Basically, these all say the same thing and aren't _that_ scary aside from the fact they are from the IRS: Amend your prior returns if you owe money. I am curious if they expect the same if you lost money.
IANAL, I'm not a tax expert, but I believe you can deduct losses when converting to/from fiat currency (US dollars). Which is where taxation would take effect.
If you invested $10k in crypto mining equipment, you can deduct that investment (over 5 years or something similar), you then successfully mine 5 coins. These coins are/were worth whatever exchange rate you could get. Until you use/exchange them, you aren't taxed. If you buy something, you need to declare the value of what you bought and pay income taxes against it. If you exchange it for currency, you need to pay taxes on that currency.
If you bought $25k worth of BTC, and it fell from $25k to $6k, then you turn it back into USD, you can take a deduction on the losses too. This is how most interactions with futures/stocks works. However the tax rates, triggers and rules are more tightly regulated than straight/regular income. If you're operating under a corporation or llc, again the rules may be different still.
Having a tax lawyer and accountant is probaly prudent if you're talking about 5+ figure transactions over a given tax year.
edit: --- based on responses below, I'm probably wrong about mined coins, and you probably have to pay taxes on the value when mined. Again, I'm not a lawyer/accountant, so if you're in a position where you're talking about a significant amount of money, get professional advice.
The IRS treats BTC as commodities like stocks, not as foreign currencies.
If you mine any coins, that is income you have to pay taxes on. Just like when my RSU stocks vest, I pay (regular income) taxes on the vested amount. It's treated as if my company gave me the money to buy these stocks I now have. Later when I sell them, I'll pay capital gains tax on the gain/loss.
Now if I buy coins, then I will only be taxed on them when I sell them.
This is also not correct. Crypto-tokens that are not securities are considered property. As such, they are not subject to wash-sale rules, while stocks are. (Not legal advice.)
Before anyone gets excited, despite being considered property, crypto-tokens are explicitly not eligible for 1031 like-kind exchanges after the latest tax bill (although it's debatable that they were allowed prior.)
As far as I know, you can still take a loss, then re-purchase at FMV, and claim the loss, even though you end up with the same assets in your portfolio.
If you trade an asset, any costs you have in the transactions are deduced (real estate agents fees deducted from house selling price, fees/commissions when buying selling stock etc) and you are only taxed for the net. I wonder if taxes from mining coins are for net gains? That is, can you deduce the electricity cost?
> IANAL, I'm not a tax expert, but I believe you can deduct losses when converting to/from fiat currency (US dollars). Which is where taxation would take effect.
You are flat out wrong. You are taxed on any income or transaction, no matter the currency used.
That's when you buy it. I'm not an accountant, but AFAIK if someone gave you stock for performing a service you would pay taxes on it at that point in time. Then if you sold it you would pay taxes on the difference in value.
I think the key might be that the IRS is viewing bitcoin as a payment for the service of mining.
As you're not a tax expert and neither am I, take my objection to this with a grain of salt, I think this is wrong though. When you have income from mining, that's income that should be reported at the market value of the coins at the time that they were income (when you received them.) AIUI they are taxed as income, and you should pay taxes for that income based on your regular (marginal) income tax rate. Once you've paid that income tax, you've established what's called a cost basis for capital gains. (This is also what you have when you have bought a coin rather than mining it. This is considered a "taxable event," even if the money you received in the exchange is never withdrawn from the exchange.)
If you buy something using your crypto asset as payment, or if you exchange them for currency, then you might also owe capital gains tax based on the difference between the cost basis, and the price/value you received for your sale. (If the price went down after your cost basis, then instead you have a loss, and so you don't owe capital gains.)
If you bought something, and the price went up between when you mined and when you made the purchase, then in addition to the income tax, and the capital gains, you will _also_ owe sales tax on the purchase, unless the seller collected the sales tax. (Although unless you are running a scheme to systematically undermine sales tax, and they have you with assets which can't be explained any other way I am not sure how they can ever prove that you owe that sales tax.)
When you are paying capital gains, the usual capital gains rules apply. If you have held the asset for longer than a year, you pay the long-term capital gains tax rate which is lower. The rules are (and this is the point where I'm talking way above my pay grade, but I think I've done my homework) first-in first-out, no like-for-like exchanges, which means if you sell some BTC and receive some ETH as payment, those are two taxable events. (The BTC sale is taxed at the capital gains rate for the USD value of BTC, and the ETH asset establishes a new cost basis at the USD price for ETH.)
If you have held the asset for less than a year before it is sold, then you pay the short-term capital gains rate. If you are not paying capital gains, and your aggregate transaction volume for the year on any given (compliant) exchange is above 10 or 20 thousand dollars, then you are very likely to be on their radar.
If you have losses over the whole year, and no corresponding gains to cancel them out fully, then you can take the excess loss against your income for a deduction in income taxes (subtract the taxable value lost from your income).
Please don't take my word for it though, I have someone that does my taxes for $200 or $300 and I use http://bitcoin.tax to extract the data from the exchange and provide them with the data in a form that they won't balk at. But you can take this as some free tax advice from someone who filed and paid their crypto taxes last year (and obv. also took the loss this year!)
If you invested $10k in crypto mining equipment, you can deduct that investment (over 5 years or something similar), you then successfully mine 5 coins. These coins are/were worth whatever exchange rate you could get. Until you use/exchange them, you aren't taxed. If you buy something, you need to declare the value of what you bought and pay income taxes against it. If you exchange it for currency, you need to pay taxes on that currency.
If you bought $25k worth of BTC, and it fell from $25k to $6k, then you turn it back into USD, you can take a deduction on the losses too. This is how most interactions with futures/stocks works. However the tax rates, triggers and rules are more tightly regulated than straight/regular income. If you're operating under a corporation or llc, again the rules may be different still.
Having a tax lawyer and accountant is probaly prudent if you're talking about 5+ figure transactions over a given tax year.
edit: --- based on responses below, I'm probably wrong about mined coins, and you probably have to pay taxes on the value when mined. Again, I'm not a lawyer/accountant, so if you're in a position where you're talking about a significant amount of money, get professional advice.