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IRS Says Bitcoin Is Property

bloomberg.com

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Re: IRS Says Bitcoin Is Property

#51

Post by loumf »

RyJones wrote: post #15
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.

This is pretty much what happened to a lot of people in the valley during the dot-com bubble pop - your stock losses could be carried forward until the heat death of the universe, but you paid on 100% of the (illusory) gains.

Mostly this happened to people that got bad advice (I really hope all of the entrepreneurs reading this site are smarter now).

For most, the issue was exercising their options. This is a tax event -- and the tax is owed on the difference in your strike price and the current price of the stock. If you find yourself in this situation -- immediately sell enough stock to cover the tax.

If you are given stock -- that is the tax event. You need to have enough cash to cover taxes on stock given to you -- if the stock is illiquid, and this is a bonus or something, then you should ask for part of the bonus to be in cash (to cover tax). If the stock is liquid, immediately sell enough to cover tax.

If you are a founder, and your stock just goes up in price, that is not a tax event.

Being given at-the-money options is not a tax event. You only owe stock tax once you exercise.

IANAA (not an accountant)

EDIT: replace "stock" with "tax" in the second to last paragraph

Re: IRS Says Bitcoin Is Property

#52

Post by e15ctr0n »

It's worth going back to read what Reuters finance journalist Felix Salmon wrote about Bitcoin almost exactly a year ago.

The Bitcoin Bubble and the Future of Currency https://medium.com/money-banking/2b5ef79482cb

Why bitcoin’s rise is nothing to celebrate http://blogs.reuters.com/felix-salmon/2013/04/03/why-bitcoin...

Re: IRS Says Bitcoin Is Property

#53

Post by _delirium »

shmerl wrote: post #22
loumf wrote: post #12

Earlier quoted context omitted.

At large enough amounts, the IRS routinely investigates large accounts no matter how they are held. For example, in cocaine and cash. At some point you spend the money, and the difference in spending and taxes paid gets their attention.

And if the money is spent in same Bitcoins? It seems the only control they might have is when Bitcoins are exchanged to regular currency.

Not only when they're exchanged for regular currency, but for anything else conspicuous. The IRS regularly catches people underreporting cash earnings by noticing they're living way above their official means: someone bought two cars and a vacation home despite no significant source of income reported. If you buy the cars and the vacation home with bitcoin, it'll be the same deal.

To avoid scrutiny, you'd have to either not spend the bitcoin at all, or only buy inconspicuous things with it, perhaps intangible things like streaming-video subscriptions and videogames.

Re: IRS Says Bitcoin Is Property

#55

Post by loumf »

jstalin wrote: post #46
loumf wrote: post #37

Earlier quoted context omitted.

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.

Miners are taxed at the time they are mined. This is probably consistent with diamonds.

Re: IRS Says Bitcoin Is Property

#58

Post by loumf »

Xcelerate wrote: post #54

As a grad student who knows little about taxes (but quickly needs to learn more), what does this mean with regard to the 2 BTC I lost on Mt. Gox?

That's a good question. You never realized the gain. What tax would you owe if you bought a diamond for $1, it went up to $10, and then got stolen. My guess would be nothing -- but I am not an accountant.

Re: IRS Says Bitcoin Is Property

#59

Post by drcode »

Xcelerate wrote: post #54

As a grad student who knows little about taxes (but quickly needs to learn more), what does this mean with regard to the 2 BTC I lost on Mt. Gox?

If you paid money to get them, you can declare the money you spent against losses on other investment earnings you have.

IANACPA, but I don't think you can declare the full 2BTC as losses, since those were never realized.

Re: IRS Says Bitcoin Is Property

#60

Post by loumf »

wmf wrote: post #50
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?

Taxes are typically paid on profit. BTC are not the only things with cost to acquire and carry (e.g. Cattle) -- and I believe those costs are taken into account.
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