In America, the problem comes when the gain and the loss come in different years. If you make a big gain in 2024, but didn't pay taxes on that gain, then lose the money in 2025, they will come after you for failing to pay taxes in 2024 even though you no longer have the money in 2025. The lesson is to pay your taxes.
A bank will be happy to lend you the money to cover the spread since you have the collateral of a large tax refund in the future. It'll cost you a little bit of interest but it's generally not the catastrophe that people make it out to be.
Maybe if you are an ultra high net worth individual. I don’t see your avg Joe walking into their neighborhood Chase bank asking for a $500k loan using their potential tax refund as collateral is going to get it. That seems like an esoteric financial product.
AFAICT most tax refund loans are to low income individuals who need the money today rather than two months from now.
Source? Typically capital losses can only be netted against capital gains the next year, and only against a small amount of income.
Not aware of any country that refunds if you lose money next year. Even carry forward tax losses have limits..
Yes I understand the part about events across tax periods.. It's common everywhere, not aware of any jurisdiction that refunds.
It happens when you exchange one type of token for another, that's the point being made. Broadly: the gain is calculated any time the value of the property is realised by using it to purchase some other thing. Using the thing to purchase money is one way of realising its value, and makes the calculations easy; but when used to purchase some thing other than money, the transaction can be assigned a monetary value and that's used to calculate the gain or loss.
The example given of the guy that had NZ$1.6m - the tax became due when he sold his NZ$1.6m of tokens for what we must assume was NZ$1.6m of some other type of token. He should have calculated the gain at that point, set aside an appropriate amount of money for to pay the tax bill later, and spent only the remainder on the other tokens.
Yes but if at the end of tax year you end up with overall loss, that's what should matter.. Not that you pay tax on each profitable transaction but not set off loss making ones.
See separate point re losses that happen next year that's tough luck lol. Govt not gonna help. Unless you go fully bust and they have nothing to collect.
I don't know how a future loss is treated from a tax perspective (does the lost investment generate a capital loss?) but overall this seems to be similar to standard tax accounting.
Assuming an arms-length transaction: this would be like taking shares you own in one company and exchanging them for shares in another company. Typically you would sell them for money in-between but even if they were traded directly you would need to recognize the capital gain at the price you traded them, based on the current value of what you got for them. This would be applicable to the current taxation period, and if the new shares tank it could generate a capital loss.
You buy a bitcoin for 20,000. You sell it for 50,000. At this point you probably owe capital gains on 30,000. You then take the 30,000, use it to buy an NFT, and later sell the NFT for 0.01 (because NFT). At this point you have had gain of 30k and loss of 30k. Now, it's going to depend a lot on exactly when all this happened and in which jurisdiction, but in many countries you probably owe tax on the 30k.
Usually if the loss happens in the same year, you can use them to lower your tax on gains. In your NFT example you'd first owe 7.5k (assuming 25% taxation), and with the 30k loss you'll be able to balance what you owe. The problem starts if you sell the NFTs in the next year, because then you can't use those losses to balance the already made gains, but only use it for future gains.
Yes this is my understanding.
Which jursidictions? Certainly not mine. If they happened in different years you'd have a tax in one year and an equivalently sized refund in another, but they'd balance out.
Where's that? In a lot of places, you'd get a capital loss on the loss, which can be offset against _future_ capital gains, but you won't get a refund if you have no capital gains to offset it against.
That doesnt seem logical - the purchase of the NFT is a capital loss, which should offset the gains of the 30k of capital gains. Otherwise, it's an unfair tax regime.
I don't fully understand how NFT losses are treated (i.e. do you get a capital loss?) but the issue is with timing. THe tax man is not going to wait until you possibly convert to their currency to collect taxes; the gains and losses get attributed to the year when the transaction occurred. The high volatility in the investment is what makes the crazy swings possible - but this risk really should be priced into the expected return. I wouldn't be surprised if NFT gains are treated more like lottery winnings (in many jurisidictions); it's taxed at payout against the current year situation, regardless of what you do with it.
In the US, you can offset the gain, if the loss happens in the same year. If it happens later, then you're supposed to have paid the taxes in the year with the gain. The later loss can be used to offset gains after that.
It seems to be similar in New Zealand, where the article says that (like the US) there's tax due when you exchange one token for another without going out to fiat. A lot of investors didn't realize that and didn't pay their tax in that first year, and then didn't have the money later when the government came collecting.
It makes sense when you think about it. If you made a huge capital gain and then "lost" it in Vegas how is that different than "losing" it via other means?
Also, if this wasn't the case, it'd be a massive, gaping loophole. "Oh, I settled this stock in another currency, so I don't owe taxes yet/ever".
There are some situations where it maybe there should be an exception. When employee stock options are exercised, that's usually considered a taxable event, even if the shares aren't liquid (like in startups). This means you'd have to pay tax on something that you have to hold and could be worthless or forcing people into these events because the options may expire.
But for gods sake, whenever you "make" decent or life changing amounts of money, talk to a lawyer and accountant. There's so much misinformation about taxes out there. I used to work for a forex company and people, especially expats, would constantly move small amounts of money because they thought that they'd have to pay taxes on importing money into the country. They didn't realize that the forms they'd have to fill are only for reporting to deal with laundering. They could have just moved their money in one simple swoop.
People will spend vast sums of money to avoid paying a couple of thousand dollars for informed advice.
I think regular, small transfers are pedestrian-enough not to be reported. And in some countries, the information about a large transfer attracts offers of protection.
No it doesn't.
It indicates that when you switch your investment from one thing to another, that you have to then pay tax for your gain.
Which is very very normal.
Just that people in crypto not realized what it means when you trade bitcoin to another token which would be the equivielent of selling shares and buying something else like gold. As soon as you sell your shares you have to pay tax on gains.
But hey, the advantage of crypto was anyway that its an 'unregulated' market. Lets hope at least bitcoin just dies
It's always been like this unless the gain and loss is in the same tax year (and they are of a certain type that can offset each other)
Maybe the gains were realized but the losses weren’t since they were holding out for a rebound?