December 22, 2017

Bitcoin and Taxes

Making sense of the recently passed tax plan or the Bitcoin phenomenon is a driving question for many looking for an explanation that is clearly (not cleverly) written. However, upon stepping up my own research finding the actual plan, or looking at something that is by definition transparent, took second seat. This is because as most might agree, searching Google is good for discovering criticisms of most anything and not much else. Here’s are some observations of what promises to be a continuing story.

Talking about bitcoin first is an example of how, with the world in almost total flux, a currency that you can neither see, hold nor make any legitimate sense of out of, has the disproportionate attention of the general public as not witnessed in a long time. Bitcoin, the originator of what is collectively called cryptocurrencies, from its beginnings claimed to bring privacy and global access to the activity of currency exchange. The recent climb over $10,000 per coin from $864 a year ago has occurred for little reason that I can see other than its scarcity, brought about by its finite supply. That undermines any notion that there has been an increase in anything but speculative interest, not investment interest, and more or less sums up why so many distrust it. Personally, as an admitted Trekkie, I like the idea of a currency that could represent the global economies of any size without the interference of a centralized, and highly self-serving, global political crowd. It’s not like such a currency doesn’t exist today. Fine art for years has traded for fortunes to the aggregate mystification of the majority of the world. Admittedly, I am limited in my true knowledge of the product because there are no direct structural descriptions only dismantling master narratives aimed at circumventing privacy concerns. But also my definitive straight lack of experience (i.e. skin in the game). And that to me is what’s important about speculating in this environment. For to give in to the grand rhetoric is to believe every tall story you ever heard. I don’t believe anyone will get rich who hasn’t been in it from the beginning, and that’s a good thing. If the currency ever hopes to capture the imagination of the general consumer it has to be a lot more transparent and a lot less volatile. For example, as pundits chimed the advent of $20,000 before the end of the year the IRS weighed in yesterday with threats of imposing the FBAR rule. In short, as some international travelers already know, the rule that gives the government authority to collect information on any person coming into this country with more than $10,000. This caused the new futures contract to drop over 20% today. In my opinion, only the global contribution to the future success of a connected currency will reduce volatility just as the euro has done over the past 17 years.

2018 Tax Plan
Overall, I believe what is most important regarding the recently passed tax plan concerns the economic not the political. However much political criticism has focused on where the higher income earners are better served within in the substantial deductions given to corporations and businesses. This premise is true. But at closer examination there are also benefits that occur beyond the corporate preferences. To start, individual standard deductions are going to double under the new plan taking a single person to $12,000 and married persons to $24,000. Same for the mortgage deduction which is capped at $750,000 for new purchases of first and second homes, for all filing conditions. And where there was talk of losing state tax deductibility, that benefit managed to survive although with a $10,000 cap. A compromise that seems clearly aimed at middle income earners. Charitable deductions might be negatively affected by the rise in the aforementioned personal deduction increase, but to offset the aggregate amount of AGI for deductibility allowances for charities was raised from 50% to 60%. In the end the success of a tax plan of this magnitude will be contingent on a stronger economic outcome. In the meantime, the plan doesn’t fit all views perfectly, but when so much depends on one side favoring big business and small government (reckless) and the other, small business and big government (impossible) never was there a better need for a centrists contribution to the debate.

If Bitcoin passes $20k anytime soon, anything mentioned above is possible.