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Comment by saosebastiao | Hacker News Reader

> Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses.

Which is absurdly difficult for the average person to account for. If I buy 60000 XRP for 4 BTC, what is my cost basis? Do I have to keep track of how much those bitcoins were worth on a different exchange with Fiat pairings at the moment I traded on a pure crypto exchange? What if I don't have that data? How is that calculation supposed to account for actual liquidation costs if I liquidate to pay my taxes?

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> If I buy 60000 XRP for 4 BTC, what is my cost basis?

For the BTC? The USD value at the time you bought them.

> Do I have to keep track of how much those bitcoins were worth when I traded?

Yes

> What if I don't have that data?

You can get the transaction date via the block chain or your exchanges reporting and then lookup the USD value at the time.

> How is that calculation supposed to account for actual liquidation costs if I liquidate to pay my taxes?

Liquidating to pay taxes is another taxable event. That’s the same as if you did this with equities.

> You can get the transaction date via the block chain or your exchanges reporting and then lookup the USD value at the time.

What if the exchange I traded on doesn't have a USD Fiat pairing? Can I use any price from any exchange that day? Can I report $0.06/BTC for an xrp sale on 4/16, the date of the major coinbase flash crash? Does it have to be the exact price at the exact time? Can I choose the USD value of the KRW/BTC market on Bithumb?

> Can I use any price from any exchange that day?

You should use the fair market value.

So any price from any exchange at any time during the day? You haven't clarified a thing by telling me to use the fair market value, because there is no standardized way to determine fair market value. These aren't stable mature markets, a blink of the eye and the market may be transacting at +/-10%. Determining fair market value is the primary problem with cryptocurrency taxation. If you're lucky enough to be trading in USD paired currencies, great...you can use actual transaction values. But the vast majority of crypto trades aren't with any fiat pair.

The fact that these things are extremely volatile is not the IRS's problem. You are the one responsible for recording the details of your trade.

I did record the details of my trade. What I didn't record was the concurrent status and details of some completely unrelated market on a completely unrelated exchange that establishes some sort of mythical fair market value denominated in USD that so far has no canonical way of being calculated anyway. Nobody can answer the question in any precise way, the IRS guidance on the issue is barebones and not informative at all, and my CPA can't figure it out either. The best we can do is take a best guess that makes it look like I'm not stiffing the IRS.

I want to pay my taxes. I believe crypto should be taxed. But when you get into the situation where well meaning people have to take guesses at what is appropriate, and differences between seemingly simple rules of thumb can result in 20+% disparities in taxes owed, you're gonna have a bad time no matter how diligent you are.

It kind of sounds like you're trying to think of tax law as some sort of CTF programming game where you're supposed to find the exploit. That's definitely not what tax law is.

You should report your taxes as honestly as possible, using reasonable prices for things.

For tax purposes, the complexity is roughly the same as if you traded stock shares of (say) a closely-held private Belgian company for stock shares of (say) a closely-held private Luxembourgish company.

Neither is easy to value, but the rules for doing so are well-defined.

The only thing that's new about this is that the average person can more easily get themselves into a difficult tax situation than before these tokens existed. That's in turn because of the SEC accredited investor rules and other countries' equivalents, which make these tough securities rarely accessible to ordinary folks without financial & tax sophistication. The accredited investor definitions have a lot of flaws, but not the idea behind having such a barrier.

And, indeed, the SEC and foreign equivalents are starting to pay more and more attention to cryptocurrency... The rules are still the rules, as much as people don't like it.

You have to keep track of the fair market value, in USD, at the time of exchange. When you liquidate to pay your taxes that would be another taxable event so you may need to liquidate more to make up for that.

This was the complication that the coinheads chose to ignore. Cryptocoins, like their bullion cousins are awful mediums of exchange for precisely this reason.

If you don't keep track of cost basis then for tax purposes your cost basis is assumed to be $0 and the burden is on you to prove the correct basis.

What kind of crappy trading are you doing if you aren’t constantly aware of the fiat value of your holdings? Who are these people doing non usd trades who don’t know the fiat value of the trade?

Can’t be a very good trader, that is for true...

If you trade XRP/BTC pair the USD value is largely irrelevant

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