A Student’s Crypto Tax Struggle
November 2018 saw a Reddit post from a distressed college student on the topic of crypto-related taxation. The student invested $5,000 into the crypto markets at the beginning of 2017. Through trading and investing, the student turned that $5,000 into $880,000 by the end of 2017.
In our simple world, money buys money and power buys power. And for a lot of us, this was changing, this was being challenged by the advent of cryptos because blockchain is fair. It is easy to stack up even on the blockchain, you are free to stack your wealth here. But, the currency really does it for everyone than for everyone with money.
Due to 2018’s crypto bear market, the student’s portfolio valued only $125,000 at the time of his Reddit post. He said he still owed $400,000 in taxes for his taxable crypto-to-crypto trading events in 2017, even though he claimed he never sold his portfolio into fiat. The tax lawmakers need to pay serious attention to this drama. It is a lot more than one case study and it is a problem of the future, such things are holding this tech back. Reforms are around the corner but who knows if they are going to be enough and well put or too little too late.
This means that people struggle when they are losing and people struggle when they are not. This also means that people are all at a loss with or without cryptos, more with them perhaps? The system is slow and inadequate to deal with these tragedies and laws need to be amended, perhaps this will take a lot of time, who knows how many are rubbed the wrong way until then.
Why Are Crypto Taxes So Confusing?
Tracking and recording these events is difficult. The highs and lows of crypto are difficult but it is a new market and the rules are not clear yet.
Coinbase keeps great records of transactions and trades for each customer, but the majority of exchanges don’t. Complications deepen when crypto users store their funds in cold storage wallets or wallets such as Exodus that can swap crypto assets for users. Evasion is possible, but nobody would go such lengths with the increasing complication and technicality of things legally.
In addition, the majority of cryptocurrencies can only be bought with bitcoin. If anyone wanted to buy any other cryptocurrency, he would need to buy bitcoin with fiat, send bitcoin from Coinbase to an exchange that trades the desired cryptocurrency and then buy that asset with bitcoin there. He would then need to record all the amounts, prices and other applicable data during the process of those trades.
Like-kind exchanges for crypto would mean allowing taxable events to occur only when selling crypto for fiat. This means that buying ethereum with bitcoin would not trigger a taxable event until the ethereum was sold into fiat. Put simply, taxation would occur on whatever gain or loss was incurred when the crypto asset was sold for fiat, based on how much USD was originally invested. This is really simple and it would allow people to be taxed more fairly. As for evasion, well nothing is evadable in our world anymore.