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IRS Says Bitcoin Is Property

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Re: IRS Says Bitcoin Is Property

#101

Post by slg »

humanrebar wrote: post #80
slg wrote: post #41

Earlier quoted context omitted.

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.

Still seems like a problem to me.

How so? These aren't new rules, just old rules that are newly applied to Bitcoin. As others have noted, this is how things work for employer issued stock. You only put yourself in danger if you are ignorant of the rules and don't take necessary precautions. If you are investing enough to open yourself up to a capital gains loss of more than $3000, you have no excuse to be ignorant.

Tax tip from a non-lawyer/non-accountant - Immediately sell a percentage of your newly mined bitcoin equal to your marginal tax rate. If your tax rate is 25%, sell 25% of your bitcoin as soon as it is mined. Those coins already belong to the US government. If you don't convert to cash immediately, you are basically leveraging the government's money to invest in Bitcoin speculation.

Re: IRS Says Bitcoin Is Property

#102

Post by basseq »

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.

I imagine the provider ecosystem will be the next nut to crack, both in terms of general regulation and requirements to issue 1099s and the like.

Re: IRS Says Bitcoin Is Property

#103

Post by nullz »

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?

define 'reality'

Re: IRS Says Bitcoin Is Property

#104

Post by dllthomas »

dragontamer wrote: post #63
dllthomas wrote: post #47

Earlier quoted context omitted.

"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?

""" There are different levels of anonymity. """ You are either secure, or not secure. There is no in between. BTC is a permanent public ledger that can be analyzed for the rest of time. Without mixers (or similar techniques), it becomes possible to figure out lots of facts. http://www.coindesk.com/194993-btc-transaction-147m-mystery-... Similarly, your transactions can be tracked and analyzed because its all public…

"You are either secure, or not secure. There is no in between."

First, no, everything is in between. You're never "secure", you're secure against certain classes of threats.

Second, I didn't say "secure", I said "anonymous". Leaving someone a handwritten note is more anonymous than meeting them face-to-face and producing ID, even if they could potentially hire handwriting experts and find you.

"BTC is a permanent public ledger that can be analyzed for the rest of time. Without mixers (or similar techniques), it becomes possible to figure out lots of facts."

Certainly. Even with mixers, it's possible to figure some of it out - I've said many times, "you're never leaking less information than you think". Even so, this sort of thing requires someone do the analysis, which is far easier to automate if you've got a big long list of (btc account, TIN) of a large percentage of actors in the system.

"So don't play the ignorance game, learn about the current state of affairs and understand the risks you're taking."

I own no bitcoins, and have never used a mixer. I'm not "playing the ignorance game", I'm trying to cure my ignorance. Don't be a dick.

Re: IRS Says Bitcoin Is Property

#105

Post by jstalin »

FootballMuse wrote: post #95
jstalin wrote: post #46

Earlier quoted context omitted.

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

How does this work when mining in a pool is nearly continuous? You earn 0.000000x btc per share in a pool, and you might earn a share every few seconds. What exchange do I use to determine the value of the btc?

It's likely that the taxable event would occur when you can control the bitcoins. For instance, many pools have a minimum payout and you can't withdraw any until you meet that minimum. Based on other IRS rules, the taxable event would occur when you reach that withdrawal minimum.

As for the exchange to use for the value, it would probably be legitimate to use an average of a few exchanges, if the prices are wildly divergent.

Re: IRS Says Bitcoin Is Property

#106

Post by lutusp »

jcyr wrote: post #72

So we should be tracking our bitcoin in our wallets by age, such that when spending we incur long term capital gain vs short term (if possible)? Or perhaps use the most recent bitcoin purchased if the value is relatively the same as purchase date, thus seeing no gain (vs say 2 yr old coins which have greatly appreciated).

> So we should be tracking our bitcoin in our wallets by age, such that when spending we incur long term capital gain vs short term (if possible)?

That would have been daunting in the paper-records era, but with Bitcoin, discovering the tax implications may be a matter of running a shell script against a database of transactions.

In modern investment tax accounting, most issues revolve around comparing the present value of an asset against something called its "cost basis", meaning the price paid for the asset when it was purchased. This should be an easy issue to sort out for a virtual currency if proper records are kept.

Re: IRS Says Bitcoin Is Property

#107

Post by PeterisP »

ufmace wrote: post #49
cbhl wrote: post #31

Earlier quoted context omitted.

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.

Umm, just as with any other expensive property - they ask you to declare them; and if you conveniently forget to declare it, but at some time later (say, after 5 years) they somehow find that out, then you go to jail.

Are you sure that you can hide that stash (and all purchases/deals made from it) permanently?

Re: IRS Says Bitcoin Is Property

#108

Post by dllthomas »

mahyarm wrote: post #97
dllthomas wrote: post #71

Earlier quoted context omitted.

You need some sort of data source for what prices were at various points. This could be offline, but is likely to be big. Still, substantially easier problem than a lot of tax-related reporting.

Which exchange price would you use too?

IANA Accountant, but I would guess until/unless the IRS has blessed some particular entity, you can use any public-facing exchange but you should probably be consistent.

Re: IRS Says Bitcoin Is Property

#109

Post by maxerickson »

kevinpet wrote: post #33

It still doesn't clearly address the question of how those who mine bitcoin should be taxed. I guess your cost basis is a prorated portion of what you've spent on bitcoin mining. Very hard to do the accounting.

The coins received from mining are treated as income by calculating the dollar value at the time they were received by the miner.

If they are later sold, the change in value is treated as a capital gain (or loss). The mining expenses would probably be somewhat deductible (but this isn't the same thing as a cost basis).

The thing that is probably going to catch people out is they are going to not pay self employment taxes on the mining income (it's going to be hard to defend as a hobby).

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