Crypto Tax Tips To Start 2018 Right

Even though cryptocurrencies are getting more and more exposure, their legislation seems to be a grey area for most governments, especially when it comes to declaring your income in digital currencies. The Internal Revenue Service, the US tax collection agency, has issued Notice 2014-21 stating that Bitcoin and altcoins are subjects to federal income and payroll taxes. So what to do with your crypto money and how to declare your taxes right?


Let’s start with the dreary subject of records. Yes, that applies to crypto investors too. You’d better have some if you are thinking about taxes. If you’ve ever tried to tell the IRS “I lost my receipt,” you don’t want to do it a second time.

The IRS has heard every excuse in the book. While it is not without sympathy, you’ll find it far easier not having to go to the additional effort of proving something by another means. Periodically, the IRS issues reminders to taxpayers regarding the importance of safeguarding your tax records.

That’s especially true in cases of natural disasters that make traditional record-keeping go haywire. But think of it year-round wherever you are. The IRS suggests creating a backup set of records stored away from the originals. It is good advice for crypto investors.

Selling some assets?

If you are sitting on some big gains, you might consider how your tax picture will look for the entire year. It isn’t too soon to start thinking this way. In fact, try to do it long before year-end so you can make adjustments. You might want to sell or hedge some, even if you think the market is still headed up.

There is a lot more than taxes involved in such decisions. But it can be wise to at least think about it. For example, what if your tax year already has a big capital loss in it, or you have a big carryover loss from prior years? In general, unused capital losses can be used to absorb up to $3,000 per year in ordinary income.

But unless you have capital gains to offset your capital losses that $3,000 would be the extent of your tax benefit. Some people sit for years and years with unused capital losses that carryover each year. So, if you also have unrealized capital gains, you might consider selling some gain assets, to be able to absorb your losses. Run some numbers and see how it looks.

And what exactly are you selling?

Another topic as tax time nears is to ask whether you really know what you are selling. That is, if you have 100 Bitcoins and you sell 10, which 10 did you sell? There is no perfect answer to this question. Most of the tax law considers shares of stock, not cryptocurrency.

However, many advisers think that the same kinds of rules should be applied in the case of multiple crypto assets that you hold. If so, specific identification of what you are selling, when you bought it, and for what purchase price, is likely to be the cleanest. But that may not be possible.

Some people use an averaging convention, where you essentially average your cost across a number of purchases. Consistency and record-keeping are important. You don’t want the IRS to claim that you denied the government its fair share of each sale. And remember, if you are claiming long-term capital gain treatment, being able to prove that you held the cryptocurrency for more than a year before selling is key.

Loans with interest and hedges

Loaning money shouldn’t be a taxable event to either the borrower or the lender, except for interest payments. So, can you loan out your cryptocurrency to people? You can, but the question is whether that loan will be treated the same as a loan of money by the IRS.

The jury is still out on that question. The IRS says cryptocurrency is property for tax purposes. You don’t want the loan and the repayment (of different cryptocurrency?) to be treated as taxable dispositions. Some of it may depend on your documents, and how much you make it look and feel like a real loan.

Hedges of cryptocurrency are another hot topic to consider. Hedges can help to avoid some of the volatility that has characterized the various crypto markets. But be careful that you are doing your best to avoid a disposition, meaning a sale for tax purposes, that you don’t want.


The holidays may be over, but probably everyone in your family would still like some Bitcoin or other crypto issues. The prices have been so ever-present in the news, that gifts and donations are still very much in the news. But is it smart tax-wise?

A charitable contribution would be the best type of transfer. If you give to a qualified charity, you should get an income tax deduction for the full fair market value of the crypto. If you bought for $500, and donate to a 501(c)(3) charity when it is worth $15,000, you should get a $15,000 charitable contribution deduction. What’s more, you won’t have to pay the capital gain tax on the $14,500 spread.

Giving to private parties is not as impressive. The same gift to your niece gets you no tax deduction. And it requires you to file a gift tax return since the gift is worth more than $15,000. For 2018, $15,000 is the amount of so-called “annual exclusion” gifts you can give to any number of people each year with no reporting required.

Any gifts over that $15,000 amount require a gift tax return, even though you probably won’t pay any gift tax. You normally would use up a small portion of your lifetime exclusion from gift and estate tax. For 2018, that number just went up dramatically. The amount you can transfer tax-free during your life or on death just went up to $11.2 mln per person. That is $22.4 mln per married couple.

Forms 1099

Finally, don’t forget about the coming onslaught of IRS Forms 1099. Normally, these not-so-fun little tax forms arrive around the end of January, reporting income paid to you in the previous calendar tax year. The IRS says that wages paid to employees using virtual currency are taxable, must be reported on a Form W-2, and are subject to federal income tax withholding and payroll taxes.

Similarly, payments using virtual currency made to independent contractors are taxable to them, and payers who are engaged in business must issue Form 1099. A payment made using virtual currency is subject to Form 1099 reporting just like any other payment made in property. That means if a person in business pays virtual currency worth $600 or more to an independent contractor for services, Form 1099 is required.

If you are a recipient of Form 1099, as most everyone is, keep track of them. Each one gets reported to the IRS and applicable state tax authorities. If you don’t report or otherwise address the reported income on your tax return, you can expect that the IRS will follow up.

This may seem confusing, but you shouldn’t worry. The IRS is usually much more lenient to those who fill in taxes, even with mistakes, rather than to those who avoid doing it at all.

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Bitcoin’s Performance Off the Charts

Bitcoin’s growth year on end has been routinely flouted as being over 600 percent, and while that is, of course, an impressive number, it is hard to picture what that means in a market economy.

However, when that figure is placed against other big and popular assets, a graph shows the true effect on the growth year-to-date. As it stands, looking at the performance range, Bitcoin at 663 percent growth.

Up next is Apple stock which has grown an impressive 49 percent. That figure, of course, pales in comparison, but in any other year without Bitcoin, that would be healthy and impressive.

However, one needs to remember that there have been some big growers across time, and one of those was Amazon, which saw 6,000 percent growth between 1997 and 1999.

In fact, Bitcoin has had better years, 2016-2017 saw the digital currency grow 2,800 percent. But this year, there is no competition.

Off the charts

The graph above shows just how exponential the growth of the digital currency has been to date. The growth has been explosive, but there are also volatile swings that have seen it dip too.

For instance, Bitcoin at the start of the year was a terrible investment as within 10 days the cryptocurrency had lost 20 percent of its value. A better decision, at that point, would have been an index fund tracking the S&P 500, Apple stock or even gold.

There have been some instances where normal assets, such as the entire US Stock market, have suffered big lows. In 2008, during the financial crisis, their stock market fell by 40 percent and it was considered a massive disaster.
However, Bitcoin has dropped 40 percent on more than one occasion already this year, and despite that, the graph still shows its enormous growth.
Bitcoin is like nothing else on this chart, and thus, when figures like 663 percent are thrown around it is hard to quantify or even imagine.

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Bitcoin May Change it All

Interest is a subject with a very chequered history that today works hand-in-hand with inflation to control the world’s major economies. The story of interest is as old as that of money, but recently digital currencies have begun to add a major wrinkle.

Once humans had invented currency to facilitate trade it became a common view that money effectively replaced the animals and cereal seeds for which it was exchanged and, therefore, should have similar properties of reproduction, i.e. increasing with time. This was all good and well as long as the currencies had the intrinsic value of the metals from which they were then minted.

Religious influences

Meanwhile, various religions emerged and moralistic clerics variously ruled against the charging of interest. It was described by its detractors as “usurious” and generally immoral; today, “usury” is only applied to excessive rates of interest. The principle of charging ordinary, non-abusive interest is commonly accepted.

Other religions, unfettered by qualms over interest, were effectively granted a monopoly in banking from which today’s monoliths grew. Along with these massive banks, the economies dependent on them continued to grow as well. Today interest is seen as an indispensable part of banking.

Something from nothing

The fact remains that interest is merely a way of creating “wealth” from nothing, certainly no productive process. And interest is naturally inflationary: it is often clearly visible that the rates charged by central banks generally match their local inflation rates, with inflation being the vital factor in the affordability of any long-term loan, the monetary value of which rapidly diminishes due to inflation.

This is an important point: long term loans such as mortgages are generally affordable because inflation will ultimately eat away the “real” cost of the monthly payment. A $1,000 monthly payment today will be much less, in real terms, 20 years from now. As long as you can afford your current mortgage payment, it should get easier to pay with time.

A recent (post 2008 crash) peculiarity of the banking system was the reduction of prime interest rates to around zero, followed by the innocuously named “quantitative easing.” This innocent term actually masked the wholesale printing of money, replacing that generated by interest, to support the perceived values of stock market while also supporting continued inflation at relatively low levels.

Importance to cryptocurrencies

What does this mean for digital currencies, which, unlike fiat currency, has no underlying interest rate? If anyone wants to lend Bitcoin or another such currency to somebody else, that’s between the lender and borrower.

However, the nature of cryptocurrency is that, on the whole, its value constantly increases due to it being a finite resource – it cannot be created willy-nilly by a bank. Another way of looking at it is this: as fiat money becomes less valuable due to inflation, digital currencies become more valuable relative to fiat ones.

This principle makes it difficult to justify “cashing out” one’s crypto holdings. When a deflationary asset (cryptocurrency) is sold to buy an inflationary one (fiat currency), it becomes far more difficult to buy back the digital currency that you initially sold. We’ve all heard stories about folks who sold Bitcoin a year or two ago to purchase mundane items, only to dearly regret it later. This implies <Continue Reading>

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Now More Than 120 Cryptocurrency Hedge Funds

The explosive growth of cryptocurrency values has drawn in some of the investment world’s biggest players – hedge fund managers. Over the past six months, the number of crypto-focused hedge funds has exploded, moving from around 70 in August to more than 120 at the end of October.

In the last year alone, according to CNBC, more than 90 cryptocurrency funds have launched, bringing the net total to 124. These funds have more than $2.3 bln under management, with a third of the total using venture-capital style investment strategies.

The most notable addition among these is the $500 mln fund launched by Galaxy Investment Partners founder Michael Novogratz. The famous investor has publicly shared his view that lots of money can be made with digital currencies, even as the market moves.

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4 Things That Can Push Bitcoin to $5,000 and Beyond

Those with even the shortest memory will recall that Bitcoin price just about broke the $5,000 mark in early September, before a substantial sell-off coincided with some vitriol from Jamie Dimon, and China cracking down on ICOs.

4 Things That Can Push Bitcoin to $5,000 and Beyond

Now, however, the digital currency has bounced back and is well on its way to $5,000 again. There are a few factors that’ve got it here – none more so than the fact it was the best performer through the third quarter.

However, there are still a few factors that are pushing it, and a few reasons why $5,000 is on the horizon, if not even higher.

The return of the buzz

There is no doubting the fact that China’s approach, and Jamie Dimon’s attack, caused a perfect storm for Bitcoin belief. It was the coming together of the digital currencies’ two big enemies – institutionalised money and regulators – who were flexing their muscle in a show of perhaps fear.

However, those attacks have come and gone, and Bitcoin is none the worse for them, as there’s a buzz returning. What will really catalyse it will be a rollback of China’s ban – something that’s possible with an upcoming Communist party election – or perhaps Jamie Dimon to have a change of heart.

Financial crisis

Bitcoin has already shown that it laughs in the face of impending global disaster when the global market fell almost a percent as tension between the US and North Korea spiked.

“Bitcoin is a safe haven that is unaffected by normal market factors, and as these factors continue to escalate there could be a bigger trend towards digital currencies.”

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Wall Street stamp of approval

While there’s a major dividing line on the allegiances of Wall Street bankers and institutions, many more are coming over to the digital currency side, leaving Dimon and Jordan Belfort stranded.

It was the arrival of institutionalized investors after the Aug. 1 split that saw Bitcoin tear off on another rally, and another big boost of endorsement from these trusted investors could be a tipping point.

Free money

At the end of October there is another fork coming to Bitcoin in the form of Bitcoin Gold, however, the term ‘fork’ is used quite lightly in this instance.

“It’s more of an air-drop than a chain split. Everybody that owns Bitcoin will also own Bitcoin Gold once the network goes live, but transactions on the Bitcoin Gold network won’t affect Bitcoin’s network, or vice versa.”

Thus, many think that Bitcoin is booming – and altcoins declining – because there’s a chance of doubling your haul when this fork comes at the end of the month.

Bitcoin Gold

Before the dust has even settled on Bitcoin’s civil war, which saw an acrimonious disagreement about how Bitcoin should handle its scaling debate, the major digital currency could be splitting again.

Bitcoin Cash was threatened, laughed off, created, boomed, and them fizzled out as Bitcoin carried on its merry mooning way, now with more capacity because of SegWit. Bitcoin Cash was the alternative to SegWit where blocks were blown up to monstrous proportions.

Bitcoin Gold, as the new potential hard forking currency will be called, is now an attempt to wrest the lucrative mining component of Bitcoin out of the hands of the giant firms that have monopolised the creation of the digital currency.

The people’s fork?

The new fork, set to reach landfall on October 25, is aiming to democratize mining. Mining farms and pools hold all the cards within Bitcoin, both as a voting demographic and as manipulators of things like price and fees.

Bitcoin Gold wants to see at-home enthusiast miners back in control. The project was apparently co-founded by Jack Liao, CEO of Hong Kong-based Bitcoin mining company LightningASIC. LightningASIC also conveniently sells the hardware that this new market of miners will need.

This fork seems to be a reaction to the general hatred that is flung towards Chinese mining giant Bitmain who, along with their controversial leader Jihan Wu, had a big part in the creation of Bitcoin Cash.

It must also be noted that Bitcoin Gold is different from another fork that is scheduled for November: Segwit2x. The November fork is aimed at increasing the capacity of the network where as the Bitcoin Gold split is looking to cut more people in on the mining pie. <Continue Reading>


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Bitcoin Price Eyeing $6,000 in 2017

There are a few rocky months left in the year for Bitcoin, but experts are starting to predict that the digital currency could still rally another 40 percent to end on $6,000 for the year.

Bitcoin price eyeing $6,000 in 2017

Many have had stabs at predicting the Bitcoin price at the end of this year of rapid rise, from stock picker Ronnie Moas who said he sees Bitcoin reaching $5,000 by the end of the year – although i already crossed that boundary recently.

Busy third quarter

Bitcoin has seen a lot of activity in the third quarter of this year, from dramatic rises to forks and bans on ICOs. However, despite the ups and downs, it has been a growing market overall.

Bitcoin was up over 74 percent in September, but the shifting landscape of governmental regulation and technology decisions has seen it bounce up and down recently.

Hard forking

The much anticipated and feared Aug. 1 fork, which went ahead, showed the differing sides of Bitcoin’s volatility as the fear of the fork caused a minor collapse, before a rapid growth.

Bitcoin Cash was created, but the fear and worry about the new currency was unfounded as Bitcoin quickly skyrocketed after the infighting ended and a consensus was reached on the scaling debate.

Japan’s power move

While the news of China’s crackdown was seen as negative, and the markets reacted as such, the recovery has seen a shifting in power. Japan has now emerged to take China’s mantle as one of the leading cryptocurrency nations.

Japan has been more open to cryptocurrencies. Regulators there legalized Bitcoin and major retailers have begun accepting it as payments. Japan’s Financial Services Agency (FSA) also <Continue Reading>

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How to Make Profit: Basic Rules for Beginners in Bitcoin Trading

There has been a protracted debate on the actual identity of Bitcoin, whether it should be regarded as a currency or a commodity.

With reasonable support on each side of the debate based on its inherent characteristics, a huge segment of the ecosystem is of the opinion that Bitcoin can, and should be regarded as both a currency and a commodity.

Whatever definition attached to Bitcoin, the constant variation in price offers an opportunity for investors to make a profit by trading the cryptocurrency, either as a long term investment or in a speculative short term pattern.

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