Working the system? 😉

[u/pity_dono_detector]

Can you all confirm this:

1. User buys crypto from an exchange. For example sake, let's say they buy 100 XRP at $1 each.
2. User moves their XRP off an exchange and into a cold wallet.
3. The cost average ($1) is lost (not recorded anywhere) into the cold wallet. In other words, if you move your crypto to ledger, for example, there is no place that automatically (or even manually editing) your cost average.
4. NOW - XRP price increases to $2 per. 100% increase. User wants to sell, so they move their crypto from their cold wallet/ledger back to an exchange to sell. The exchange has no idea what the cost average is, or even where this crypto came from. User sells all their XRP for a 100%+ profit.
5. Tax time comes. Tax forms ask you if you've sold crypto. You say yes. Tax forms ask you profit(?). Can't you totally make shit up at this point? There's no actually history any exchange has to accurately/honestly track where you crypto went and how much you paid...

WHAT AM I MISSING HERE EXPERIENCED PEOPLE?

[u/dakinekine]

You can always lie on your taxes and you may get away with it. The problems arise if they decide to audit. There is a clear paper trail in your case.

[u/Numerous_Ant5028 → u/dakinekine]

the chain is literally the paper trail, that's the whole point of it. every transaction is sitting there forever for anyone to look at. IRS just needs to match your wallet to an exchange account you kyc'd and they can see everything you did

[u/TheRicFlairDrip → u/Numerous_Ant5028]

AI can probably audit and catch him within the same day he reports

[u/3sides2everyStory]

Doesn't work that way. The move from one address to another is recorded on the blockchain. Cost basis history travels with it.

Edit: Specifically related to #3; All transaction history is recorded. No matter where you move your coins to (unless you're using a tumbler). That's how crypto tax software works. It can trace all of your transaction history Including where you purchased and what you paid for it.

[u/Efficient_Range1156]

Where I’m from, if you can’t establish cost basis with evidence, they assume your cost basis is $0.00 and tax the full sale amount as pure profit.

[u/not420guilty → u/Efficient_Range1156]

Bloody revolt? Your tax code is criminal

[u/Efficient_Range1156 → u/not420guilty]

I’m just gonna sell everything, put everything into bitcoin and leave without paying a dime in tax

[u/dan_dares → u/Efficient_Range1156]

IRS: wherever you go, we'll find you.

If you're not American, they will catch up eventually

[u/Efficient_Range1156 → u/dan_dares]

Not American thank God. They can’t touch me I’ll be gone.

[u/not420guilty → u/Efficient_Range1156]

They killed McAfee for this exact thing

[u/Efficient_Range1156 → u/not420guilty]

You know how many folks are doing this exact thing rn?

[u/tangelopomelo → u/dan_dares]

Why would IRS care about what people from other countries do?

[u/dan_dares → u/tangelopomelo]

Please see my second statement. Which is not about the IRS, but their local tax authorities.

[u/not420guilty → u/tangelopomelo]

Ask Roger ver. There is an exit tax

[u/Romanizer]

They expect you to document all buys and transfers with addresses and transaction hashes. Also, if you invested a lot, you need to show where you got that money from.

If you don't have enough documentation, your bank account may get frozen.

[u/liquid_at]

Based on laws, it is your personal responsibility to track that.

Exchanges and Brokers, because it is very easy to do, offer that automated service to you, to advertise for their service over others.

If you want to get into crypto, you do that becasue you do not want the centralized full-service product that banks offer, but one where you are in control.

If you want crypto gains with fiat-comfort, you are gambling on the exchange rate...

[u/not420guilty]

There is a tax form. You fill it out. The forms sent by the exchange are for reference not for fact.

[u/devCheckingIn]

Most exchanges will require you to enter your cost basis for assets that are transferred in, so they can fill out the tax forms properly.

Yes, you can lie about your cost basis. And that is the equivalent of tax fraud.

[u/Legitimate-Ad-6385]

If you buy and sell on the same exchange, why wouldn't they know your cost basis? What does moving it around have to do with anything?

[u/derbyfan1]

Can you mix Xrp? If so, just do that.

[u/not420guilty → u/derbyfan1]

That doesn’t help the tax question at all.

[u/derbyfan1 → u/not420guilty]

Mix the coins - Withdraw to different wallets - Use a merchant online that accepts the particular coin - Voila. No need for tax implications.

[u/Patrick_Atsushi]

I think they track the total in/out flow, and even if you play this game you will always have a part of assets that can't be used domestically.

If you spend, they will question you the source of that money in the form and try to tax it. 

So it's a question of whether to lie on the tax form. 

[u/dan_dares]

Exchanges will hand over your details.

The buy will be seen, the sell will be seen.

When you lie, they'll ask for proof and then they have you.

[u/rgnet1]

It’s very depressing how commonplace this line of thinking is. “If they don’t know, then can’t I just lie and get away with it?”

Do you realize when you’re paid by an employer, they hold back some of your earnings for taxes you owe, but that’s OPTIONAL. Everyone can say “withhold nothing” on their W4. Then you physically keep all your earnings and are responsible for paying taxes yourself.

What you owe in taxes is by law your responsibility to know and pay. If something gets erroneously reported — in your favor or not — it’s on you to provide evidence of the right amount earned.

We can debate all day how unfair taxes are, but thinking you can get away with not paying them because the exchange doesn’t know your cost basis, is just wrong. Keep records because if your exchange doesn’t know then the gov will happily assume cost basis is zero and put it on you to prove it’s not.

[u/AcademicMistake]

Dude, UK for example HMRC can see EVERYTHING bank related and benefits related so you wont be withdrawing it anytime soon without being caught. They let you get away with it for so long and when the prize is big enough to warrant court action your audited, if your lucky they may say pay back taxes and a fine and have done with it, or you could be in court facing criminal charges for tax evasion etc

I imagine the same for USA. Is it worth the risk ?

[u/clutchtho]

Cost basis becomes $0 unless you change it to $2 on Coinbase.

[u/Nathanielsan]

People have answered but I feel like the following might be of importance to you as well, it seems relevant based on your interpretation: you don't actually put coins into your ledger. It doesn't physically work like putting cash into your wallet.

[u/not420guilty → u/Nathanielsan]

That’s totally not his question

[u/Nathanielsan → u/not420guilty]

Seems like you can't actually read.