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FAQ

What are the tax implications if I spend my bitcoins on directly buying things without converting into cash?
tl;dr ‡ you are taxed the same way as if you sold the bitcoin for fiat currency (e.g. USD)Disclosure: I am not a tax advisor and this is not tax advice. For tax advice, please speak with a tax professional.Bitcoin taxation rules vary from country-to-country, but in the US, the IRS states that cryptocurrency is taxed like property. That means that it doesn’t matter if you trade bitcoin for dollars or for goods/services directly. When you dispose of the bitcoin, you realized a capital gain/loss depending on the fair market value of the bitcoin at the time of the disposal. You will owe capital gains taxes on the gain/loss (the difference between the proceeds and the cost basis of the asset).You can use a tool like CoinTracker to automate these calculations for yourself (note: I work on CoinTracker).
How do I report Form 1099-B (Proceeds from real estate transactions) in personal income tax return?
A2A.Proceeds from real estate transactions are typically reported on Form 1099-S. Form 1099-B is typically used to report sales made by a broker, normally stock sales. I'm not sure why you would be getting a 1099-B for a real estate transaction, so I assume you meant 1099-S. How you report it depends on the type of property you sold.If you sold a personal-use property, you use Part II of IRS Form 8949, Sales and Other Dispositions of Capital Assets to compute the gain or loss. If this is your personal home and you qualify for the capital gains exclusion, you incorporate that on Form 8949. You then carry the information to Schedule D (Form 1040), Capital Gains and Losses. You cannot deduct a loss on the sale of a personal-use property.If you sold a property other than a personal-use property, you use IRS Form 4797, Sales of Business Property to report the sale. If you did not use the property in a trade or business but were holding it for investment, the portion of the gain that represents recapture of depreciation is reported as ordinary income, and any remaining gain is carried to Form 8949 and Schedule D and reported as capital gain. If you used the property in a trade or business, you still report depreciation recapture as ordinary income, and any remaining gain from the sale is treated as section 1231 gain. See IRS Publication 544 (2021), Sales and Other Dispositions of Assets for a full description of how to treat section 1231 gain.
How can one write-off an angel investment if the owner/entrepreneur refuses to respond to requests for a certificate dissolution (US)?
The two answers to date look solid, Adam Gering's advice to speak with the accountant, and Wray Rives  (who is an accountant) pointing to the tax code section.My understanding is that if you can justify that a company in your investment portfolio is truly worthless, you can write it off even without a complete accounting, record, or formal dissolution of the portfolio company. Many companies fail this way, without formally going through bankruptcy or wind-down, so angels and VC funds probably have standard procedures to deal with it. As long as you file the right forms and the company stays dead, you should be okay. If the company comes back from the dead and actually returns on the investment, you would have a more difficult time justifying why you wrote it off in the interim. Please don't take this as a technical or correct answer from a tax perspective, just my general understanding of how the system works.
If I sell a rental property for less than I paid, does the IRS count it as a capital loss on my personal taxes?
If you calculate a loss on the sale of your rental property, the loss (calculated on Form 4797) is an ORDINARY LOSS and not a capital loss.Capital losses can only offset capital gains (except for the allowable annual $3,000 deduction).Ordinary losses can offset all forms of positive income and can even generate a net operating loss.Please find an accountant who knows how to calculate the gain/loss on the disposition of the property INCLUDING deducting any suspended losses on rental property that were previously not deductible due to higher levels of income under IRC 469 (under passive activity rules).
My car was totaled. The insurance paid me the amount. Is this amount taxable in the USA?
Tyler Hitchcock is right in that a total loss settlement on a totaled vehicle for the average tax paying American is generally not taxable.In the US, where this can get tricky is if you are writing off the use of the vehicle for business purposes.The IRS Publication 4345 (Rev 12–2016) on Settlements Taxability states:Loss-in-value of propertyProperty settlements for loss in value of property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement.If the property settlement exceeds your adjusted basis in the property, the excess is income. For more information, see the Instructions for Schedule D, (Form 1040) Capital Gains and Losses and the Instructions for Form 4797, Sales of Business PropertySee that IRS document here: https://www.irs.gov/pub/irs-pdf/...
Are cryptocurrencies like Bitcoin taxed? If so, how?
It’s actually rather simple. In the USA, the IRS has issued guidance that cryptocurrency is treated as an asset—just like the stocks in your brokerage account. (This treatment is for tax purposes only).*IRS Virtual Currency GuidanceFull Draft Notice, 2014–21I am an expert on Bitcoin and the evolution of cryptocurrencies, but I am not an accountant or tax adviser and I have not carefully read these guidelines. But, as a taxpayer, I can comment on the treatment of asset sales. What follows is a layperson explanation of asset treatment and it should not be misconstrued as expert advice…AcquisitionLike shares in a corporation, you typically don’t report anything at the time of acquisition (this assumes that you acquired the asset for investment purposes and not as compensation for work performed or in exzchange for something that you sold). Of coures, you should retain clear records and receipts.LiquidationYou must report the capital gain upon selling virtual currency or converting it into something else of value.In Kind Exchange (Wash transactions)But just like a Picasso painting or stock in an aerospace company, if you convert it into a substantially similar asset (or buy a substantially similar asset a short time after the sale), then you are generally not required (or allowed) to record your gain. Instead, you may be required to treat as a “wash sale”. This means that the gains can be reported another day.I suspect that converting between like values of a virtual currencies constitutes a wash. Check with your accountant or tax advisor, of course![2021 UPDATE]: The 2021 Trump tax reform explicitly eliminates the wash sale exemption s for cryptocurrency. Even a direct conversion between two currencies (e.g. Bitcoin and Bitcoin Cash) results in a taxable / reportable event on personal tax filings.* Operating an Exchange or any Money Handling BusinessTreatment as an asset is for the purpose of tax reporting only! If you exchange or hold virtual currency on behalf of other individuals or organizations—or simply offer a Bitcoin ATM to a store or bus station, FinCEN guidelines make it very clear that you are a Money Service Business (MSB), a qualified custodian, or perhaps even a currency exchange. That really changes the game. You must now comply with regulations, training and oversight. Operating an MSB entails:Business permits/licensing (both Fed & State)Training and licensing of your staff (possibly even as brokers)Report and meet cash reserve requirementsCompliance with anti-money laundering regulations (AML)Compliance with Know your Customer regulations (KYC)Compliance with the Racketeer Influenced and Corrupt Organizations Act (RICO)In some communities, you may even need to meet requirements related to your hours of operation, or you may need to offer a notary service to your community.…and, perhaps, a dozen other hurdles. Effectively, if you exchange currencies or handle money for others, you must become a bank to be legal.Ellery Davies is a frequent contributor to Quora. He is also co-chair of Cryptocurrency Standards Association and editor at A Wild Duck.
In the USA, if A "sells" 1,000 British pounds to B for 150,000 yen, how is this taxed? Are both sides subject to sales tax since B also "sells" 150,000 yen to A for 1,000 pounds? What if it were dollars instead of pounds?
By default, profit or loss realized in this transaction is taxed by the IRS as ordinary gain or loss under 26 U.S.Code §988. You calculate the market value (in USD) of 150,000 yen at the moment of sale, subtract the market value of 1,000 British pounds at the moment you acquired them, and report the difference, which is taxed as if it were part of your salary. I think it goes on Form 4797 if you make a living as a trader and/or trade through a business, and on Form 8949 otherwise.If this involves the exchange of actual paper currency rather than just numbers in a computer, things get more complicated. Normally, sales of “tangible personal property” are subject to sales tax. Though you’d think that paper pounds and yens are both tangible, personal, and property, apparently, in many (possibly all) states, cash (including foreign currency) is not considered “tangible personal property” as long as it is not worth more than its face value. As such, it is not subject to sales tax. The logic is that, while the paper itself is tangible, the value it holds is ephemeral.However, if some of the bank notes you’re buying or selling have numismatic value (are worth more than their face value), or you are buying e.g. gold coins (which usually have some nominal amount stamped on them but are actually worth way more), that’s a completely different story, and the seller of such a bank note may or may not be required to collect sales tax from the buyer, depending on the state. Some states exempt purchases of currency for investment purposes and others do not.
What are the needed forms to be filled out for paying tax on capital gains as a US citizen?
If you have Shares in Common Stock:Schedule D- Summary Of Capital Gains Flowing from Forms 8949 (6x8949)Forms 8949 - Discloses all Capital Gains Transactions which you will include from the for 1099-B and Realized Gain and Loss Statements sent to you by February 1st containing all your Capital Transaction. They require denoting whether the cost basis was reported to the IRS, The Sales Price was reported to the IRS, or whether were reported to the IRS, and there are Short Term and Long Term forms 8949 as well)Schedule D compiles the information also found on form 4797 if you have a Home business and have sold Section 1231 Assets, 1245 Assets and 1251 Assets)Form 8694 which is used to calculate if you are above the threshold for filing Net Investment Income (Obamacare tax).Schedule D also compiles Capital Gains flowing from Schedule K-1 Lines 8, 9A, 9B, &9C, plus Box 10 if you have partnership
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