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IRS Says Bitcoin Is Property

bloomberg.com

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Re: IRS Says Bitcoin Is Property

#81

Post by loumf »

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.

The IRS requires that you send them a form every year where you voluntarily tell them your income and sign it, swearing that it's true or risk penalties of fines or jail.

How is that not enough control?

Re: IRS Says Bitcoin Is Property

#83

Post by lutusp »

quakkels wrote: post #75

I can't tell if this is good or bad. But, does it strike anyone else as odd that the IRS ignores that bitcoin _is_ actually currency? Can they even declare it to be property when the reality is that it is currency?

> Can they even declare it to be property when the reality is that it is currency?

It seems you're overlooking the possibility that it may be both.

Re: IRS Says Bitcoin Is Property

#84

Post by loumf »

pat2man wrote: post #20

I imagine a managed wallet like Coinbase would really help here. They could easily create a report on exactly how much you owe in capital gains. Managing this yourself could get a bit messy.

The main thing that's a pain (extrapolating from stock) is if you buy and sell a lot. The tax is on the gain, but which one did you sell -- you need to keep track of each price you bought (and how many) and offset the amounts against sells.

I think you are allowed to average, but this might not be beneficial with big swings.

Re: IRS Says Bitcoin Is Property

#85

Post by patio11 »

uptown wrote: post #8

"Under the ruling, purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of income for the coffee shop." So if the coffee shop leaves the "property" as bitcoins instead of converting it over to dollars, and the value of those bitcoins falls before cashing-out, they're stuck paying tax on the $2 worth of income despite potentially no-longer having the…

This is not an anomalous case in taxing business income. A few startups asked me to do work on a barter basis. (Can you do a week of marketing work for us if we build you an iPhone app?) I told them that, if I were to agree to do that, I'd be legally obligated to value my work at it's market price and file an informational return to the IRS showing that amount of money given as payment for services rendered, which they'd be taxed on exactly as if I had paid them the equivalent sum in cash. (i.e. They'd pay thousands out of pocket despite never receiving a cent.)

Re: IRS Says Bitcoin Is Property

#86

Post by Anderkent »

loumf wrote: post #51
RyJones wrote: post #15

Earlier quoted context omitted.

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 t…

Doesnt selling stock immediately rather than after a year mean your tax rate on it is higher?

Re: IRS Says Bitcoin Is Property

#87

Post by sillysaurus3 »

pat2man wrote: post #20

I imagine a managed wallet like Coinbase would really help here. They could easily create a report on exactly how much you owe in capital gains. Managing this yourself could get a bit messy.

Please don't store most of your bitcoin in Coinbase. If Coinbase ever goes under, you'll lose all your bitcoin. It sucks when someone else loses your bitcoin for you.

Re: IRS Says Bitcoin Is Property

#88

Post by amalcon »

uptown wrote: post #8

"Under the ruling, purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of income for the coffee shop." So if the coffee shop leaves the "property" as bitcoins instead of converting it over to dollars, and the value of those bitcoins falls before cashing-out, they're stuck paying tax on the $2 worth of income despite potentially no-longer having the…

In general, the coffee shop is doing that anyway.

Re: IRS Says Bitcoin Is Property

#89

Post by rch »

Amezarak wrote: post #43
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.

An organized, vocal minority can still be persuasive without being big donors themselves. But talking directly to current representatives is exactly what I was suggesting.

Re: IRS Says Bitcoin Is Property

#90

Post by 0003 »

loumf wrote: post #51
RyJones wrote: post #15

Earlier quoted context omitted.

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 t…

Whatever you do, do not ask for more illiquid stock to pay for the tax... :P
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