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Court Rules IRS Can Seek Information on Bitcoin Customers

wsj.com

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Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#71

Post by AtheistOfFail »

god_bless_texas wrote: post #60

I initially cringed when I saw this, so I went to go download my transactions from coinbase. I realized after looking through them that some of my BTC outbound transfers were to btc-e, and some of those were to cryptsy. So, considering cryptsy kicked the bucket with much of my coin, and I can't get their records...now what? Those outbound transfers are financial losses, and in the grand scheme I lost money due to Cry…

You should have filed a loss with the IRS for the money so you could get the tax write-off.

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#72

Post by transfire »

Few people know that federal taxation is primarily a way to spy on people. There are numerous alternative places to apply taxation within the economy that are not remotely as intrusive, time consuming or costly. Tax preparation is a $10 billion dollar industry and the IRS has a $12 dollar budget.

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#73

Post by vessenes »

smokeyj wrote: post #65
ryaniscool wrote: post #36

Earlier quoted context omitted.

In the linked article, the IRS is quoted as saying they are treating BitCoin like property. Essentially, they are looking to tax people who made a profit from selling Bitcoins using Coinbase. They don't seem concerned with the currency aspect at all.

Say I buy two bitcoins, A and B, and combine them into a wallet C. Bitcoin A was purchased for $100 and Bitcoin B was purchased for $1000. If I sell half of wallet C for $500 - can I pick "which" bitcoin was sold? Because depending on which coin was sold the tax implication may change.

While I'm not a CPA, I have spent many dollars and hours since 2011 on Bitcoin tax questions in the US, so here's my two cents:

In general the US requires consistent treatment of inventory for earnings calculations. It's a little weird to have to worry about that as just a consumer, but if the coins are property and being held then sold, you probably should keep track of gains and losses.

Now, you discuss the question of combining up your two inventories. There are basically four ways of accounting for inventory in US accounting:

FIFO -- First in First Out

LIFO -- Last in First Out

AVCO -- Average Cost

Specific Identification (I think that's the term) -- cost associated with a given item.

It is generally fine with inventory to pick one of these methods and accrue gains / losses appropriately.

So, FIFO: You show a gain of $400. (Note your next sale at $500 will net a loss of $500).

LIFO: You show a loss of $500 (Note next sale will net a gain)

AVCO: You show a loss of $50.

Specific Identification: Depends on the coin.

If you want to change your inventory accounting methods you definitely need to calculate out a charge (or credit) for the switch.

In general, I have thought for some time choosing specific identification rules and instrumenting a wallet to spend in the most tax efficient way possible makes a lot of sense, but it's way down the stack of projects for me at least.

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#74

Post by briHass »

lojack wrote: post #38
patio11 wrote: post #14

Earlier quoted context omitted.

The short and useful answer is talk to an accountant. The longer and less useful answer is that it depends heavily on circumstances. Two relevant ones are "What sort of income do you have here?" and "How much are we talking about?" If we assume the answers are "You have capital gains because you happened to purchase some Bitcoin, they appreciated, and you sold them, but you weren't conceivably operating a business wh…

Any clue where the cutoff for declaration of capital gains lies?

The short answer is that there is no cutoff. There are certain cases based on the time you held the asset (long-term) and you having a low income, but most likely, tax is due on all capital gains, and regardless, they must be reported.

https://www.irs.gov/uac/ten-important-facts-about-capital-ga...

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#75

Post by wav-part »

CPLX wrote: post #55
mindcrime wrote: post #19

The solution to this is obvious: eliminate the IRS. And the income tax. And most of the federal government. Spin off the actually useful bits as private non-profit foundations (or possibly even for-profit companies depending on the scenario) and let them earn their own keep based on the value they provide. A sufficiently small government can be funded without an income tax, as history shows us.

There are several places in the world that don't have functioning governments. Perhaps you could go live in one for awhile and report back.

Just because I am born in USA, does not mean I consent to being income taxed.

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#76

Post by dragonwriter »

vessenes wrote: post #73
smokeyj wrote: post #65

Earlier quoted context omitted.

Say I buy two bitcoins, A and B, and combine them into a wallet C. Bitcoin A was purchased for $100 and Bitcoin B was purchased for $1000. If I sell half of wallet C for $500 - can I pick "which" bitcoin was sold? Because depending on which coin was sold the tax implication may change.

While I'm not a CPA, I have spent many dollars and hours since 2011 on Bitcoin tax questions in the US, so here's my two cents: In general the US requires consistent treatment of inventory for earnings calculations. It's a little weird to have to worry about that as just a consumer, but if the coins are property and being held then sold, you probably should keep track of gains and losses. Now, you discuss the questio…

> If you want to change your inventory accounting methods you definitely need to calculate out a charge (or credit) for the switch.

I thought (and I could be wrong) that the normal thing to do with LIFO/FIFO as to track it as if specific lots were sold (even if those aren't the actual items sold), so that if you switched between them you just changed the order in which you were treating the remaining (accounting, rather than actual) lots as being sold, without the charge/credit you would have if you refigured past history of sales to meet the new accounting method.

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#77

Post by wav-part »

enraged_camel wrote: post #53
mindcrime wrote: post #42

Earlier quoted context omitted.

I'm ok with paying taxes for those. Your being OK with taxes is completely irrelevant to anything outside of yourself. As long as taxation is practiced the way it is here in the US (eg, enforced at the end of a gun barrel) it's theft, and it's immoral, no matter how noble the purported objective(s). Eliminating taxation does not, however, preclude the idea of voluntary, collective funding for important causes, includ…

>>As long as taxation is practiced the way it is here in the US (eg, enforced at the end of a gun barrel) it's theft How so? The government is collecting the money you owe them. And you owe them money because every single day you use and benefit from things the government has funded, such as as infrastructure, police protection, fire protection, military protection and much, much more. It's true that there is no way…

Then give me exact amount I owe ? Why does it have anything to do with my Income ? Do you pay 5% for your iPhone ? Why is police protection any different ? Why am I not allowed to opt-out of it ?

Admit it. Its socially-excepted extortion from successful where people always increasing welfare spending. I dont know why anyone have to demonize anyone. People are looking after their own self-interest. And successful after their own by evading taxes.

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#78

Post by h4nkoslo »

mschuster91 wrote: post #23
patio11 wrote: post #14

Earlier quoted context omitted.

The short and useful answer is talk to an accountant. The longer and less useful answer is that it depends heavily on circumstances. Two relevant ones are "What sort of income do you have here?" and "How much are we talking about?" If we assume the answers are "You have capital gains because you happened to purchase some Bitcoin, they appreciated, and you sold them, but you weren't conceivably operating a business wh…

> If you're talking about mountains of money, on the other hand... expect rather less leniency Well, according to Wikipedia, you can at least declare income from illegal activities, so that the feds can't jail you for tax evasion in addition to the crime itself. https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_...

However you cannot deduct most costs arising from illegal activity, which typically causes taxes to exceed your profit margin.

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#79

Post by soggypretzels »

digler999 wrote: post #69

I get that taxes are one of the few certainties of life, but this article makes me think of yesterdays "how to hide $400m" article about tax sheltering and offshore incorporation. I wish there were a way to ruin tax sheltering for the wealthy by finding out the exact formula for what they're doing (say register a business in the Cook Islands ), then commoditizing that via an online service (like Wordpress does for we…

Making legal tax evasion accessible to the masses may be the only way to get the government to close those loopholes.

Re: Court Rules IRS Can Seek Information on Bitcoin Customers

#80

Post by Declanomous »

AtheistOfFail wrote: post #71
god_bless_texas wrote: post #60

I initially cringed when I saw this, so I went to go download my transactions from coinbase. I realized after looking through them that some of my BTC outbound transfers were to btc-e, and some of those were to cryptsy. So, considering cryptsy kicked the bucket with much of my coin, and I can't get their records...now what? Those outbound transfers are financial losses, and in the grand scheme I lost money due to Cry…

You should have filed a loss with the IRS for the money so you could get the tax write-off.

You can file amended tax returns for 3(?) years I think. I don't know how that works for capital losses though, I've only had to file amended returns for other types of deductions.
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