Over the past months, Bitcoin’s price went through a real rollercoaster, going from almost $20,000 at the end of December to almost $9,000 at the moment of the writing.
A lot of investors who cashed out before January, when the decline started, were delighted with their choice, but they were also left with a huge tax bill. Also, those who didn’t opt for advance planning had an actual shock!
It all started when Bitcoin was trading at around $1,000
According to a report from CNBC, one Reddit user declared that he now owns $50,000 in debt to the IRS, which he’s currently unable to pay.
“I feel like I might have accidentally ruined my life because I didn’t know about the taxes,” Reddit user Thoway, who says he earns $47,000 a year as an office assistant, posted one week ago.
He started investing in cryptocurrency at the beginning of 2017 and bought eight Bitcoin tokens for a total of $7,200. In December, when the digital asset reached its all-time high, he decided that it’s time to cash out.
Currently, the IRS considers cryptocurrency as property and not currency, so the sale triggered a “taxable event”, forcing Thoway to pay all the taxes this investment impose. The total income tax he owes reaches $50,000, considering that he is located in California, according to his initial post.
Unfortunately for him, he is unable to pay the amount he owes to the IRS, as he invested all the profit into other cryptocurrencies.
“I got caught up in the alt-coins frenzy,” he wrote, referring to Litecoin and Ethereum, two of the digital assets in which he put some money. In the meantime, a lot of cryptocurrencies have fallen, leaving the Reddit user too broke to afford to pay his taxes. “I added up my alt-coins and I only have like $30,000 worth. I only have about $5k in other savings,” he writes.
More similar cases clearly exist
Obviously, this is not the only case, as many other investors forgot about their taxes. Thoway’s example should be considered as a very expensive lesson to learn if you’re looking forward into exploiting the volatility of the cryptocurrency market yourself.
“[If] you’ve come into a large amount of wealth … by having an asset appreciate that you acquired at a low value, and you think you do not have large tax consequences, you’re fooling yourself,” says certified public accountant Ryan Losi.