[SERIOUS] Do people really have zero clue on how U.S. taxes on digital assets actually works? Why it's important to know how it works so you can take advantage of the law.

This post is a response to this, which has 2k upvotes, tagged as COMEDY, and somehow TONS of comments with people taking it as serious for some reason. Regardless of whether or not the commenters were trolling, 90% of them were commenting as if they were seriously thinking that it's how tax law works.

DISCLAIMER: No, I do not think OP was seriously trying to convey that what they described was the law, but their response here made me realize that maybe some people seriously don't have an understanding of capital gains/losses on property, which isn't a very hard concept for crypto.

For those who want a high-level understanding of how U.S. taxation works for crypto, keep reading. Here is what the current law generally covers.

If you purchase a cryptocurrency, regardless of platform, you own X amount of crypto (i.e. 1 BTC) at a purchase-price/cost-basis of whatever amount you paid for it (let's pretend $10k for 1 BTC)

Anything you do that gets rid of the bitcoin in exchange for something else, whether it be fiat, crypto, an NFT, etc, is considered a taxable EXCHANGE, which is REALLY treated in tax-law as multiple transactions. Let's give the following scenario(s):

TXN 1: Buy 1 BTC for $10,000

You have no fees, therefore, you have 1 BTC at $10,000 cost basis.

TXN 2-1 (EXCHANGE): Trade 1 BTC (now $12,000) for equivalent amount of ETH (i.e. 6 ETH at $2k)

1 BTC is SOLD for FIAT equivalent (you traded $12,000 of BTC for $12,000 USD, and you originally had paid $10,000 invested. You had a cost basis of $10,000 in the BTC (you paid $10,000 for it), therefore, you have a capital gain of $2,000 because you gained money on the sale of the BTC for your "fiat". Your 6 ETH that you received now has a cost-basis of $12,000, because you essentially bought 6 ETH for $12,000.

2-1-1: SELL BTC

2-1-2 BUY ETH

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TXN 2-2 (WASH SALE): 1 BTC drops to $5,000, and you sell your 1 BTC and buy it back.

You just cashed in a capital loss of $5,00. Proceeds 5k - cost basis 10k = (5000) capital loss

You now have the SAME 1 BTC, but now collected a $5k capital loss. You can write-off up to $3,000 of your capital losses per year off of your taxable income. You can write off unlimited capital losses when you can use them to offset capital gains. If I had no other capital gains or losses, I could write-off $3k of my W-2 job income, and carry-forward the remaining $2k loss indefinitely, and next year either write-off 2k, OR, offset future capital losses. Note that you must deduct your capital losses from your capital gains first, and only when the gains are extinguished can you deduct them from your income.

2-2-1 BUY BTC

2-2-2 SELL BTC (collect losses)

2-2-3 BUY BTC

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TXN 2-3 (TRANSFER): Transfer your BTC from TXN 1 to another wallet you own.

Your cost basis transfers. You pay nothing. If you move it from wallet to exchange or wallet to wallet, it doesn't matter, the cost-basis is always the same.

2-3-1 MOVE COIN TO NEW ADDRESS

These are just a few high level explanations -- there are more complex scenarios, but in TXN 2-2, the point here is to show that wash sales don't exist in crypto and therefore you can do as I described. If you purchased a bunch of BTC at $50,000, go and move it to Coinbase right now, sell it all, and then buy it right back. Send it back to your wallet. Congratulations, you now lowered your cost basis and got a ton of capital losses that you can offset future capital gains with. There's no point of doing this when you're in the green, as you're essentially doing the opposite, which is cashing-in capital gains for whatever reason. So only sell when you're ready to cash-out and only cash-out what you need. For reference, I did this last year, and I got a few-thousand dollars back from the IRS. Why wouldn't you take advantage of the tax law? This is what all the whales do.

Using BITCOIN as a store of value for your other crypto purchases is the best thing to do, as whenever BTC's in the red, you can cash in on those capital losses whenever you sell. Try to NOT do a ton of useless transactions, as tax-time will be a HASSLE and you'll wanna blow your brains out dealing with your return.

PSA: If you do not file your taxes and you bought crypto on a KYC CEX you are an absolute moron. The exchanges report every single thing you buy to the IRS and they know exactly what you have, they know your EXACT wallet addresses linked to the exchange, and the exchange THEMSELVES reports EVERY SINGLE TRANSACTION they do on-chain to the IRS. I don't know this for fact, but how else do you think these exchanges file their OWN taxes and prove to the government THEY aren't money-laundering? If you think they aren't, you're tripping balls.

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TL;DR: Learn the tax law, don't go to jail for tax evasion, take advantage of the tax laws, wash sales existing for crypto commodities such as BTC is BIG for investors and can save YOU a lot of money.

EDIT: This is in regards to U.S. tax law(s) (if it wasn’t implied…)