I just finished filing my taxes and, wow, what a rush! It turns out I had just shy of 300 crypto trades in 2017. Their online version does not support import files, so I was worried I was going to have to enter in cost basis and profit/loss manually on each one.
Thankfully TurboTax was able to switch me over to their downloadable product, which allows imports of .txf files, and my cointracking app has a handy .txf export feature.
I know, I know. You’re bored stiff now.
Sorry, I’m just excited because it’s the first year I’ve ever had to report capital gains on crypto, and it was nice to see that despite the IRS’s best efforts to obfuscate just how they view crypto, actually entering the information was a breeze, with a little help from my coin tracking app, which was able to take all my trades imported from exchanges and automatically calculate my gain/loss on every single trade. Well worth the price in Bitcoin I paid for the service.
But I will say this: the IRS needs to provide clarification on crypto taxation. The problem is that they’ve shoehorned crypto into an existing tax structure (capital gains) without accounting for significant differences in the way transactions occur.
In a traditional stock purchase/sale calculation, one pays fiat for a stock, then sells the stock back into fiat at a loss or for a profit. It therefore makes sense to tax each and every stock trade on capital gains.
But crypto-to-crypto does not work like that. If I trade Bitcoin for Ethereum without cashing back out to fiat, I have certainly not made a profit or had a loss. It’s only when I spend what I’ve made or sell to fiat that that gain or loss is realized. But according to the IRS, each and every trade, including crypto-to-crypto, counts as a tax event. This is patently unfair and will either stifle use or force people into one of three funnels: “hodling” (which will stifle the ecosystem), getting out of the game entirely, or cheating. Of the three, only hodling can be considered a non-negative outcome.
The U.S. needs to craft a truly progressive and forward-thinking tax structure to account for this entirely new and different asset class.
And yet, post-Mark Zuckerberg Senate questioning, I have little faith our lawmakers can even grasp what cryptocurrency is, how it works, what its benefits and hazards are, and how it should be regulated and taxed. Until someone comes along who not only grasps crypto’s disruption but has the clout to build responsible laws around it, cryptocurrency will have to continue to roll with the punches and innovate around ineptitude.