I failed to report crypto taxes in the years of 2017, 2018, and 2019. I'm sure by this point bitcoin and cryptocurrency is not new term to the layperson. However, I don't think the layperson has yet to realize what a potential nightmare scenario is lying ahead of crypto coins. Many are still stuck with the mindset of "must buy doge coin FOMO". I would consider myself an arrogant fool who only just recently has a better understanding of the nightmare in wait because I just started learning about tax information I previously chose to ignore out of arrogance and ignorance.
I started to buy large amounts of bitcoin in 2017. After I lost my job, I put all of my life savings into things like ETH, BTC, BCH, LTC, etc. I probably spent around 190k easily in 2017 alone. I thought it was world changing stuff that could really improve the world for the better, while ignoring my own selfish desires of getting rich quick..
I would just sell short positions of things like ETH for large amounts fairly often. I just started looking at my coinbase CSV tax return files and see transactions for Sold 429 ETH for $100,000.00 USD. In total I have about 1000+ transactions that I probably did not report some notable, some not. These transactions are across multiple exchanges of course because you can't get you preferred coin on just coinbase alone... Some of these exchanges like Kraken are proving to be very difficult for me to get a log of what my transactions were. And of course, I didn't do any record keeping myself, I thought it was the wild west.
I didn't set aside any money for capital gains as I did not have a basic understanding of tax implications because I thought it was a new fangled exception to the law on top of my own plain arrogance and ignorance. I thought that since there were so many people talking about Bitcoin and cryptos it would be marginally safe, and I also didn't fully understand short term and long term capital gains/losses. After all, crypto currency investors promise innovation thru libertarian ideals, anarchy, digital innovation, smart contracts, lightning, automated record keeping, the list goes on. It all sounds like promising stuff... until you realize it's tax time on the years sold.
I thought capital gains would only apply if you cashed out into fiat. I also thought that trading crypto for crypto/tether/whatever would be considered a like-kind exchange although maybe this would hold true pre 2018 since the IRS had not officially declared crypto as like-king exchanges till then? I probably have to assume the worst and think I can't fight the IRS on this.
I made so many trades that I can't even tell you how much I've gained or lost but I've just been assuming the worst because my mind can't help it and say that I probably owe ballpark 2million usd in unreported capital gains (I hope I'm just going way overboard). I plan on paying for a quality CPA now to go thru all my transactions and adding them to something like Bitcoin.tax to get a better damage report. I didn't even realize capital losses are only $3k per year at most, I thought the gains/losses would offset each other more but all I can do is shoot myself in the foot for not being worried about all this sooner.
Please give me a round of applause because I am now officially 100% panicked that I will be filling for bankruptcy soon after I talk to a CPA which I have yet to find. I planned to finally convert some of my winnings into fiat ($180k usd) and potentially have to cash out the remaining crypto holdings I have ($160k in bsv).
When I first started trading crypto, I thought I was sophisticated and that I was smarter than the average person because I understood compound interest and was able to live below my means in order to save myself hundreds of thousands of dollars and then amplify that with crypto trading to get myself a ticket to the millionaire boys club. I thought crypto would be this cool thing to work on since I am a software developer by profession so I should learn more about it and if I ended up winning it big with my trades, I could retire early and spend more time understanding how to create cool software and such on top of bitcoin. The reality has officially set and those thoughts are now just fairy tales as I may now be fighting with becoming potentially bankrupt. It's hard to say for sure because I have so many unknown answers to questions in my mind, like how much unreported capital gains accrues interest and penalties.
I'm going to save my personal questions for a CPA I find that is competent and willing enough to take my case. Feel free to comment as you wish but I've already read thru other crypto horror stories: https://www.reddit.com/r/tax/comments/9tcnu8/did_i_ruin_my_life_by_trading_crypto/?utm_source=share&utm_medium=web2x&context=3
My question for you all is how have these giant ponzi schemes ended in the past? Things like Bernie Madoff's scheme and Liberty reserve, what happened to the winners who cashed out ahead of the crash? I feel like I still have time because crypto reality hasn't completely set into the average person yet so perhaps there is still some kind of hope that the IRS will call this one big ponzi and let the chips fall where they have once all is said and done.. I am probably just hoping that I can somehow tell myself that I'm not a tax evader but rather a lay person who was duped just like the other 56 million active coinbase users but with my luck I'll just be a tax evader in the IRS' eyes?
It's hard to say this with words but last week I legitimately thought I would be good to walk away ahead in crypto and that I was most likely within the law and would maybe have to pay some small fees in unreported capital gains. Yesterday and today after reading more into what my penalties will be I will am afraid of bankruptcy. I thought I was a compounding genius but turns out I'm a compounding fool. I wish I never got involved with crypto. I hear coinbase has thousands of users who have unreported taxes and lots of people seem to be buying on binance and such probably doing many trades. Hopefully not many are as insane as I am to put a large life savings into it and do short term trades without realizing those are all taxable events. I can't wish the feelings I've had lately on any other person, I just hope this crypto nightmare ends.
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