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RE: 1040 Tax Form Crypto Questions
I am trying to follow your logic with the IRS.
The changes will be on the tax forms brought out in 2020 for Calendar year 2019.
The question is going to pertain to ownership in 2019, any point. Hence selling in December or February is not going to matter. It does not apply to holdings at time of filing since it is always in arrears.
If Bitcoin gets pumped in December and than dumps in January, then all of a sudden everyone owes taxes on value that don't exist. This is exactly what happened in 2017/2018 and a lot of people blamed poor price action in April 2018 for this reason.
If your Bitcoin is worth a million dollars in December and is then worth 100k in April, you still owe taxes on a million dollars.
But you don’t owe taxes until you sell. For now it’s taxes on capital gains, not on held assets.
I thought the law was a little more complex than that. I remember reading a bunch of stuff about when capital gains doesn't apply. Antiquated clusterfuck.
Either way I'm still counting on people to be lazy, do their taxes at the last minute, and be forced to burn down liquidity early April.
@preparedwombat is correct. You only have a capital gains event when you sell.
What people screw up though is what constitutes a sale.
Sent some BTC for some animation work? That's a capital gains event.
Mined some BTC? That's an ordinary income event.
Exchanged BTC for ETH? That's a capital gains event.
Correct.
How is income earned on gaming or entertainment platforms taxed in the USA? If some kid builds something in an MMOG and sells it and gets some amount of that game's internal currency in exchange for it, at which point in time is that considered taxable earned income? At the moment that exchange is made? Or when the internal currency is exchanged for dollars?
The taxable event occurs at the time it is earned, in your example when the MMOG is sold. It doesnt matter when the currency is swapped for dollars. At the time of sale, the currency value needs to be converted into USD for tax purposes (although still could be held in the game's currency).
This is presuming the kid did not set up a business which the MMOG was under. If that was the case, a completely different part of the tax code would apply.
It may not be that simple.
The Tax Resolution Institute had this to write about income earned on MMOG's (Massive Multiplayer Online Games) on June 30 2013:
https://www.taxresolutioninstitute.com/taxing-world-of-warcraft-income-taxes-online-gaming-diablo-irs/
The tax authorities of some other countries have clear rules in place for taxing MMOG income. For example, in Finland, income earned by selling assets in an MMOG is only considered taxable when it is swapped for fiat, goods or services, or virtual currencies external to the platform in question:
Section 2.7 in the following guidance settles the matter:
https://www.vero.fi/en/detailed-guidance/guidance/48411/taxation-of-virtual-currencies/
This, or when you trade and the coin being traded gained value from the time you purchased it.
Taxes are not owed on assets unless sold.
Plus it is only on the gains so if someone paid $500K for the $1M BTC, the gain is only $500K. If the BTC was held more than a year, it is capital gains, less it is considered earned income (different tax rates).