Keeping Your Bitcoin and other Cryptocurrency Taxes Current

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taxescurrent

Taxes, everything Cryptocurrencies like Bitcoin and Ethereum stand against. A centralized tax on a deregulated currency sounds oxymoronic to the ears. Despite this, I get asked about the new taxes the United States Internal Revenue Service recently announced and can understand the confusion. The truth is that tax and cryptocurrency are nothing new and the IRS has had a Frequently Asked Questions about cryptocurrency since 2014. Since these are relatively new laws, it is much less complicated than to backtrack and find what rules are current.

The Federal government recognizes virtual currency as property and is treated as such. As far your own Bitcoin spending and crypto-based taxable responsibilities are concerned, the IRS expects you to treat it as any other domestic property exchanged for goods or services, and or, sold for loss or profit. Before you get ready to file your tax returns as normal, there are some critical distinctions that the IRS has made about reporting investment income activity the selling of virtual currency in regards to this 2014 IRS Notice.

In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability. This notice addresses only the U.S. federal tax consequences of transactions in, or transactions that use, convertible virtual currency, and the term “virtual currency” as used in Section 4 refers only to convertible virtual currency. No inference should be drawn with respect to virtual currencies not described in this notice.

The IRS expects you to keep accurate investing records. So if you are one of the thousands of people who joined the cryptocurrency community within the past three years, Uncle Sam expects you to amend your previous year’s return for the last three years, or from two years to the date of final payment on that year’s tax liability.  To do this, just file Form 1040X, Amended Tax Return, along with the corrected or additional documents you did not originally file with your return. If you think that this may be a big bother over nothing, maybe I should remind you of this.

Most people are finally asking questions about virtual currency tax liabilities because of the profits made from the recent swelling of Bitcoin and Ethereuem market caps. The Federal Government knows that these markets are stabilizing at these historic highs, giving early investors ample opportunity to convert those extremely high returns to U.S. Dollars. As Fortune reported, Through an Investigation and federal summons and ugly lawsuits with the exchange Coinbase, the IRS found out that less 1,000 people were actually following through on their crypto-tax responsibilities.

IRS agent David Utzke reveals additional information about how the agency is conducting the investigation. Specifically, Utzke explains he ran a computer analysis against the IRS’s repository of hundreds of millions of tax records, and found fewer than a thousand people filed a Form 8949 to account for a “property description likely related to bitcoin.

Fortune.com – Jeff John Roberts -” Only 802 People Told the IRS About Bitcoin”

Mar 19, 2017
Regardless of the outcome of the IRS’s probe into Coinbase or other cryptocurrency exchanges, the intent of government seems to point at more transparency in cryptocurrency transactions as well as building cases against tax evaders and money launderers. In one sense, these actions may lead to a more trusted outlook on bitcoin from tradition investors as the eventual death of the historic bull market looms, but that remains to be seen. While we wait for the outcome of the battle for centralized control over deregulated markets, the best we can do is keep accurate records and stayed informed. Coinbase offers its users a tool to help comply with IRS reporting regulations by exporting all transactions. The exhange also goes so far to give taxpayers the link to to the above-sourced notice from 2014, in this article. So one can logicly assume that these laws are current.
It breaks down to this. If you pay someone in virtual currency or receive income based on a convertible virtual currency, meaning trades like a currency on an exchange like, Coinbase, Kraken, etc. you should report the item accordingly as a capital gain or loss on a form Schedule D, or in the case of income from non-employee compensation, Forms and Associated Taxes for Independent Contractors.  Many Independent and Third-Party Contractors are adapting virtual currencies to either pay for labor or allow customers to tip for services or to pay for in-app purchases. I feel these, tax laws will be necessary to know for both small business owners and freelance contract labor as I am of the personal opinion that tradition brick and mortar retailers will have to adopt these virtual currencies to curve the overall decline in physical sales lost to online transactions.
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2016 Filing Status And Income

As with most investment income, profits from selling or converting virtual currency or stock held less than a year are considered short-term and typically taxed at the taxpayer’s Ordinary Tax Rate *see above.  In the Case of Long-Term holdings, or more than one-year, The levy on the sell-for-profit of cryptocurrency is  10% to 15%, unless the filer is classified a High-Income Taxpayer, then the tax becomes 25% to 28%

Please remember that this is not investment or tax advice. You should check with your own tax professional in regards to converting between other virtual currencies or the Treasury Department and IRS, who understand that taxpayers may have questions. The appropriate contact information for an IRS opinion on this topic is, Notice.Comments@irscounsel.treas.gov. Taxpayers should include “Notice 2014-21” in the subject line. OR alternatively:

Internal Revenue Service Attn: CC:PA:LPD:PR (Notice 2014-21)

Room 5203 P.O. Box 7604

Ben Franklin Station Washington, D.C. 20044

Thank you for reading, I plan to follow this up with another installment soon, soon please follow this blog and leave your questions in the comments section below. If you feel like this has helped you and you would like to support this blog.

Bitcoin: 1Q5v1vUT9YXMB9aWz85HfYrpBeGywH3bxk.

Ethereum: 0x13cF24A3636568Bd0f15CFDdDEaE3D8d6261aeb2

Follow me on Twitter.  @a_m_faulkner

and check our cryptocurrency discussion group on facebook.

Happy Mining, Good Luck Trading Everyone.  

-AMF 

 

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A Review of The Intelligent Investor – By Matthew Waterman

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Book Review: “The Intelligent Investor”, by Benjamin Graham 4th edition with liner notes by Jason Zweig.

I believe I first read “The Intelligent Investor” at some point around 2005. It was really an incredible coincidence that I ran across it during the time I did. I was looking to expand my own knowledge base, and at the same time, I just happened to be working at Countrywide financial, which ended up being one of the largest players in the mortgage meltdown in 2007.

I was just so perfectly prepared for that bear market because of that. I had very recently taken my first two accounting courses in college as well, and had been tinkering with individual stocks before that. What happened was that I was working this part time gig for a few hours each night with this accounting firm, because I didn’t feel like I had a good understanding with what my teacher had taught vs. what made an investment successful .

There used to be an older gentleman who would be in that office from time to time, and I remember that I found out he was into the stock market, and I mentioned how well my Sirius Sattellite Radio had done that day, up something like 5%. The response he gave was something I’ll never forget: “Do you really think that 5 or 10 years down the road, that number would be meaningful?”. Answered honestly, I couldn’t say that I had any idea. He directed me to start reading about Warren Buffett.

So I did. The first book I read about Buffett was a biography, “Buffett: The Making of an American Capitalist” by Roger Lowenstein, and the other was Mary Buffett’s “Buffetology”. Those two books overwhelmingly pointed to Benjamin Graham as the source of Warren’s investment mentality, and so I picked up the 4th edition of “The Intelligent Investor”. I took to the material immediately, and had never seen anything else like it. Inside of just a couple of pages I understood what I was doing incorrectly. I was chasing momtentum and news, and what Graham taught me to do instead was look at the business as if I were the owner, and try to estimate it’s intrinsic worth from there.

Graham changed everything for me. I immediately understood where both my strengths and weaknesses were, and when the 2007 housing market crash hit, I was so well prepared that I took in more than a 400% gain before 2008 ended. That volatility continued well into the next year, and I doubled my holdings inside nearly every couple of weeks during that madness. I haven’t tracked my performance for a while now, but I know that by 2012 I was sitting an an increase approaching 50,000% of my initial capital.

What Graham really hit home with in his writing was on buying companies that earned profits. To that point I had been purchasing stocks on news, and on dips in their charts. I had thought that was what “Buying Low” was. Graham tought me to think about the future of a business, not it’s past, but by using the businesses’ past as your guide.

Graham ‘s core concept is centered around a “Return to mean”. A business that’s been doing the same things for a long time tends to keep doing them, so you get in there and buy them when they are having a temporary, but solvable problem. Alternatively, he gives you tips on how to value the assets on a company’s balance sheet, so that you can know if a true catastrophe is in the cards for a struggling company. You learn to find greater chances for rewards with substantially less risk involved.

More than anything, he teaches you to be fearless in the face of a fearful, easy dismayed stock and bond market. You learn to prepare for these times, and how to hedge your losses when there is risk involved. Best of all, you learn that all of these things are entirely within yourself to control. Graham’s book is so complete that you could probably never read any other and outperform at least 80% of the market easily. With a bit of fine tuning that comes from practice, I think I’ve got this number into a range of 98%.

Since that time, I’ve become a contributor for Seeking Alpha as well as a few smaller sites, and have introduced a couple of new concepts to the field. I have a chart named after me called the “Waterman Life Cross”, and am developing a new method around what I call “Insult Theory”, which is a way of using investor sentiment to guage if there is serious interest in a stock, or if the owners don’t understand the business at all. Graham was the foundation for both methods, and I believe that anything good that comes in the future will also be due to his writings.

Matthew Waterman, Contributor at Seeking Alpha

If you would like to read more please follow Matthew on Seeking Alpha and Twitter.

 

 

How John McAfee Global Technologies Intends To Challenge The Cloud

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John McAfee Global Technologies From Las Vegas

At Def Con 24, I was given a chance to spend about an hour talking with the proposed CEO of MGT Capital Investments(NYSEMKT:MGT) outside of the Bally’s Poker Room. Joined by CTO Eric “Eijah” Anderson halfway through our interview, we discussed several important issues that I am simultaneously preparing to publish. It has been a month since I interviewed McAfee and Anderson but I have waited to release my interviews due to the controversy some believe have muddied the credibility of this company. Without specifically mentioning any of the detials, I will just share this tweet that I feel captures the spirit better than anything I could write.

https://twitter.com/ihazcandy/status/773876821267849217

Unfortunately even my editors at another site have decided to believe libelous claims from an avid troll, that I am on the payroll of MGT or one of its insiders. I feel that like others, they seem to be committed to their bias against McAfee and continue to judge this new company unfairly. On the other hand, by analyzing what John has been saying about the industry and not MGT,  objective and free minded people may already understand the potential growth that his insight could bring. No matter how you feel about John McAfee, it is hard to deny the truth in his sentiment regarding the industry he helped to create.

John McAfee: Well when I started out people were saying ‘well virus aren’t a problem you’re insane’. Today I see the entire cybersecurity industry is operating on an outdated paradigm that is let’s find after the hacker gets in, let’s find the traces…”

As bold as the statement McAfee makes, it seems that the methods we use to secure our information are indeed outdated and is driving an increased demand for better cybersecurity. It is not hard to find indicators to support this idea.

At a time when global cybersecurity sales are expected to rise to $1 trillion by 2021, research is now showing that the problem of cyber-crime will cost companies $2 trillion by 2019. This reflects a widening gap between the efficiency of the solutions and the resourcefulness of the criminals.

In the United States, CNBC reported that the problem has become a drain on the infrastructure to the point that law enforcement agencies and hospitals have given in to ransomware demands for payment. There has also been a rise in reports that indicate that this type “pay or beware” strong-arming cost about 2,500 victims around $24 million in damages last year.

This year that number has already dramatically increased 500%. Recent data is also indicating that at the end of March 2016, Americans had paid over $209 million in order to regain access to their critical information. What I find most concerning about these figures is that those damages are limited to only the complaints reported to the FBI meaning that the actual costs of these crimes could be significantly more expensive.

What this shows that security professionals are as in the dark as law enforcement when it comes to protecting sensitive data. The problem is rooted in the lack of a solution that stops these intrusions while they occur

JM: But by then it’s too late…He’s already in…

So obviously the paradigm doesn’t work.”

What Is Wrong With the State of Cybersecurity Today?

With a shift from Personal Computers to mobile devices, many hardware vendors have also moved to a cloud-based product offering secured by third-party cybersecurity vendors. With so many trusted names to protect the customer’s data, I believe if the paradigm is broken, then supporting data will be represented in the market. I feel the story of FireEye(NASDAQ:FEYE) and former McAfee CEO Bill DeWalt illustrates a great example of what John goes on to say is wrong with the current state of the cybersecurity industry.

Intel(NASDAQ:INTC) acquired McAfee’s former company after his departure in a $7.7 billion sale spearheaded by Bill DeWalt. Intel Security intended to embed features into its chipsets but now must consider selling its underfunded interest in cybersecurity under the McAfee brand. DeWalt would go on to leave to leave McAfee as a surge in venture capital funding poured into an industry and take the CEO role at the emerging FireEye venture in 2012. Under his leadership, their products took a proactive approach to developing anti-malware firewalls that brought a surge of interest in the company’s stock shortly after its IPO in early 2014.

FEYE Chart

FEYE data by YCharts

With a flurry of new technologies to market interest from investors was on the rise yet the result of these new approaches was that from 2013 to 2015, the costs of cybercrime on businesses had quadrupled. In early 2014 FireEye had shed about 81% of its stock market value from its high of $13 billion and in the case of Bill DeWalt, he was recently replaced as CEO.

Eventually, the buzzword fueled hype had lost its effect on investors as the money pouring into the industry failed to produce tangible results. The Ponemon Institute released research that goes on to explain that the average cost of a data breach rose 23% in the last two years to $3.79 million. Like many other tech firms at the time, once these companies went from private ventures to public markets, investor confidence dropped as it became apparent that the current methods of information and network security were failing to keep up with enterprising criminals.

I feel that key players like Intel are discovering that they may have over-compartmentalized themselves as the disruptive effect of mobile technology shifts the focus of their business development. This tricky situation leaves Intel in a position to either increase spending by expanding the security operating expenses to competitive levels or sell the McAfee assets in order to focus on the company’s proposed move away from the PC market to a cloud-focused enterprise. Intel has released a manifesto that issued a proclamation that “The cloud is the most important trend shaping the future of the smart, connected world – and thus Intel’s future.

As some companies may consider moving out of the crowded market, some have opted to consolidate. Investors have seen these effects manifest itself in the form of a more competitive industry and competitive acquisitions from established entities like Symantec(NASDAQ:SYMC) and its recent Blue Coat purchase.

Symantec who owns the popular Norton brand is paying $4.65 billion for the reported revenue of $598.3 million last year. All this for a company that decided to cash-in instead going through an IPO after it was acquired by Bain Capital last year for $2.4 billion. While Blue Coast has ceased to be a profitable business, those fundamentals did not stop it Symantec from paying a premium at x8 sales, after being turned away by FireEye earlier this year.

The Contrarian Case: Pillars of Disruptive Growth

It comes down to the concept of analyzing data of real-time user activity within a network, Gartner Research calls this, “Visibility”. It has become what Gartner refers to as its first pillar that describes the methods of analyzing a cloud-based security service as a means of both proactive security and a method to monetize the data being collected. Intel best summarizes Visibility with, “The many “things” that make up the PC Client business and the Internet of Things are made much more valuable by their connection to the cloud

What if, instead of storing and sharing all of that user information, the company focused on developing real-world solutions to evolving problems? I believe that John McAfee’s re-entry is a calculated move to do just that. When you consider that on May 9th, 2016, MGT put out a press release marking his re-entry to the industry, weeks after Intel announced its new cloud-focused strategy.

JM:“…I spent 3 years finding the best products and that were in development out there and waiting for them to be ready and making both arrangements and relationships with the key people in this companies so that as for when they all matured they can use them.

Much like the investors funding the MGT reverse merger, McAfee is making a contrarian play on marketing the technology he has cultivated.

 His security model of reducing risk by removing the needless connectivity of personal information through the cloud may grab the attention of those enterprises looking for an alternative. If MGT can offer a competitive solution to those organizations who are reluctant to move their most valuable information to the cloud the company’s recent acquisitions may prove to be a viable alternative platform to the cloud.

Although bearish investors may feel McAfee could be leading shareholders into the cybersecurity abyss of diminished returns, there is room for growth in the industry. With a potential market of over 85% of large enterprises switching to a cloud-based access solution, MGT is offering a packaged decentralized network structure to challenge the cloud’s projected dominance. The Ponemon institute finds that 87% of the data stored on the cloud is out of their company’s control. As more digital threats become newsworthy, businesses have shown that are uncomfortable keeping their most secure information outside of their control.

The recent acquisitions of Sentinel from Cyberdonix for 150,000 restricted shares of MGT stock, the company may find itself able to breach the moat of the global managed security services market that is projected to reach nearly $30 billion by 2020. I believe that MGT recognizes this potential market and is in a position to offer them on-site control of their data with a competitive advantage in some niche marketplaces. While the industry is extremely crowded, there is market research to support room for an alternative solution to cloud computing. If MGT’s offering can serve as an analog for Gartner’s four pillar approach as a Cloud Security Access Broker, then Sentinel MGT may prove to be wise acquisition for an initial product offering

For McAfee to expose shareholders to the growth projected in the industry, MGT will have to offer solutions to rival the likes of Symantec and FireEye. The real answer to the question of legitimacy for this venture will come from analyzing how well its technology can directly compete with hardware vendors like Cisco(NASDAQ:CSCO) and other established firewall providers as a real-time threat detection solution.

JM: For example, Sentinel… It doesn’t look for the damages that was done, and say “Ah-Ha! We have a problem.” It knows this within a matter for a second the first time a hacker attempts to approach the system.”

As lucrative as an opportunity this may seem, there is no guarantee that by purchasing a Next Generation Intrusion Protection Device like Sentinel, MGT can find customers who trust the minimalist approach. In order to provide the sales volume to ramp initial revenues, this product will have to offer is a new standard in real-time threat detection.

McAfee would go on to explain how he believes this has been achieved.

JM: A hacker doesn’t come in and dig up a bomb, he has to spend a lot searching.. First getting into the network…

Then it has to find where the thing I’m looking for is…

But we notice in the first few seconds his first approach

Our little box, it’s a passive box just watching, it uses a combination of heuristics and artificial intelligence and we notice instantly that this is an anomaly and there’s a packet or an intrusion here, right at that second that this shouldn’t be happening.

It then notifies our server, our server then does analysis…

All this happens in a matter of seconds.

At that point, you can take action which is close down that port and firewall or take remedial action which fixes the problem that let the hacker in.

Now isn’t that better than to wait for the hacker to come in and find the signs and say Aha there’s a piece of malware but good god that is months after he first came in…

It is a game changer it will change the entire face of cybersecurity in the way that companies address and reacts to intrusion.”

John McAfee, proposed CEO MGT 8/5/2016 Bally’s Poker Room, Las Vegas at Defcon 24

Sentinel and the Projected Growth of Enterprise Security

I expect that interest in Sentinel will grow in relation to the traditional IDS and IPS devices that have contributed to the slow response in threat-detection. With a low bar already set, all MGT may have to do is provide an actual solution to the problematic approach of analyzing data after the fact. According to FireEye, the median number of days that attackers are present on a victim’s network before being detected is 229. For this key reason, I feel that MGT has proven itself to be a legitimate contrarian play based on substantial market research that indicates Sentinel’s unique opportunity.

As the global enterprise governance, risk and compliance market continues to grow from to $11.5 billion by 2019, there will likely be customers reluctant to trust their information to devices that have underperformed. Where companies like Cisco and Microsoft offer IPS/IDS solutions, Sentinel was designed to be ideally suited for smaller areas compared to the standard 19-inch rack configuration that other vendors implement. Standard IPS and IDS solutions have several drawbacks other than their size. As McAfee explained, Sentinel acts as a passive box, meaning that it is on the other side of the firewall where the  traditional IPS and IDS counterparts are located. This allows for Sentinel to reduce the risk of bottle-necking the network traffic. When a typical IPS/IDS solution has a malfunction or gets hacked, the entire network access point is compromised. I believe this to be an advantage over cloud solutions because of the obvious vulnerability of all data being transferred through one access point.

According to MGT’, Sentinel’s first production run is expected in Q4 2016 and gives investors exposure to the 13.2% CAGR projected for the market. The trend in information security spending indicates that by 2020, 60% of enterprise security budgets will be allocated for this type of rapid detection and response system and within two years 80% of these endpoint protection platforms will include similar A.I. and heuristic analysis similar to MGT. This may help the new company find some initial footing in the very rocky landscape that has become the cybersecurity industry. For now I will leave you with John’s proclamation to change the industry by bringing real-time results to problems that sometimes take years to understand.

In light of S.A. refusing to believe the simple truth, I am just citizen journalist using my free speech and free will to voice my opinion, I have decided to publish independently for now. I hope this rough notes will help you with your own due diligence. My research and writing is only made possible through your support. Thank you for taking the time to visit my personal website. Please use paypal to help support this blog.