Tag: crypto webinars

Tokens, ERC-20 tokens, or ERC-721 tokens, are ultimately still treated as property. There is a US dollar term for the purchase price, and then there’s a sale price. You’re going to subtract those to calculate what the gain might be or the loss. So it doesn’t matter what the token was doing. 

A lot of these tokens may be stable value coins. They’re worth a dollar, but a lot of stable value coins fluctuate up and down a bit.  

You can calculate the gain and loss of those, but should expect that to be pretty close to zero in most situations. 

Still, all tokens in all cryptocurrencies are treated as property and taxed as property.

Now we’ve identified two different ways that can happen.

We have capital gains, which comes from investments, and then you have income. 

For example, if my employer paid me, or if I did some work for somebody out of a contract basis, that coin that came in is income. A hundred percent of it is income. 

Now, I hold on to that coin and I hold it for a year, and then I sell – now that’s an investment. The cost basis of that coin is how much I declared as income when I received it. 

That’s how you determine the cost basis. 

What about some other characteristics?

Mining income is business income because it also has an expense. 

You have the cost of equipment, which can be depreciated and usually written off in the same year, the cost of electricity, and the other utilities involved. 

You do have costs with mining, which can offset the income, and you don’t have to pay as much as a staking income. 

Not having the expense side; you just have staking income. If you had income like interest from lending your coins to someone, these would be treated as interest. 

If someone gave you some cryptocurrencies, that would be a gift. Gifts are not taxed as income. People can give you all the coins in the world as gifts, but it’s not taxable to you. It is an exchange and is a taxable event to them. 

However, if it’s a charitable gift, they would report it as a charity. 

If it were a gift to a friend, the value of that coin on the date it was given is considered the sale price, and there’s a taxable aspect. 

Airdrops are a controversial point, because the IRS came out with an FAQ, here in October of last year, which angered a lot of people.

The IRS said airdrops are treated as income on the day that they’re received. But as many people found out, the coins that you received by airdrops were sometimes not solicited, and it was dubious whether they were worth anything at the time that they were received or not. 

We talk about the fair market value of coins and fair market value is what an informed buyer and an informed seller would agree to for the price. 

When the airdrops that people have come out, there’s no market for some of these coins. So, the IRS had backpedaled on that. The advice they gave, you can treat two different ways.

One, is to treat an airdrop as income on the time it’s received, or you could classify it as $0, as a gift to you at $0. Then you won’t pay taxes on it when you sell it sometime in the future, that would be two different tax treatments that are out there. 

The difference has to do with the convenience of tax reporting. 

Although the first approach I told you about, treating it as income, would be the more appropriate way to manage them. 

When you transfer coins from your wallet to an exchange or back and forth, the act of moving is not a taxable event. There’s no gain. It’s still your coin after you transfer it. Although you might have been putting it into the custody of an exchange for that time, it’s still your coin. 

Those are some broader characteristics.