we SELL it.

What is the difference with BitCoin? I didn't have any customers tell me they had any when I asked them.

With Ford, General Mills and Land there is reporting when sold.  There is no reporting with any BitCoin transactions.

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Anyone seen the Bitcoin investment that people can make through Paypal?  I have one client that told me he just bought some in 2021 but hasn't done anything with it.  It seems more like a mutual fund to me because it can't be used to pay for things, and Paypal says it will provide the details for reporting the transactions. 

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I dunno a lot about it, other than what I've heard.  An increasing number of business are accepting it as legal tender, and if this happens, I expect the difference between the dollar value paid and the dollar value of coins when purchased would constitute gain or loss.  Someone please correct me if I'm wrong.

If Paypal charges a fee for purchasing BitCoin (and I don't know why they wouldn't), it would seem this would go into the basis of what was bought.

I'm also told there was a fixed volume of this currency when issued, never to change.  I suppose that was to make it more attractive than currencies who print money forever.

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3 hours ago, Corduroy Frog said:

I expect the difference between the dollar value paid and the dollar value of coins when purchased would constitute gain or loss.

You are correct.  So every fancy overpriced coffee bought from a fancy overpriced coffee chain, paid by BitCoin, goes on Schedule D and Form 8949.  

Most of those who actually use the stuff (as opposed to getting given a fractional BitCoin as a Christmas gift - had one of those this year) sign up with one of the online tracking services that give a tracking document or spreadsheet at the end of the year.  Just like a summary of trades from one of the standard brokerage firms.  In the past, we had our own spreadsheets we made up and tracked people's crypto purchases and sales with.  And we charged them a lot for that, too, cuz boy oh boy oh boy was it ever a pain in the hindquarters!

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This virtual currency phenomenon reminds me in many ways of the old "Barter Exchanges" back in the 70's - 80's (I think).  People apparently thought they had figured out a way to avoid taxes on goods & services, but IRS pointed out that they were mistaken and began pushing for an accounting on 1099-B in the early 80's.  I think large-scale retail bartering finally fizzled out (at least officially). 

 

 

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16 hours ago, Catherine said:

You are correct.  So every fancy overpriced coffee bought from a fancy overpriced coffee chain, paid by BitCoin, goes on Schedule D and Form 8949.  

Most of those who actually use the stuff (as opposed to getting given a fractional BitCoin as a Christmas gift - had one of those this year) sign up with one of the online tracking services that give a tracking document or spreadsheet at the end of the year.  Just like a summary of trades from one of the standard brokerage firms.  In the past, we had our own spreadsheets we made up and tracked people's crypto purchases and sales with.  And we charged them a lot for that, too, cuz boy oh boy oh boy was it ever a pain in the hindquarters!

Well my clients are still in the spreadsheet zone.  And I refuse to track it.  The one with many, many pages of fractional transactions suggested I pay for the software that will track it. 

Nah, I don't think so.

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12 hours ago, joanmcq said:

The one with many, many pages of fractional transactions suggested I pay for the software that will track it. 

Nah, I don't think so.

Tell him SURE - but the fee (including your time)  goes on HIS bill, 'cuz it will just be for him.  Report back on how many colors his face turns before you tell him you were joking.  

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Such a spreadsheet could be voluminous if client routinely pays for stuff with BitCoin.  (And BitCoin is not the only one out there).  Yes, if we get sucked into it we will need to charge for the extra time, and even if the client keeps up with it, we have due diligence responsibility.

What about the guy who shows up having paid for a buncha stuff all year long but brings NOTHING??

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How long before anyone having  VC account becomes subject to FATCA rules?  So if we have a client who owns VC and we fail to alert them that they must file the FINCEN report, wonder who they would throw under the bus when the penalty notice arrives? 

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Definitely inform them that if their virtual currency is held overseas, they may have reporting requirements on their returns and separately.

At my age, I have no desire for new clients so would not take on someone new with VC.

I have one existing client who bought some VC last year. Didn't do anything with it during 2020. But the reports she brought me were to-date and showed she "earned" partial coins in 2021 by letting them "lock up" her VC &/or watching videos about VC. I told her that that will be income on her 2021 tax returns. And, I told her to know where her VC is "stored," because if it's overseas, she will have additional reporting requirements as her holdings grow. I also sent her information about the reporting app that her Coinbase recommends, free for a certain number of transactions and then a monthly fee. I told her she could choose any reporting service she wants or do it herself, but that I do NOT do bookkeeping.

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Here's a new WSJ article about Cryptocurrency and increased IRS attention.  Reading the article it reminds me exactly of the issues & misinformation that used to surround the barter exchanges - right down to some of the silly notions about whether or not they were taxable.  (The article appears to be behind a paywall, but I was able to click right through & get access). 

https://www.wsj.com/articles/bitcoin-irs-comes-for-crypto-investors-who-havent-paid-their-taxes-11620937095

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I had to learn about VC several years ago when one of the boss's clients started mining.  He's my client now and still mines.  He has the magic software and this year gave me a 29-page 8949, all filled out.  Put the totals on the return, attached the pdf, done!  He did all the work (well, his software did), but I still charge him a lot because of my "specialized knowledge."

As of now, VC is not subject to FINCEN reporting.  Proposed rules may change that.  If held in a foreign exchange and greater than $50k, it should be reported on Form 8938.

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