Reporting Bitcoin Sales and Income due to Bitcoin Cash Fork with TurboTax

[Millennial]

This is the first year that I've needed to report proceeds from the sale of Bitcoin. I've always used TurboTax (this year using the Online version), and I wanted to make a post about how I went about filing my taxes due to cryptocurrencies using TurboTax for anyone else who's curious. If anyone has any suggestions or corrections, please share.

Bitcoin

I bought 4.5 Bitcoin (BTC) in 2014 at 3 different prices. The first 2.5 BTC I purchased happened to be my highest cost basis and was $380. I sold 1.0 BTC during 2017 for $10,650. I paid $160 in fees, so I made $10,490 in Net Proceeds.

To report this I started at the Wages & Income section on TurboTax. I then clicked "Start" for the Stocks, Mutual Funds, Bonds, Other section under Investment Income. Next I hit "Add More Sales". Next it asked "Did you get a 1099-B or a brokerage statement for these sales?" I said No. Next it asked me to "Choose the type of investment you sold". I selected Everything Else. Next I entered the Basic Info about this Sales: Property Description, "Bitcoin", and then Net Proceeds, "$10490" and the Date of Sale. The next screen asked me "Tell Us How You Acquired This Property" and I selected Purchase. I entered my Cost Basis as $380 and the date I purchased it.

Great, that takes care of my long-term capital gains from the sale of my Bitcoin.

Bitcoin Cash

The hard fork on Aug 1, 2017 which created Bitcoin Cash (BCH) creates additional complexity filing your 2017 Tax Return. I read[1] a few[2] articles and decided to use $266 as the Fair Market Value of BCH on the first day of trading. To report this income, I clicked Start on the sub-section Miscellaneous Income, 1099-A, 1099-C under the Less Common Income section. Then I clicked Start on the Other reportable income section. For Description, I entered "Bitcoin Cash". For the amount, I calculated my BCH holdings multiplied by the price: 4.5 * 266 = 1197. I entered $1197 for the Amount. This option populates Line 21 on my 1040 form ("Other Income").

Bitcoin Gold and Bitcoin Diamond
I just discovered these alt-coins that forked from the Bitcoin blockchain. I decided to ignore them because I just found out about them today, I'm not sure I will ever claim them, and I have no plans on selling my BTG or BTD although that may change if the values of these coins change. I haven't decided what I will do if I end up selling those alt-coins; perhaps file an amendment to my 2017 Return for Other Income, or just declare 0 cost basis and report capital gains when I theoretically sell. I don't anticipate this, and I don't anticipate the IRS pursuing BTG or BTD, so I feel comfortable simply ignoring these forks. This, honestly along with everything else to do with reporting crypto income, is an uncertain plan. But since everything is uncertain, I don't plan on collecting income from it, and the IRS has not provided any guidance, I don't expect it to be an issue.

I started to look into BTG, but it sounds like the initial price was around $450 and within 48 hours, fell to ~$150 and has stayed around there since. I don't want to declare $450 * 4.5 BTC = $2025 in income for something I don't think anyone cares about and is currently only valued at ~$600. If I claimed my BTG and signed up for an exchange that trades it, and traded it at the current price, the proceeds would barely cover my theoretical tax obligation for 2016.

I'm not a CPA or a tax professional, so don't take this as expert legal advice.

[1] http://fortune.com/2017/11/16/bitcoin-cash-irs/
[2] https://www.coindesk.com/make-big-money-bitcoin-cash-irs-might-watching

Edit: I sold 1.0 BCH yesterday for ~$1500. When I file my 2018 return, I will report it similarly to how I reported my 1.0 BTC sale this year, using $266 as the cost basis. This will be a short-term gain though since Aug 1 2017 was when the hard fork occurred.

I will likely sell another 2.0 BCH, after Aug 1, 2018 when it becomes long-term capital gains. For the cost basis of future BTC sales, I will likely use a "SpecID basis", and use $380 for the next 1.5 BTC I sell. For the 0.5 BTC difference, I plan to use $270 (the last 1.0 BTC I purchased) instead of $240 (The cost basis of the second purchase I made, for 1.0 BTC).

[chicwhitesox1]

How would they know if I have Bitcoin and other crypto in my hardware wallet?

[seattlecyclone]

How would they know if I have Bitcoin and other crypto in my hardware wallet?

They don't. If you mined some coins and then sell them for cash on Local Bitcoins, the IRS may never have a way to know that you ever owned those coins. You're required to report and pay tax on all income you receive, whether the IRS is told about it by a third party or not.

[EricEng]

How would they know if I have Bitcoin and other crypto in my hardware wallet?

They won't know until someone gives you USD/cash for it.  And the IRS is good at seizing records from these companies to find who was given this cash.  You are safe until you cash out which is when you would owe taxes anyway.

[chicwhitesox1]

Thanks for the replies, I'll just keep it a secret for now or used it to buy stuff.

[EricEng]

Given that coinbase is now giving their records to the IRS, if you ever gave USD to purchase Bitcoins the IRS will probably know even if it is in your personal wallet.  That said, IRS won't likely care still until you exchange them back for USD.

I'm not sure what you are keeping secret.  You don't have to report having those assets, you just have to report realized capital gains when you exchange them for cash.  Not sure what you plan to buy directly with crypto, almost nothing takes it without exchange.

[trollwithamustache]

I believe that what you wrote is correct.

I sold my BCH so am reporting all of it as a gain. You will need to keep track of your basis price of BCH. That's the tricky part because I do not know how you document this. and that's a key thing with taxes, to have a piece of paper to document all the things you shoved in there. I use coinbase and am hoping their reporting tool output is sufficient for documenting my BTC basis.

Bitcoin Gold, God, Diamond, super, califragilstic ect, do not count as income unless you take ownership/passion of the coins, so you are in the clear there.

Also, simply by reporting and paying the taxes you are very likely in the clear since the IRS is far more likely to be interested in the yahoos who think they don't need to pay any taxes on their secret BTC gains.