IRS Says Bitcoin Is Property • Hacker News Board

Re: IRS Says Bitcoin Is Property

#41

Post by slg » Tue, Mar 25, 2014, 6:53 PM UTC

jcampbell1 wrote: post #10

It seems there are hypothetical scenarios where your taxes could exceed your net worth. If you mine a bitcoin worth $1000, and then it's value falls to $100, you could owe taxes on $1000, and the $900 capital loss would only carry forward to the next year.

You can use the $900 in capital losses to offset your income (up to $3000). According to the IRS, you would have only $100 in income ($1000 - $900). So in your example, you would have $100 cash and tax liabilities on $100 in income. You will only run into a problem when you exceed $3000 in capital losses, that is when you would have to rollover your losses to the next year.

Re: IRS Says Bitcoin Is Property

#42

Post by jstalin » Tue, Mar 25, 2014, 6:54 PM UTC

Kapura wrote: post #39

>Bitcoin miners would have to report their earnings as taxable income with a value equal to the worth on the day it was mined. Maybe the rules are more thorough in reality than in this article, but how would the above statement apply to people who mine in a pool? Would only the person who hits the hash have to report the income? Would all of the miners? Additionally, how does the IRS plan on enforcing any of this? It…

Pool mining would be no different. Basically the rule is that you "recognize" the income when you receive the bitcoins, be it through pool mining or individually -- it makes no difference.

Re: IRS Says Bitcoin Is Property

#43

Post by Amezarak » Tue, Mar 25, 2014, 6:54 PM UTC

rch wrote: post #28

Compared to getting the general public to accept virtual currencies for everyday transactions, shouldn't it be relatively easy to convince those same people to put pressure on the IRS and congress? In fact, this is a particularly good year to begin such an effort, since the Senate is in play in the midterms. If predictions start to indicate an unusually high turnout of virtual currency supporters, it would throw a bi…

Unless there is some reason to believe virtual currency supporters make exceptionally large campaign donations, I'm not sure why any Congressman would be swayed by what can't possibly constitute more than a tenth of a percent of the voting population.

Bitcoin supporters would be better served talking directly to their current representatives outside of an election context and even to the IRS.

Re: IRS Says Bitcoin Is Property

#44

Post by joe_inferno » Tue, Mar 25, 2014, 6:56 PM UTC

timrosenblatt wrote: post #35

Does this mean that Bitcoin are more legit now and will be picked up by more institutions, or since the IRS doesn't consider Bitcoin a currency, will that stop companies from using it (for regulatory reasons?)

Yes.

Re: IRS Says Bitcoin Is Property

#45

Post by the_mitsuhiko » Tue, Mar 25, 2014, 6:56 PM UTC

Kapura wrote: post #39

>Bitcoin miners would have to report their earnings as taxable income with a value equal to the worth on the day it was mined. Maybe the rules are more thorough in reality than in this article, but how would the above statement apply to people who mine in a pool? Would only the person who hits the hash have to report the income? Would all of the miners? Additionally, how does the IRS plan on enforcing any of this? It…

> Additionally, how does the IRS plan on enforcing any of this? It seems like an anonymous currency would be ripe with disregard for regulators.

The same way the IRS enforces all other rules. If you break them and get caught you're in deep troubles.

Re: IRS Says Bitcoin Is Property

#46

Post by jstalin » Tue, Mar 25, 2014, 6:56 PM UTC

loumf wrote: post #37

jcampbell1 wrote: post #10

It seems there are hypothetical scenarios where your taxes could exceed your net worth. If you mine a bitcoin worth $1000, and then it's value falls to $100, you could owe taxes on $1000, and the $900 capital loss would only carry forward to the next year.

According the article this is not true. The tax event is turning the bitcoins into currency or spending them. So, the issue could be you have $1,000,000 of bitcoin, and you spend it. You now owe capital gains on the difference in price between when you bought and sold. Now, even if you have the $x00,000 in bitcoin to cover this, you better convert it fast (like simultaneously). Or, never spend bitcoin directly -- con…

Actually, it says that you are taxed on their value at the time they are mined.

Re: IRS Says Bitcoin Is Property

#47

Post by dllthomas » Tue, Mar 25, 2014, 6:57 PM UTC

dragontamer wrote: post #36

dllthomas wrote: post #26

Earlier quoted context omitted.

You say it's debilitating, but you describe the precise solution. This is easy to code around if you don't care about preserving BTC anonymity.

BTC Anonymity requires the use of mixers, and using mixers is against the law (its money laundering).

"BTC Anonymity requires the use of mixers"

There are different levels of anonymity.

"using mixers is against the law (its money laundering)"

I think that's likely the case, and I think if it's not yet the case it will be soon, but do you know if this has actually been prosecuted (or otherwise made legally clear) anywhere yet?

Re: IRS Says Bitcoin Is Property

#48

Post by sitkack » Tue, Mar 25, 2014, 6:58 PM UTC

streptomycin wrote: post #5

[deleted] wrote: post #2

[deleted]

Bitcoin miners would have to report their earnings as taxable income with a value equal to the worth on the day it was mined.

I am confused about bitcoin taxation and mining, I mined coins back in 2011, when they were $7. They matched my costs of hardware and electricity. Are they both income and capital gains (when I sell over a year later)?

Re: IRS Says Bitcoin Is Property

#49

Post by ufmace » Tue, Mar 25, 2014, 6:58 PM UTC

cbhl wrote: post #31

sergiotapia wrote: post #23

And how exactly can they know your bitcoin stash amount?

Well, since the ledger is public, if you manage your coins yourself, all they need to know are the address(es) that are yours. They can look up what's in them with a copy of the ledger. If your bitcoins are in an aggregated account like Coinbase (or the now-dead Mt. Gox), they'd probably put in bank-like reporting requirements that make the bank tell the IRS how much money you have if you have enough of it.

The trick is that knowing what addresses are yours is not necessarily easy.

Re: IRS Says Bitcoin Is Property

#50

Post by wmf » Tue, Mar 25, 2014, 6:59 PM UTC

jcampbell1 wrote: post #10

It seems there are hypothetical scenarios where your taxes could exceed your net worth. If you mine a bitcoin worth $1000, and then it's value falls to $100, you could owe taxes on $1000, and the $900 capital loss would only carry forward to the next year.

If you spent $900 in depreciation and electricity to mine $1,000 worth of BTC, would you owe taxes on $100 or $1,000?