Cryptos Gains are Taxable, and Uncle Sam Demands His Cut

Happy Monday!  I hope you had a great weekend.

I know the Rude is more about macro and gold than anything else, but I think it’s safe to say that cryptos are a big part of the macro picture.  As such, this is a significant development, especially if you happen to have been a HODLer and then sold.

Both the WSJ and Zero Hedge Warn Against IRS Crackdown on Crypto

I’m someone who scours both the lamestream and alternative media most days. So when The Wall Street Journal and Zero Hedge have the same story featured prominently on their front pages, I pay special attention.

Unsurprisingly, the IRS wants their cut.  Of what, you ask?  Well, the outstanding cryptocurrency and other digital gains you or your younger, hipper friends probably experienced over the last few years.

I’ve been crystal clear about how much I hate tax, but capital gains tax is a special kind of stupid.  It’s almost as if the government is saying, “Thanks to the looseness of our monetary policy blowing up your asset’s price, we deserve some wedge for our trouble.”

Capital gains tax (CGT) is particularly insidious because it discourages investments and disincentivizes entrepreneurs.

A little trivia to start off your Monday morning:

What year did Japan start to tax interest and capital gains?

That’s right: 1989.

Nikkei

You may ask, “Why would anyone want to do that?”

In this case, I think there’s a clear incentive.  Governments surely want to destroy crypto.  After all, all’s fair in love and war.  Bitcoin was designed to destroy fiat currencies.

Remember this?

The Times

The hidden message in the genesis block was “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

It was a clarion call to the world to wrest control of the money supply from the world’s governments.

Rothschild

Whether or not Rothschild actually said this – and there are some pretty intense debates about that – whoever controls the money supply indeed controls a country.

One has to look no further than the subsector of financial journalism known as “Fed watching” to confirm this.

Of course, The State wants to maintain control over the country and economy.  It wants to quietly take from its productive citizens and give to its unproductive citizens flamboyantly, to paraphrase Thomas Sowell.  After all, it’s a great way to get votes in a democracy.

So it makes sense that the U.S. Government sent its attack dog, the IRS, to confiscate a good portion of the crypto gains.  They can make some cash and purposely knockout crypto the same way the Japanese government inadvertently knocked out its own stock market.

Some Warnings First:

First, it’s important to note I cannot give you personal financial advice.  So any ideas you get from my writing must be vetted with your personal financial advisor before you do anything.  Clearly, I don’t know your unique financial situation, so it’d be remiss of me to give you advice anyway.

Second, as much as I hate taxes, we must pay them.  Not because it’s the “right thing to do.” It’s because it’s simply too easy for the U.S. government to get information on you if you try to dodge tax.

Incidentally, one of my favorite European sayings is this:

Germans pay income tax out of civic duty.  Italians don’t, and for the same reason.

Third, tax avoidance is not tax evasion.  Tax avoidance is legal; tax evasion is not.  Quite frankly, there are so many legal ways to avoid tax. It’s just plain lazy to evade tax.

Consult an accountant.  Minimize your taxes as best you can.  It’s none of your hippie/leftist/Democrat friends’ business what you do with your money.  When you shuffle off your mortal coil, either your children are going to get your wealth, or some stranger’s kids will.  Accountants cost a bit upfront but pay for themselves over time.  And they’ll help make sure your money is put to its best use.

Now, here’s how tax and crypto relate to each other.

Virtual Currencies are Property, Not Currency

In 2014, the IRS declared cryptocurrencies are property and are taxed as such.  They’re not currencies like dollars or euros – and they certainly don’t depreciate as much.

This declaration is crucial because it puts cryptos directly in the sights of the IRS.  Ignorantia juris non excusat.  (Ignorance of the law excuses no one.)

Very quickly, courtesy of The Journal:

    • If you own your crypto for longer than a year, you get taxed at the long-term capital gains tax rate.
    • If you own it for less than a year, you pay the ordinary income tax rate on it.
    • Capital losses on crypto investments can offset taxable capital gains on other assets as well as crypto, plus up to $3,000 of ordinary income such as wages a year. Unused losses carry forward to future years.
    • If you’re paid in crypto, you need to pay income or self-employment tax on it.
    • If the IRS thinks you’ve understated your income by 25%, they have 6 years to review it, not the usual 3 years.

Even if you’re a US ex-pat who hasn’t renounced your citizenship (yet), you may need to declare your crypto on your FBARs if you have more than $10,000 worth (currently about ⅕ of a Bitcoin).

The declaration requirement didn’t come from the IRS, incidentally, but from the Financial Crimes Enforcement Network, a separate unit of the Treasury.  It’s not law yet, thankfully, but keep a weather eye out for any changes.

Why am I telling you all this?  Isn’t crypto anonymous?

No.  No, it isn’t.

The IRS launched two new investigations to catch crypto “tax cheats” targeting two different exchanges recently.

In April, a judge in Boston approved an IRS summons to the payments company Circle and its affiliates, including the crypto exchange Poloniex.

In May, a San Francisco judge approved a similar summons for records from Kraken, another exchange based in California.

Both summonses apply to customers who have traded more than $20K in crypto in any single year between 2016 and 2020.

In 2016, the IRS received approval for a similar summons for Coinbase – of recent IPO fame –  and obtained information for about 13,000 customers.

If these exchanges cannot protect your privacy because Joe Biden is coming for your crypto wealth, then there’s nowhere to hide.

I know you can do so much more – and better – with your money.  Just like the Italians I mentioned earlier.  But this is the state of America right now.

If you want to feel better about other governments pissing their taxpayers’ money up a wall, let’s travel to Old Blighty for the latest taxpayer-funded disaster.

London Voters are Dumber Than Their Mayor

No matter how bad America gets, my friend, just look across The Pond and thank God.

Thank God for 1776, the 2nd Amendment, and decent weather.

But most of all, thank God for putting a 3,500-mile-wide ocean between you and the idiots who just re-elected Sadiq Khan as Mayor of London.

(If you still insist on living in a blue state, that’s entirely your fault.  You’ve had plenty of warning.)

Under Khan, London’s knife crime and acid-throwing Olympics have reached new peaks (or troughs, if you have to suffer through it).

According to the Ben Kinsella Trust, “only” 11,459 knife offenses were recorded in 2020, down from 14,586 in 2019.  That means knife crime only decreased 21% in a lockdown year.

Acid attacks have surged in the United Kingdom in recent years, with 15 acid attacks per week between 2015 and 2018.  75% of those occurred in London.  Attacks came down for 2019, but I couldn’t find any finalized data for 2020.  It’s important to note that Khan was elected for his first term in 2016.

But with the lax crime prevention and the draconian lockdown, what does Khan think London needs?

A paint job.

With no hint of irony, Mayor Khan ushered in his second term with this Facebook post:

Hockney

David Hockney, an 83-year-old British Pop Art painter no one outside of the UK has ever heard of, must have channeled his inner Picasso:

“It took me four years to paint like Raphael, but a lifetime to paint like a child.” – Picasso.

Hockney’s office is in Los Angeles, so the starving artists living in London were quite hurt they weren’t asked to fingerpaint for the city. 

Hockney drew this “masterpiece” on his iPad.

I know, you’re thinking, “I could’ve done better.”  

These angry Londoners agree:

Paddington

King's Cross

Lester Square

But I think Luke Benson must’ve tapped into the actual phone call, reminding Hockney his work was due.

Luke Benson Twitter

No contrition.

No “I’m sorry I pissed your hard-earned money up a wall.”

No “David, this sucks an inordinate amount of ****.  Can you please trash this entire shambles and start over?”

Just good old CYA.  And why not?  He just got re-elected.

Ahh, a good time was had by all.  And it only cost GBP 7,000,000 or nearly $10,000,000.  Rumor has it Mayor DiBlasio is on the phone to Hockney right now.

With that, I leave you to your Monday.

Have a great week ahead!

All the best,

— Sean

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