"I Just Discovered I Owe The IRS $50,000 I Don't Have, Because I Traded Cryptos"

A Reddit user who was "surprised" to learn he owed the IRS roughly $50,000 from his crypto-trading profits - money that he had not set aside when he cashed out his bitcoins at the height of the boom - complained in a viral post that crypto trading "ruined his life."

The alleged trader, who uses the screenname Thoway, explained that he bought eight bitcoins for $7,200 in January 2017 then cashed them out in December for about $120,000. Here's the catch: his altcoin investments quickly sunk, eating away most of his bitcoin profits. But unbeknownst to him, by selling his bitcoin, Thoway had inadvertently triggered a "taxable event".

IRS

Thoway said his lawyer advised him to cash out his remaining altcoins and give whatever is left to the IRS. Thoway, who has not been identified and has apparently gone "missing" from Reddit since his post went viral, told readers that he earns $47,000 a year as an office assistant.

Thoway's lawyer said he should be able to set up a payment plan allowing him to pay down the debt over a long-period of time, likely ten years. Still, Thoway complains that, during that period, his tax payments will likely siphon off most of what would've been his savings, meaning he has essentially been condemned to live paycheck to paycheck for the foreseeable future because he made a profitable trade, but ignored the tax consequences.

"I feel like I might have accidentally ruined my life because I didn't know about the taxes," he said.

While the original post was removed by Reddit for several violations in the comments thread, it's extremely likely that the anonymous Reddit user isn't alone in his predicament.

Reddit


Meanwhile, the April 15 tax deadline appears to be having a far greater impact on the crypto space.

According to Fundstart's Tom Lee, who anticipated the parabolic runup in crypto prices late last year (and still sees Bitcoin rising to an all time high in 2018) said the April 15 income-tax filing deadline could be contributing to the recent market rout in cryptos. Bitcoin has fallen more than 40% during the past month, and suffered its worst quarter in history. 

BTC

According to Lee, similar to Thoway, investors are cashing out to pay their tax bills. According to his calculations, first reported by Bloomberg, every dollar withdrawn from crypto wipes between $20 to $25 from total crypto market value.

More amazing is Lee estimate how much Americans owe the IRS due to the recent Bitcoin price surge: he said that US households had $92 billion in taxable gains from cryptocurrencies in 2017 - roughly 20% of capital-gains tax receipts to the US Treasury.

Which means that the value of crypto-related taxes should be around $25 billion.

Lee, who is hanging on to his bold price target for bitcoin to hit $25,000 by year's end, believes the selling pressure will soon pass.

"We still like Bitcoin and large-caps,” he said, adding that “while we believe the bear market for alt coins is largely over, we do not see upside for alts until mid-August.”

Comments

Coinista Thu, 04/05/2018 - 15:33 Permalink

Well then.  You are one stupid crypto trader aren't you?

This article is obviously written by a jealous, loser, no-coiner who is afraid of disruptive technology and high-order math.  Anyone who wins big at trading, then loses it all without setting aside tax payment cash, is a moron.  This has nothing to do with crypto.

BUY BITCOIN!!! Losers.

mtl4 toady Thu, 04/05/2018 - 15:41 Permalink

I can't tell you the number of millionaires I knew back in the day that had to give it all back and then some to the IRS during the dot com boom.......this plays over and over like a broken record.

In reply to by toady

nuubee toady Thu, 04/05/2018 - 15:51 Permalink

The reason he's in the hole is because he's never dealt with the IRS. You see this whole "monthly contribution" bullshit shields so many people from the reality of their tax payments, that when they find some other method of making money, they end up surprised they have to pay taxes. The system is literally geared to keep people on tax farms, so they never have to consider taxes.

The failure isn't only his, the failure is a form of globalism that attempts to make taxpaying as "painless" and "invisible" as possible to the masses. It shouldn't be. In fact there should be a constitutional amendment forcing all tax payments to be manually made, not automatically deducted.

In reply to by toady

cheeseheader TheRideNeverEnds Thu, 04/05/2018 - 23:07 Permalink

"More amazing is Lee estimate how much Americans owe the IRS due to the recent Bitcoin price surge: he said that US households had $92 billion in taxable gains from cryptocurrencies in 2017..."

~~~~~~

How can one 'know' from which country (here, USA) do households owe on taxable gains from a blockchain-type transaction? Is there not anonymity?

Yep, I'm ignorant on this.

In reply to by TheRideNeverEnds

z530 Adolph.H. Thu, 04/05/2018 - 19:40 Permalink

Because if he's in the US, he most likely used a US exchange to process the trades. That US exchange has to have a money transmitter license (as required by FinCEN), which requires them to keep track of all trades made within their system. 

There's no way for him to hide this, he's hosed but also a dumbass that should have known he would have to pay Uncle Sam something from that $120K he pocketed.

In reply to by Adolph.H.

merizobeach z530 Thu, 04/05/2018 - 23:10 Permalink

I'm clearly missing something here.  The article states: "he bought eight bitcoins for $7,200 in January 2017 then cashed them out in December for about $120,000."  So that means he invested just under $58K then made a profit of about $62K; how does that equate to a $50K tax bill?

In reply to by z530

bluecollartrader merizobeach Fri, 04/06/2018 - 03:13 Permalink

Probably when the btc gains were added to his regular annual income, it pushed him into a higher tax bracket. Further, he'd be responsible for paying FICA on the gains; another 15.3%. Self-employed folks get a credit back for half the FICA on the tax return but this guy was not declaring the btc gains as a business, so I don't believe he'd be eligible for the 50% credit... he'd be on the hook for the full 15.3% on top of the income tax.

In reply to by merizobeach

rtb61 z530 Fri, 04/06/2018 - 00:30 Permalink

Not hosed at all, all he needs is a accountant and a lawyer. With regards to capital gains, you can offset capital gains against capital losses, even gains in on year followed by losses in another. Although you could say, in failing to declare gain in the one year and gambling the IRS's money in the next year (should have paid taxes prior to gambling the money) as long as the following years losses can be substantiated, dispensation should be possible, not easy, hence the lawyer and the account but possible.

So they might adjudicate a partial penalty for gambling with IRS money, or they might not. Should the individual be unable to substantiate the losses, he is hosed and bad, such is investment life. Just saying you lost money will not cut the mustard, you have to prove you lost money and the IRS has to choose to be reasonable to allow gains from a prior year to be offset by losses in the next year, the other way round is easy, lose then win, but win then loses, requires a dispensation.

Although you can pay the tax and offset substantiated subsequent losses against future capital gains.

In reply to by z530

tmosley Davy Crockett Thu, 04/05/2018 - 16:15 Permalink

Taxation of speculative bubbles is quite the racket. They don't allow you to pull losses forward to any significant extent, but they want their cut of the gains. But the game is by nature zero sum in speculative markets, meaning on the whole, you will lose.

In reply to by Davy Crockett

Mr_Potatohead tmosley Thu, 04/05/2018 - 18:53 Permalink

Whattaya think, tmosley?  Although I got the top wrong, everything still is pretty much what I expected/predicted.  I'm sure you did well; pumpers always do.  The really good pumpers have no trouble sleeping at night after this occurs en masse.  How are you doing in that dept...  never mind....  I know the answer.

India banning bitcoin wallets...

IRS going after crypto traders...

etc...  etc...  etc...

How many of your followers' private messages are you ignoring?

Whatever the case, don't worry.  The demoralized and thoroughly sheered sheeple will soon accept their fate and be too brain-dead to pursue anything.

That's the way bubbles come and go.  But nobody could have predicted this, right?  It wasn't an argument, right?  The S curve would save us all, right?  Yadda, yadda, yadda...

I really love being financially well-off by doing something really meaningful with my time and energy.  Really makes me feel good to use my knowledge and wisdom to help people.  As far as I know, I never led anybody to financial slaughter.  Call me an oldbug, if you wish.  That's what many/most oldbugs do, and we're mighty proud about that!

 

In reply to by tmosley