I'm going to discuss my thoughts on the implications of the tax laws that are going to enforceable going forward into 2018 and beyond. Without getting into it, I'll just say that I'm very familiar with handling taxes and crypto and I'm not really trying to debate anything here. You can review the new tax laws here. This post will not be a point by point breakdown, it's just going to be me pointing out some things, my thoughts about them, and thoughts on how they are going to change the way exchanges operate within the U.S.
The first big thing to make note of is that all crypto is going to be taxed as capital gains or losses. A simple way to explain that is: when it comes into your possession it has a U.S. dollar value and when it leaves your possession it has a U.S. dollar value. At the end of the year, taxes are going to based on the value of the asset when it came into your possession either via mining or payment and then there will also be taxes on the gains or losses after that point. It's going to make things like day trading crypto extremely tedious.
I see this playing out one of two ways with exchanges. The easiest is that exchanges move outside of the U.S. so that they are not subject to U.S. regulation and many companies already went that route preemptively. The other option is that I'm expecting exchanges that remain in the U.S., such as Coinbase, Kraken, Bittrex, and Poloniex, to start making spreadsheets available to customers of first-in versus first-out changes with prices in U.S. dollar value and we will have to use these sheets to file taxes. Compliance among crypto users is going to be extremely hit or miss because the law itself is extremely convoluted and subjective.
Important things to note are what is considered a taxable event and the best way I can put it is that anything related to crypto is going to be considered a taxable event. You mine crypto, it's taxable. You convert crypto into another coin, it's taxable. You buy crypto, it's taxable. You sell crypto it's taxable. You send crypto, it's taxable. You receive crypto it's also going to be taxable. If you hold your taxes will be significantly easier to handle, but they will not be cheap and now I'll give a brief idea of how capital gains work.
Capital gains taxes are used for things like the stock market or gold and silver. The U.S. tax laws related to capital gains work like this: Long term capital gains are based on anything you have held for more than one year. Short term capital gains are based on anything that you held for less than one year. When you convert one coin to another coin is going to reset that timer. Long term capital gains are taxed at 10% and short term capital gains are taxed at 30%. The issue with day trading is that you are now going to be fighting not only exchange and transaction fees, but if you plan to comply with the new tax laws, you also have to figure in which tax percentage you are going to be facing.
None of this is advice on how to proceed and simply my attempt to help understand the implications of the new tax law. I will not be making any recommendations on how to proceed nor discussing my intentions. If you have questions related to any of the terms that I've used feel free to ask and I may try to clear them up if I am able to, but I can not stress enough that this is in no way comprehensive or advice in any capacity. I personally feel the law is extremely convoluted and vague and going to be very subjective in how it will be enforced. Hopefully this helps to understand it in some way. Namaste.