To say the crypto market is volatile would be an understatement — Bitcoin’s price went from $997 at the beginning of 2017 to over $19k in December, only to plummet to around $8k on Monday.
Some were smart to cash out at its peak, but, as it turns out, the taxman doesn’t reward people for their ability to get out while the gettin’s good, and now investors have been hit with a big ol’ tax bill their depreciated coins can’t cash.
Tears of a Redditor
Under the heading, “I just discovered that I owe the IRS $50k that I don’t have, because I traded in cryptos. Am I f*cked?” Reddit-user Thoway explained they were blindsided with a $50k tax hit after selling $120k worth of bitcoin at its peak to buy different coins.
It’s as if reality and pretend have collided for Thoway, who reportedly makes $47k a year as an office assistant in real life and can’t afford to pay his crypto-dominated tax bill now that the value of his “coins” have dropped to $30k.
Taxes and crypto: 2 things nobody knows anything about
In 2014, the IRS announced they started viewing cryptocurrency as a property — not a currency — meaning anything purchased or sold using a digital asset is susceptible to be taxed as a capital gain.
You could be taxed less depending on if your gains were long-term or short-term: Short-term transactions (holding onto digital assets less than one year) can be taxed as high as 39.6%, though holding out longer than a year and a day could mean a lower rate.
“But I never got a 1099??” — Right, turns out crypto brokers don’t have to issue 1099s; unfortunately that doesn’t mean the investor isn’t responsible for reporting their gains.
“Mercy me, Mr. Taxman, I know not what I #gained”
Still not sure? Put simply (by ripping off the Michael Jordan of comedy himself, Jeff Foxworthy): you might owe taxes on crypto if…
- You sold crypto for cash
- You bought anything using crypto
- You traded crypto for other crypto
- You were compensated in crypto
Sorry coiners, demz da rules. Godspeed come April.