KTT Global Advisors

SH*T!!! – I Owe a Lot of Taxes from my Crypto Trades in 2017…but I Don’t Have the Cash!

So you bought into crypto in 2017.  What a great move!  Prices took off, your portfolio quadrupled; you were even considering setting up a crypto hedge fund and taking investments from friends and family (please don’t do this).  You even took some of your appreciated ETH and went in on some hot ICOs, which “mooned” as soon as the tokens began trading.  Investment genious, right?


Thankfully you had the foresight to convert some of your gains into fiat, so you would have money for taxes.  After all, while your portfolio will never decrease, it’s smart to have cash set aside to pay the tax man.  Wait, did you say that slipped your mind?  Read on.

Background: crypto-crypto trades are taxable events.  That is my position, but it is a position that is also consensus among most tax professionals I have spoken with.  Section 1031 like-kind exchange rules do not apply.  Plus, starting in 2018 there is no gray area – Sec 1031 exchanges are only open to real property (land and buildings).As of early February 2018, the total crypto market capitalization, according to CoinMarketCap, is down 60% off its December high.  So if you made $100 on a trade in December when the market was at its high, and held, your holding is now worth $40.  But, you owe (roughly) 30% in taxes, so you have a $30 tax bill, and $40 to pay it with.  Not too palatable.  But doable.  However, if you had taken $30 in gains to pay taxes, you would have been left now with a $28 position ($70 * (100%-60%)), plus the $30 set aside for taxes.  That’s better.

But what if that trade in December was into BitConnect?  DavorCoin?Then we may have a situation similar to the early 2000s, when some workers in the high-flying tech world exercised incentive stock options, only to have the price of the purchased stock crater.  This left them them stuck with a huge tax bill and nothing to cover it – tax was based on the difference between price at exercise and what the worker paid to exercise the option.  See more:http://www.chicagotribune.com/sns-tech-taxes-story.html

It’s time for Plan B.

Start by taking “stock” of your situation.  Did you realize any losses on other trades that you can use to offset the gains?  This applies not just to crypto, but stock trades as well.  Gains and losses can offset.  Do you have any carryforward losses from prior years?  What does your overall income picture look like w.r.t. all sources of income?

No luck?  OK, you’re screwed.  Just kidding.  You’ve got a large tax bill and nothing/not much to pay it with.  First of all, don’t try to duck the situation; the worst thing you can do is NOT file.  The IRS will find you, and you will owe interest and penalties.  Second, even if you file for an extension (Form 4868) you still have to pay estimated tax by the April 17 filing date.  Third, is the good news: ways you can delay or spread out payments.

– Payment Plan.  Depending on how much you owe, you can apply to the IRS for a payment plan.  Generally anyone owing less than $10K can get a payment plan, with further requirements for amounts up to $50K.  Even amounts more than $50K can qualify.  Payment terms vary. Fees apply.  Interest will still accrue.  Go to https://www.irs.gov/payments/online-payment-agreement-application for more info, or consult your tax advisor.

– Payment Delay. If you are really in deep doo-doo, you can ask the IRS for a delay in your time to pay.  To request this, you need to talk to a real person: 1-800-829-1040.  You will likely have to file a version of Form 433, in which  you provide information to the IRS on your financial position.

– Use a Credit Card.  Yes, you can pay your taxes with a credit card, even though pretty much everyone will tell you it’s a bad idea.  Fees apply.

The lesson: Incorporate tax planning into your crypto trading strategy.  While the markets may come back, we don’t know when, and it’s good to be covered in the interim.

DISCLAIMER:This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax advice. You should consult your own tax advisor with regard to your particular tax position.

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