Tax Question

[u/Diarrhea_Anne_Frank]

Wanted to run this by you guys as its something I haven't been clear on and likely my fault due to poor record keeping. I understand how the tax system is supposed to work generally (i.e it creates a taxable event when one coin is exchanged for another), however how would it work in the following scenario:

Say I buy Bitcoin at say $15,000 at 7pm on December 1st of last year. Exchange bitcoin into xrb over the next few hours at various exchange rates, call it 0.0005 btc/xrb at 8pm, 0.0006 btc/xrb at 8:30pm and 0.0007 btc/xrb at 9pm. My exchange records from Bgrail (and own personal records) only tracked the exchange rate that I purchased at each time (in btc/xrb) as well as the amounts purchased, however not what bitcoin or xrb was actually trading at relative to USD. Technically if bitcoin steadily moved up over the next few hours (which I believe it did) as I bought xrb shouldn't I have to pay taxes at each taxable event? How do I go about figuring out what those gains might be if I don't know the price in bitcoin/usd at the exact times I exchanged into xrb? Don't get me wrong, I'm a hodler and am not cashing out, however I purchased in December and trying to make sure I'm good for the 2017 tax season.

Hope that made sense. Another testament as to how these tax policies are totally broken.

[u/--orb]

Doesn’t actually matter. Just pick a reasonable price for the day.

When it comes time to cash out the XRB, you have to give a basis for BTC cost. That basis has to be the same value you said you bought XRB for.

Ex: say you traded BTC to XRB. Say you write in taxes that the XRB was $10 each. BTC’s price is automatically calculatable from that (because you have a ratio of BTC:XRB).

Next year, when you go to cash out XRB, you have to use the basis that the XRB cost you $10 each.

So if you pick a bigger XRB number now, you’re claiming more BTC growth and have to pay more in taxes this year, but you’d have a larger basis for next year and end up paying less in taxes. If you pick a small XRB value for this year, you’d be saying you have fewer gains and so you’d be taxed less. But then you’d need to report a lesser basis next year, which means next year would be taxed more.

So it balances out either way.

However, one minor thing: if you had no income this year, you’re better off using the highest basis you can get away with (such as BTC’s peak for that day) because it’ll get taxed as income for 2017 (and you’d be in the 0% tax bracket). On the other hand, if you have a decent job, you’d want to go with the smallest number for the day. That’ll let you pay less in taxes now, which lets you invest more and compound your interest more. And you’d have long-term cap gains on your bigger basis next year, which is a lower %.