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IRS Says Bitcoin Is Property

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Re: IRS Says Bitcoin Is Property

#131

Post by ogreyonder »

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?

Yes; for people participating in an employee stock purchase program, it is called a Disqualifying Disposition. It puts you in the short-term capital gains bracket (with about 15% higher tax).

However, it's still a VERY good idea to do if you plan on holding stock.

I know stories of several people who were exercised options on 7 figures of stock, only to see the price collapse before they were able to sell. The taxes they owed because of that eclipsed their net worth several times over.

Re: IRS Says Bitcoin Is Property

#132

Post by scotty79 »

> “The danger is the creation of an electronic black market, similar to the cash economy,” Joshua Blank, a tax law professor at New York University, said in a December interview. “That’s what the IRS wants to avoid.”

I think demanding over 40% tax on a trivially worldwide transferable, hard to track, easy to secretly manufacture commodity is exactly the best way to create black market.

Re: IRS Says Bitcoin Is Property

#133

Post by Smudge »

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.

Coinbase is not FDIC insured.

Re: IRS Says Bitcoin Is Property

#135

Post by ChuckMcM »

loumf wrote: post #73
ChuckMcM wrote: post #38

Earlier quoted context omitted.

I was going to say this exact same thing. I was writing off 'losses' from stock losing value from 2001 to 2012 at $3,000 a year. It would have been longer except that you can, in some cases, offset gains made later against those losses. And yes, all under the auspices of 'alternative minimum tax' for which I have a special place of loathing in my heart for whomever thought that was a good idea.

Do you know (remember) the mechanics of how the AMT affected this? Were you given stock that you didn't have a chance to sell? My understanding that only the initial grant of stock and the subsequent selling are taxable -- and didn't realize the AMT affected this.

Note, the tax code changes every year and I'm not an accountant, just a victim :-)

Whenever I have exercised an option, my taxes have included an AMT calculation based on adding in the difference in value between exercise price, and market price, of those options as additional ordinary income. When the AMT tax calculation yields a 'tax owed' number that is larger than the non-AMT version (which it always did when exercising shares to make down payments) the IRS asked for the bigger number. Meaning that even if I had not sold the shares I exercised, the IRS wanted me to pretend that I had and pay tax on that money that I was pretending to have received. In exchange for doing that, the tax basis becomes the market price at the time of exercise.

If you don't actually sell the stock (because, for example, you are waiting for escrow to close), and the stock value goes down significantly, you can reach a point that the value of the stock drops below the tax liability you incurred by exercising the stock option in the first place. In some cases the stock can become worthless. (my best score has been $120/share stock going down to $0.52 share) If you realize this is going to happen before the tax year is over you can dump the stock take the loss and it all works out in the wash (loss cancels gain). If you cross over a tax year boundary then you owe the tax anyway (even though you don't have a way to pay it) and when you sell the stock in the following tax year you get a 'loss' but you don't have any gains to offset that against and you can't just take it out of the taxes owed. You can however write it off, $3,000 per year against your ordinary income.

Re: IRS Says Bitcoin Is Property

#136

Post by evjim »

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…

Or why not inflationary tax? We already have it, but if it was made the sole tax, we could get rid of whole bureaucratic industries for processing tax. Inflation encourages spending which is good for the economy.

Re: IRS Says Bitcoin Is Property

#137

Post by twoodfin »

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…

I am warily a supporter of a national sales tax to replace the income tax, but there are a few problems with it:

- Making it non-regressive, let alone as close to progressive as our current system, is damned hard. FAIR Tax-style check-cutting probably isn't enough.

- The tax would have to be high enough that black market sales would be extremely tempting. It's comparatively easier to monitor and regulate ~150 million workers, each with a small number of "tax events" per year, vs. hundreds of billions of taxable transactions.

- A sales tax has the potential to be at least as complex and distorting as the income tax, and probably moreso. Politicians likely won't be able to resist the urge to make favored products cheaper (or cheaper for favored constituents), and the levers available will be much more direct, as you won't have to wait until April 15 to see, say, your electric car credit.

Re: IRS Says Bitcoin Is Property

#138

Post by baddox »

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.

> It seems there are hypothetical scenarios where your taxes could exceed your net worth.

That's trivially true for traditional income tax and pretty much any other tax, right?

Re: IRS Says Bitcoin Is Property

#139

Post by PeterisP »

sliverstorm wrote: post #99
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…

Sounds like an absolute tax nightmare. In a pool you are awarded some small amount of coins every couple hours. Mine for a month, and you'll have hundreds or thousands of "bitcoin income" events, each with its own market price.

What's the nightmare there? You need a single simple report (excel sheet?) from the mining pool and just total them up.

Hundreds or thousands of events is nothing special - if your income would come from selling stuff in a tiny shop, you'd likely have that many receipts to report.

Re: IRS Says Bitcoin Is Property

#140

Post by zpao »

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?

AFAIK You're taxed on receiving stock as if it were income. This is regardless of if you sell it today, tomorrow, or never.

After that you're only taxed on gains. If you sold on the day of reception, then your gains/losses are likely minimal. Eg, receive at 50 sell at 50 = 0 gains/losses. Sell at 51 and you have $1*N gains. Those gains are taxed at a higher rate until a year after the stock appeared in your account. I think the difference is ~10% (35 vs 25 or so).

So there are definite tradeoffs between holding for the year vs selling immediately. This part is no different than buying/selling on the stock market.

tldr; yes, but not exactly

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