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Comment by sergiotapia | Hacker News Reader

Reminded me of this kid that said he bought some bitcoins and then sold to buy some alt coins.

>At the advice of my friends, I took most of my savings and bought 8 bitcoins back in early 2017 for about $7200. You can imagine how I felt when it went up. Around December 2017, I got caught up in the altcoins frenzy and sold most of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn't know this back then but it looks like I owe income taxes on those trades,

Thread: https://www.reddit.com/r/personalfinance/comments/84huks/i_j...

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I still find it weird that he has to pay taxes in dollars on something that he doesn't know the value of in dollars since he hasn't converted his cryptocurrency assets to fiat yet.

He exhanged a storage of value from one party to another on a set date. There was an agreed upon value at the time (bitcoin to USD and then USD to altcoin).

You can’t convert your real estate into stock without paying taxes anymore than you can one crypto coin to another.

Most crypto trades do not involve USD because they are directly between one coin and another. Since each coin had a value in BTC, and BTC has a value in fiat, each altcoin has a value in fiat. That's why the new tax rules work (kind of).

Most people expect cryptocurrencies to behave like, well, currency. Isn’t it the case that with Forex trading you simply pay tax on total gains & losses, not every trade you made?

I don't know how US taxes work, but I have to pay tax when I do that. For example, I'm in Japan and if I buy CDN and then use it to buy GBP making a capital gain, I have to report it and pay taxes on it that year. Of course, if I sell the GBP and take a capital loss, I get to report that as well. There is actually a provision for allowing a "foreign reserve", so if you are doing a lot of business in one currency and don't want to convert to yen, you can "park" it without having to pay tax. Or at least that's my understanding of it. I have an accountant that takes care of details like that for good reason.

It's no weirder than having to pay tax on selling MSFT for AMZN. Once you sell an asset, you pay the tax on any gains. doesn't matter how the transaction took place "physically". Just because this crypto space thing is The Future of Money and uses The Internet, doesn't somehow exempt it from real world tax law.

Seems like people should have found better exchanges that would have helped facilitate tax reporting...

In the MSFT/AMZN transaction, doesn't the value pass through USD on the way? If I use ShapeShift to convert BTC to LTC, USD isn't involved.

Not saying it affects the situation, but it is still a different type of transaction in the way that a lot of laypeople would think of it.

Usually, yes, but it doesn't change your tax liability if you happen to find someone willing to directly trade MSFT for AMZN. The tax exemption for like-kind exchanges only applies in limited circumstances like with real estate.

In that case yes, but not with converting JPY to EUR say, or selling and buying shares of a European company which trades in EUR not USD. Only some assets have cross markets.

Vanguard allows me to exchange one mutual fund for another mutual fund (without having to explicitly sell and re-buy). Do you think that's something that shouldn't be taxable? Where's the difference to the cryptocurrency example above?

Depends on the technical contract but per IRS rules are that when you trade one asset for another, you are virtually selling the asset and buying another. They did it to keep accounting simple.

No, he has to pay taxes on the BTC he DID convert to fiat. He does get to write off the losses of the alt-coins but since he hasn't yet realized those losses (and since they're in a different fiscal year), he's pretty well fucked.

EDIT: even if he didn't convert to fiat, the exchange of BTC for an alt-coin is a taxable event. That makes sense because otherwise you could, in theory, convert to a dollar-pegged crypto like Tether and defer taxes indefinitely.

If avoiding taxes in this situation was allowed, much of the economy would move to barter.

Didn't he convert to fiat and then used that fiat to buy alt-coins.

I assume not? That's not very common, you can't even buy most alt-coins with fiat. It's usually bitcoin for alt-coin.

Still doesn't change the fact that you have to pay tax on gains when you sell an asset. Doesn't matter if you sold it for USD or bartered it for alt-coins, washing machines, or shiny rocks.

That was a very useful and interesting thread. I suggest everyone should read a few top comments there.

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