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"I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos. Am I fucked?"


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2018 Mar 15, 10:00am   4,746 views  16 comments

by RWSGFY   ➕follow (4)   💰tip   ignore  

"I make $47k a year at my job as an office assistant.

At the advice of my friends, I took most of my savings and bought 8 bitcoins back in early 2017 for about $7200. You can imagine how I felt when it went up. Around December 2017, I got caught up in the altcoins frenzy and sold most of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn't know this back then but it looks like I owe income taxes on those trades, which adds up to about $50k if I add up state (California) and federal. But with the crash that happened recently, I added up my altcoins and I only have like $30k worth. I only have about $5k in other savings.

How do I pay this? Do I have to sell my altcoins, and give them what I can? Or is there some workaround?

Is all my savings gone now? I feel like I might have accidentally ruined my life because I didn't know about the taxes..."



https://www.reddit.com/r/personalfinance/comments/84huks/i_just_discovered_that_i_owe_the_irs_50k_that_i/

Comments 1 - 16 of 16        Search these comments

1   SFace   2018 Mar 15, 10:07am  

You are screwed.

The bitcoin gains are realized.

Your altcoin loss realized or unrealized cannot offset your gains.

Bad planning for doing this transaction in dec.
2   HeadSet   2018 Mar 15, 10:47am  

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

No, you "ruined you life" by squandering your $120k windfall. Like every other individual that buys low and sells high, you need to prepay the capital gains tax (ala 1040-ES) at the time of the sale, or at least before the next 1040 ES due date.. And since in this case you did not pay the 1040 ES by Jan 15, you likely will have a penalty added. Next time you make such a large speculative gain, I am sure you will set aside some of the profits for taxes before spending the rest on the next speculation

Actually, you life is not "ruined," you just now have the challenge of recovering financially from a self inflicted fiscal wound.
3   NuttBoxer   2018 Mar 15, 11:10am  

Are they really going to report this?
4   HeadSet   2018 Mar 15, 11:12am  

I added up my altcoins and I only have like $30k worth. I only have about $5k in other savings.

If you want to play this game in the future, try doing it in a IRA, In this case, your $7200 initial investment would still be worth $30k, and no taxes due. If you do not need the money until retirement, you can do all kinds of sell/buys without tripping any taxes. You will just pay taxes at the going rate when you retire, and then just on what you take out. Maybe even better with a Roth IRA. Example, if you have an IRA with $10k worth of stocks in it, sell $7200 and buy the coins with it. Or set up a new IRA, but you will be limited to $5500 unless you are over 50.
5   HeadSet   2018 Mar 15, 11:14am  

APOCALYPSEFUCKisShostikovitch says
What does boobs on Putin supposed to represent?


"Mother" Russia?
6   Ceffer   2018 Mar 15, 11:22am  

Another Bitcoin Braggart bites the dust!
7   zzyzzx   2018 Mar 15, 12:25pm  

Satoshi_Nakamoto says
I didn't know this back then but it looks like I owe income taxes on those trades, which adds up to about $50k if I add up state (California) and federal. But with the crash that happened recently, I added up my altcoins and I only have like $30k worth. I only have about $5k in other savings.


8   zzyzzx   2018 Mar 15, 12:35pm  

Satoshi_Nakamoto says
I make $47k a year at my job as an office assistant......I took most of my savings


Then they failed investing 101 if they are making that kind of money and took most of their savings and invested it in one thing.
9   Patrick   2018 Mar 15, 12:38pm  

This kind of thing also happens to tech workers in SF and Silicon Valley. There are several ways you can owe more tax than the money you ever actually received. Here's one:

* Worker gets options to buy company stock at $1/share, hangs out long enough to vest.
* Company hits it big, stock goes to $100/share.
* Worker exercises option, buys stock at $1/share, giving him ownership of shares valued at $100/share, and a big tax bill.
* Worker prevented from selling for 6 months by "employee lock up period".
* Stock falls back to $1/share before the 6 months are over.
* Worker owes tax on $99/share gain, but never was able to actually get the $99.

I think that's the difference between "incentive options" and "non-qualified options". The incentive options are not taxable upon exercise, only upon sale of the stock. Or something like that. IANATL
10   lostand confused   2018 Mar 15, 2:00pm  

RSUs are better. You get them, taxed at source/vesting then you pay any tax only when you sell at higher price.if you sell at or lower price,free from dreaded taxes.

Another option for hight tech people, I guess would be move to NV for ayear, then vest and sell all your stocks-you won't pay CA state taxes-I think it is upto 13% for long term gains?

Then move back.
11   NuttBoxer   2018 Mar 19, 11:28am  

lostand confused says
RSUs are better.


Strongly disagree. I had RSU's at a company where the stock was in the $100-$150 range. The day it vested was a low point, and I had to sell $20 lower than I sold the rest for. At 100 shares I lost $2,000.
12   RWSGFY   2018 Mar 19, 12:11pm  

ThreeBays says
use the $90k loss this year to claim capital losses for the next 20 years.


Comforting.
13   zzyzzx   2018 Mar 19, 12:38pm  

Patrick says
* Worker gets options to buy company stock at $1/share, hangs out long enough to vest.
* Company hits it big, stock goes to $100/share.
* Worker exercises option, buys stock at $1/share, giving him ownership of shares valued at $100/share, and a big tax bill.
* Worker prevented from selling for 6 months by "employee lock up period".
* Stock falls back to $1/share before the 6 months are over.
* Worker owes tax on $99/share gain, but never was able to actually get the $99.


OK, so the real problem is that the individual didn't hedge their options with a corresponding amount of other options in their personal account to offset the loss if the stock took a dump, right? I'm sure that there is a term for that, but I don't know it off hand.
14   SunnyvaleCA   2018 Mar 19, 3:56pm  

Patrick says
>I think that's the difference between "incentive options" and "non-qualified options". The incentive options are not taxable upon exercise, only upon sale of the stock. Or something like that. IANATL>


IANATL either, but (unfortunately) have some experience in this. The "ISOs" (incentive stock options, such as from a pre-IPO company) aren't taxed at exercise BUT the difference between current market value at exercise and the strike price is part of the dreaded AMT (alternate minimum tax). When you do go to sell, however, you'll get a credit for that excess AMT that you paid in previous year. This happened to me and I figured I was paying about $5/share in AMT taxes for a stock that, at the time, was worth about $3; fortunately, I had the spare cash so my real loss was the time/effort/hassle factor.

Here's a summary that I make no representation as to being accurate...
http://www.startuplawblog.com/2013/05/15/incentive-stock-options-vs-nonqualified-stock-options/
15   bob2356   2018 Mar 19, 10:48pm  

HeadSet says
If you want to play this game in the future, try doing it in a IRA, In this case, your $7200 initial investment would still be worth $30k, and no taxes due. If you do not need the money until retirement, you can do all kinds of sell/buys without tripping any taxes. You will just pay taxes at the going rate when you retire, and then just on what you take out. Maybe even better with a Roth IRA. Example, if you have an IRA with $10k worth of stocks in it, sell $7200 and buy the coins with it. Or set up a new IRA, but you will be limited to $5500 unless you are over 50.


You would need to roll your IRA into a self directed IRA to buy bitcoins. You can do all kinds of sell/buys but there are also very strict rules that if you violate them the IRS can declare your entire IRA as not tax deferred. with huge financial implications.
16   bob2356   2018 Mar 19, 11:05pm  

Satoshi_Nakamoto says
"I make $47k a year at my job as an office assistant.

At the advice of my friends, I took most of my savings and bought 8 bitcoins back in early 2017 for about $7200. You can imagine how I felt when it went up. Around December 2017, I got caught up in the altcoins frenzy and sold most of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn't know this back then but it looks like I owe income taxes on those trades, which adds up to about $50k if I add up state (California) and federal. But with the crash that happened recently, I added up my altcoins and I only have like $30k worth. I only have about $5k in other savings.


This doesn't add up. At 47k a year you are in the 25% tax bracket. and 8% CA. I can't make 33% of 122k come out to 50k. That's before deductions and taking a credit for CA taxes against federal. What altcoins are down 75% since dec?

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