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Student Has $400K Tax Debt from $5K Crypto Investment

An American university student reached a tax liability of around $400,000 from investing in cryptos. On 2 November, the Reddit user posted a message saying he was stuck in a tricky spot with taxes.


 

Taxed Trading

The user explained that he first started investing in cryptos early last year. Within just a few months, his primary investment amount of $5,000 turned into $880,000 as the year ended. However, he didn’t time the market correctly and didn’t cash out except when it was a little too late. He also didn’t take into consideration implicated taxes from all the transactions from a crypto to another done throughout the whole year.    

He mentioned that most of his trading activities were done using Coinbase, a crypto exchange platform located in the US. His tax debt has reached a total amount of around $400,000. He stated that since the market has been on a downward spiral since 2018 started, his portfolio now is just $125,000. He said that he entered more than one bad ICO at the beginning of the year and put money into some coins that fell hard and will not recover anytime soon.  

Other users on Reddit urged him to seek help from certified tax professionals or accountants because he will have to pay his debt in full as any losses are not taken into account. Taxes are actually calculated by the IRS as per each year by itself, so any losses that he faced this year will not alter any of the debt owed. He is even liable to a much higher rate of taxes because he earned his profits in a very short time, which means his investments are seen as short-term capital returns.  

His options are limited. Trading in cryptos to cryptos is seen as a taxable event. He has to go to the IRS and ask for a tax return to prevent any more taxes and either figure out a way to pay the debt or reach a deal with the IRS.

He shared on the post that he was handed a 1099-K form for all his trading activities last year. It mentioned that he made 1,563 transactions, with a total value of $592,700.

Introducing Taxes to Crypto Platforms

Taxes first came to be implemented on crypto exchange platforms at the end of 2016, when the IRS announced that the organizations haven’t been following the regulations. They claimed that taxpayers in the United States weren’t complying with laws of internal revenue as they are required to report any taxable income they gain from digital currency transactions.

Coinbase, one of the biggest exchanges in the US, was forced to provide all personal data of its customers who made any crypto trades that were more than $20,000 between the year 2013 and 2015. Moving forward the exchange started issuing to all its customers all necessary information regarding taxes.

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