A Reddit user who was “surprised” to learn he owed the IRS roughly $50,000 from his crypto-trading profits – money that he had not set aside when he cashed out his bitcoins at the height of the boom – complained in a viral post that crypto trading “ruined his life.”
The alleged trader, who uses the screenname Thoway, explained that he bought eight bitcoins for $7,200 in January 2017 then cashed them out in December for about $120,000. Here’s the catch: his altcoin investments quickly sunk, eating away most of his bitcoin profits. But unbeknownst to him, by selling his bitcoin, Thoway had inadvertently triggered a “taxable event”.
Thoway said his lawyer advised him to cash out his remaining altcoins and give whatever is left to the IRS. Thoway, who has not been identified and has apparently gone “missing” from Reddit since his post went viral, told readers that he earns $47,000 a year as an office assistant.
Thoway’s lawyer said he should be able to set up a payment plan allowing him to pay down the debt over a long-period of time, likely ten years. Still, Thoway complains that, during that period, his tax payments will likely siphon off most of what would’ve been his savings, meaning he has essentially been condemned to live paycheck to paycheck for the foreseeable future because he made a profitable trade, but ignored the tax consequences.
“I feel like I might have accidentally ruined my life because I didn’t know about the taxes,” he said.
While the original post was removed by Reddit for several violations in the comments thread, it’s extremely likely that the anonymous Reddit user isn’t alone in his predicament.
Meanwhile, the April 15 tax deadline appears to be having a far greater impact on the crypto space.
According to Fundstart’s Tom Lee, who anticipated the parabolic runup in crypto prices late last year (and still sees Bitcoin rising to an all time high in 2018) said the April 15 income-tax filing deadline could be contributing to the recent market rout in cryptos. Bitcoin has fallen more than 40% during the past month, and suffered its worst quarter in history.
According to Lee, similar to Thoway, investors are cashing out to pay their tax bills. According to his calculations, first reported by Bloomberg, every dollar withdrawn from crypto wipes between $20 to $25 from total crypto market value.
More amazing is Lee estimate how much Americans owe the IRS due to the recent Bitcoin price surge: he said that US households had $92 billion in taxable gains from cryptocurrencies in 2017 – roughly 20% of capital-gains tax receipts to the US Treasury.
Which means that the value of crypto-related taxes should be around $25 billion.
Lee, who is hanging on to his bold price target for bitcoin to hit $25,000 by year’s end, believes the selling pressure will soon pass.
“We still like Bitcoin and large-caps,” he said, adding that “while we believe the bear market for alt coins is largely over, we do not see upside for alts until mid-August.”