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Cryptocurrency Mania (and taxes)

Jan 2016 to Mar 2017, I was making reliable progress on HeroQuest UE4. After changing jobs (and moving from TX to CA), progress slowed, and I entered an indefinite hobby project sabbatical circa late Jun 2017.

Early Nov 2017 I got sucked into the cryptocurrency mania – albeit a bit late to the party.  Circa May 2013 (Tekzilla 431) I have vague memories of almost buying (and/or mining) bitcoin, but for whatever reason I dropped it.  I suspect it’s a common story.  Price quotes: $266 (Apr 2013), $130 (May 2013), $100 (Jun 2013), $350-$1242 (Nov 2013), $600-$1000 (Dec 2013).  Oh well.

Back to Nov 2017…  Besides learning about it and following various projects, I got sucked into the overly complicated tax situation. I guess the IRS is an example of how our government adds unnecessary complexity to our lives (which wastes human effort) (and distracted me from HeroQuest UE4!).

Most USA crypto users have apparently not been reporting it to the IRS; this is understandable. It’s non-intuitive and somewhat arbitrary. Using USD currency isn’t taxed, but the IRS has labeled crypto currency as property. Using virtual currency in video games isn’t taxed, but cryptocurrency is.  There’s confusion about “like kind exchanges” that makes many users think they aren’t required to report anything as long as they never cash out to fiat.

The details of how to report are convoluted. It’s still a new thing (with limited support from tax software, tax professionals, and IRS guidance).  With traditional investing, you get a 1099 form. But with crypto, you’re largely expected to figure it out on your own. Some exchanges don’t keep long trade histories (some don’t keep any). So you could easily lose your trade history.

Software support for crypto taxes is nascent. Standard tax software (eg TurboTax, TaxACT, H&R Block) doesn’t have an easy/streamlined way to import data for crypto taxes.  Specialized crypto tax software (eg, supports some exchanges. But for other exchanges, I ended up writing Python scripts to help process the data…  Eg I copy tables of data from an exchange website to use as input file to a Python script, which outputs a CSV file that can be imported into a crypto tax reporting tool. The crypto tax reporting tool can then be used to generate tax reports which can be imported into traditional tax software (eg TurboTax, TaxACT).

Spending crypto also triggers a sale (to USD), which means if you use Bitcoin to buy a cup of coffee then the IRS interprets it as – you sold Bitcoin for USD (meaning you have a cost basis and a profit or loss) then bought the cup of coffee with USD. This isn’t what actually happened, but it’s how the IRS views it. The Cryptocurrency Fairness Act is one proposal that could reduce this insanity.

Receiving counts as income. Gifting isn’t taxed (I think). Mining has payouts as income, costs are tax deductible, and you have to figure out whether it’s considered hobby income or self-employment income.  All of this can lead to an absurd amount of data to track and report, and a lot of details/complexity.

Disclaimer I’m not a licensed CPA or tax professional.  At the end of the day, our tax system is broken (convoluted), but I plan to report everything, and I hope to do it correctly.

The intent of this blog is to track some of my programming hobby projects. Cryptocurrency investing (and tax reporting) is one of those hobby projects in that… I did some learning on cryptocurrency-related software. And I wrote some Python scripts to help with investment tracking and tax reporting. So it’s sort of relevant.  However, besides this entry, I don’t plan to post (much?) about cryptocurrency.

BitcoinEthereumRippleLitecoinNEOCardanoStellarDashMoneroVeChainNanoDogecoinDragonchainSALTTHEKEYSteemBinance CoinZcashIOTA

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