Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
bitcoin tax question
Old 04-15-2021, 06:15 PM   #1
Recycles dryer sheets
 
Join Date: Apr 2007
Posts: 340
bitcoin tax question

I am still educating myself about the crypto asset class and have gotten to the point of wondering about paying taxes. I tried to search things out but did not get any clear understanding of one topic.

The topic is how the so-called gas or miner fee from transferring to and from a private wallet affects the tax calculation and reporting.

I found a list of events that trigger or do not trigger a taxable event. It said that paying for a good or service using BTC was a taxable event. It said that moving BTC from one wallet to another was not a taxable event.

It all seems straightforward until you try to decide if the money you pay to entice miners to put your transaction on the blockchain is paying for a service or not.

At this point, I am thinking that the miner fee is similar to the fee you pay when purchasing the BTC, i.e. a brokerage-type fee.

Here is an example. Note that the numbers are not realistic.

You buy 1 BTC for $100 and pay a $1 fee to Coinbase.

You now have 1 BTC with a basis of $101.

You transfer your 0.9 BTC to your hardware wallet and Coinbase adds a 0.1 BTC miner fee to the transaction. Assume the value of 1 BTC is still $100.

Your Coinbase wallet is empty. Your hardware wallet now has 0.9 BTC.

Ignoring the second miner fee for sending the BTC back to Coinbase, let's say you send it up and sell it.

You are now selling 0.9 BTC.

Is the primary basis still $101?

Is the basis now $90.90 with the 0.1 BTC fee having a basis of $10.10? If so, it would seem that you would report the miner fee as a taxable event.

If not, does the miner fee that was paid get added to the basis (at the market price at the time of the send)?

I am sorry if I am getting a little confusing here, but I hope you can see what is confusing me.

It seems that it would have been a lot easier if Coinbase were to calculate the miner fee in USD and subtract it from the USD part of your account. In that case, it would seem to be as simple as still having 1 BTC and increasing the basis by the USD value of the miner fee (paid from your other funds).

Thanks in advance for any thoughts.

Joe
joesxm3 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-15-2021, 06:56 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 2,604
The transferring between wallets does not create a taxable event, however the transaction, or as you say miner fees are considered investment expense and are not deductible and not eligible to add to the basis. Your basis is still $100. Some people claim the fee paid to purchase bitcoin, the original $1 fee is eligible to be added to the basis as a commission is on stock purchases. But the fees for transfering between wallets are not deductible and the transfers are not a taxable event.

You at the end have 0.9 BTC with a basis of $100 or $101 depending on the stance you take and Coinbase will give you a reporting basis on that and I'd go by what they would say.
__________________
ERD 50 says I should post this as a warning in believing anything I would post. I allocated one percent of my portfolio to calls for 2020 and then sold all my stocks on March 5, 2020. Returned back in on June 3, 2020.

https://www.early-retirement.org/forums/f44/why-i-believe-we-are-about-to-embark-on-a-historic-bull-market-run-101268.html
Running_Man is offline   Reply With Quote
bitcoin tax question
Old 04-15-2021, 07:02 PM   #3
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,190
bitcoin tax question

Itís my understanding that Coinbase and other exchanges will send 1099s for gains/losses and interest. Other fees involved with trades should be deductible as investment expenses. Fees for purchases or transfer of funds I wouldnít think would be deductible, just as fees for wiring money to credit card fees arenít deductible unless itís for a business.
Dash man is offline   Reply With Quote
Old 04-15-2021, 07:25 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 2,604
Quote:
Originally Posted by Dash man View Post
Itís my understanding that Coinbase and other exchanges will send 1099s for gains/losses and interest. Other fees involved with trades should be deductible as investment expenses. Fees for purchases or transfer of funds I wouldnít think would be deductible, just as fees for wiring money to credit card fees arenít deductible unless itís for a business.
Investment fees are only deductible subject to a 2% floor of AGI, so with a 100K income the first 2K of fees are none deductible.
__________________
ERD 50 says I should post this as a warning in believing anything I would post. I allocated one percent of my portfolio to calls for 2020 and then sold all my stocks on March 5, 2020. Returned back in on June 3, 2020.

https://www.early-retirement.org/forums/f44/why-i-believe-we-are-about-to-embark-on-a-historic-bull-market-run-101268.html
Running_Man is offline   Reply With Quote
Old 04-15-2021, 07:25 PM   #5
Recycles dryer sheets
 
Join Date: Apr 2007
Posts: 340
Thanks. That clears things up a bit.

After writing the post, I realized that I had a slight error in my example.

The more realistic example would be that you have 2 BTC in your account and transfer 1 BTC to the wallet. The miner fee would be subtracted from your Coinbase wallet and not from the amount being transferred to the private wallet.

So after the transaction you would have 0.9 BTC in your Coinbase wallet and 1 BTC in your private wallet.

Looking at it like that is more in line with the way you explained it. The BTC subtracted from the Coinbase wallet is just a cost of doing business and not taxable or basis.

I suppose the way one would handle this in real life would be to have a little extra in each wallet to use to pay miner fees and just never let that little bit get to the point where it is involved in a taxable event.

Fixing the mistake in my example where the 1 BTC changed to 0.9 BTC sending to the wallet keeps things in order, so the 1 BTC with the $101 basis just moves and the miner fees are paid out of a "separate sub account". If I sell the 1 BTC, the capital gain reporting is just like a normal stock transaction.

Thanks again. I will be able to sleep tonight without thinking about this.
joesxm3 is offline   Reply With Quote
Old 04-15-2021, 07:41 PM   #6
Thinks s/he gets paid by the post
Onward's Avatar
 
Join Date: Jul 2009
Posts: 1,934
From 2018-2025 investment fees are not deductible at all on your federal tax return.
__________________
And if I claim to be a wise man, it surely means that I don't know.
Onward is offline   Reply With Quote
Old 04-15-2021, 07:48 PM   #7
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,190
Quote:
Originally Posted by Onward View Post
From 2018-2025 investment fees are not deductible at all on your federal tax return.

Well, the bright side is taxes will be easier to calculate!
Dash man is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Bitcoin Update imoldernu FIRE and Money 39 01-16-2015 10:34 AM
bitcoin: fact or fiction frank Other topics 8 12-21-2013 01:50 PM
Bitcoin going up gcgang Other topics 16 12-19-2013 10:08 AM
Aug 17 Bitcoin = $108.25 imoldernu FIRE and Money 10 11-02-2013 10:17 AM

» Quick Links

 
All times are GMT -6. The time now is 09:55 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.