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IRS Says Bitcoin Is Property

bloomberg.com

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Re: IRS Says Bitcoin Is Property

#121

Post by SilasX »

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.

Strange. Why don't they treat the cost basis as your cost of production? That is, if you spend $X to mine the bitcoins, and sell them for $Y, why not tax you on $(Y-X) rather than Y minus "whatever the market said they were worth then"? $(Y-X) is your true dollar-denominated realized gain.

Re: IRS Says Bitcoin Is Property

#122

Post by thrownaway2424 »

Anderkent wrote: post #86
loumf wrote: post #51

Earlier quoted context omitted.

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?

No, because the exercise is taxed as income at the time of the exercise. If you sell it, there's not _more_ tax to be paid, because your gain after the exercise is zero. If you sell it after some, you'll pay long-term capital gains rates on the delta between your sale price and your exercise price.

Exercise-and-hold is a bad idea for most people in most cases.

Re: IRS Says Bitcoin Is Property

#123

Post by maxerickson »

sitkack wrote: post #48
streptomycin wrote: post #5

Earlier quoted context omitted.

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)?

I think you would need to refile your 2011 taxes, recognizing the income (and probably deducting some of your mining costs, but it isn't obvious that would be 100%). If you sold them that year, you would also figure the capital gain or loss.

In a later year, you would list the capital gain or loss.

Re: IRS Says Bitcoin Is Property

#124

Post by [deleted] »

Anderkent wrote: post #86
loumf wrote: post #51

Earlier quoted context omitted.

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?

[deleted]

Re: IRS Says Bitcoin Is Property

#126

Post by humanrebar »

slg wrote: post #101
humanrebar wrote: post #80

Earlier quoted context omitted.

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-accou…

> 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.

I disagree wholeheartedly. The tax code is needlessly complex. These are not laws of nature, they are arbitrary rules that have accumulated over time. Large capital gains happen naturally and it's silly for there to be gotchas like this.

Re: IRS Says Bitcoin Is Property

#127

Post by thrownaway2424 »

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…

If a coffee shop is accepting bitcoins in exchange for coffee, they are already exposed to the FX risk that bitcoins will fall in dollar terms before they can be liquidated.

In other news, the number of coffee shops which accept bitcoins is indistinguishable from zero in practice.

Re: IRS Says Bitcoin Is Property

#128

Post by sillysaurus3 »

abhigupta wrote: post #114
sillysaurus3 wrote: post #87

Earlier quoted context omitted.

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.

It is no different than having your money in multiple banks or brokers.

It's insanely different from having your money in banks. A bank is backed by the government. If a bank goes under, you still get your money. If Coinbase goes under, you get nothing or very little.

Funds from Coinbase should be evacuated to your own secure cold storage wallet immediately after you purchase them. You should never hold a balance higher than 0BTC for any length of time on Coinbase. Follow this advice and you'll have your money forever. Don't follow it and you'll lose your money the moment Coinbase suffers any serious theft, a technical disaster, a rogue employee, or the founder steals coins.

(I speak from experience, having lost a massive amount of money when Mt. Gox went under for one of the above reasons, which I probably won't get back.)

Re: IRS Says Bitcoin Is Property

#129

Post by Consultant32452 »

Anderkent wrote: post #86
loumf wrote: post #51

Earlier quoted context omitted.

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?

Generally, yes. Short term capital gains are taxed at a higher rate than long term capital gains.

Re: IRS Says Bitcoin Is Property

#130

Post by humanrebar »

BrandonM wrote: post #119
IgorPartola wrote: post #111

This is exactly why a sales tax would make things so much easier. Who care about historic price points of when you bought and sold BTC, let alone the historic electricity costs and pool fees when you mined it. You buy a milk shake, you pay taxes. Want food, etc. to be taxed differently? Still easier than figuring out if you are operating a railroad/fishing farm in Alaska while running a BTC mining rig to heat your ho…

Sales taxes are regressive, so much so that combined US state taxes are also regressive, being largely funded by sales tax. Refer to the big square in the middle of https://xkcd.com/980/

Simple taxes is a justice issue. A simple tax code will always be more fair than an arcane one.

If we're worried about the cost of living of people with incomes below a certain level, the best solution to that problem is a solution to that problem, such as an earned income tax credit, a guaranteed income, food stamps, health insurance supplements, and the like.

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