Ha! At least my case that's a solid myth. But I found this animated explainer very helpful:
"Ensuring your prosperity in the years to come using resources you have today"
Showing posts with label crypto. Show all posts
Showing posts with label crypto. Show all posts
Friday, March 18, 2022
Friday, April 2, 2021
Here's A Cryptocurrency Tax Surprise
As David Lenok points out in his excellent article, [1] the fact that crypto is called a “currency” confuses people. Normally, if you take cash out of your savings account that isn’t a taxable event. However, crypto currencies like Bitcoin and Ether are not considered currencies by IRS. They are in effect commodities and subject to the same taxation as commodities: long and short term capital gains.
Let’s say you bought one Bitcoin for $333 in 2015. As of March 29 that one Bitcoin is worth $57,456. So you decide to buy a Tesla Performance Model Y for $62,000, kicking in the extra $4500 from savings. What a deal! A Model Y for $333! But wait, is that what this transaction is really going to cost you?
No. By spending that Bitcoin you will trigger capital gains taxes on $57,123, the current value minus your purchase price of $333 in 2015.
Uh oh.
Your normal taxable income is around $80,000. So, with that additional $57,123 you’re solidly in the 15% Federal cap gain bracket and 9.9% Oregon income tax bracket. And it gets better. Because your Schedule A deductions- including the Oregon capital gains tax (which is the same as income tax rates) can’t be deducted from Federal taxable income You’ll owe 15% on the whole $57,123 or $8568. Then, kick in Oregon tax of $4999 for a total of $13,567 extra you’ll need to pay after you get a courteous letter from IRS in 6 months.
How will the IRS know? Well, take a look at the latest 1040. Do you dare lie to IRS? I wouldn’t. That counts as perjury.
Still, what a deal to get a Model Y, without doing any work, for less than $5000 out of pocket!
Have any questions? Let me know!
- Gary
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