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IRS Says Bitcoin Is Property

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Re: IRS Says Bitcoin Is Property

#221

Post by loumf »

oijaf888 wrote: post #190
loumf wrote: post #55

Earlier quoted context omitted.

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

It seems pretty backwards compared to any other sort of creation. If I build a house, my basis is how much I spent building it, not how much my neighbor's house is worth.

I don't think this has anything to do with basis. The difference is that mining the coin is considered a tax event -- so you pay tax on the mined value -- with the cost being deductible. This makes sense because the coin is liquid and can be sold in part without reducing the utility of the remainder.

That is not true of a house. It isn't as liquid and it's hard to sell part of the house to cover tax.

Re: IRS Says Bitcoin Is Property

#222

Post by vitobcn »

shazow wrote: post #167
patio11 wrote: post #145

Somebody in the Bitcoin ecosystem would get a lot of attention if they published an authoritative number for the average Bitcoin price in 2013, which would likely suffice for most taxpayers' needs for a reasonable and consistent valuation. (Ask a tax professional if you disbelieve that informal recommendation.) This is one of the many equally valid options for e.g. calculating the yen/USD conversion if you happen to…

http://bitcoinaverage.com/ does currency-adjusted price averages across many exchanges around the world. You should be able to get a yearly average from the API but I worry this would not be what the IRS had in mind, but rather specific prices at time of purchase vs liquidation.

You can get the daily historical prices since July 17th 2010 from [1]. Here's some quick calculation of the yearly averages (until yesterday):

   2010:   0.14$
   2011:   5.43$
   2012:   8.25$
   2013: 191.90$
   2014: 717.93$
Looks like average price didn't move that much in 2012.

[1]: https://api.bitcoinaverage.com/history/USD/per_day_all_time_...

Re: IRS Says Bitcoin Is Property

#223

Post by loumf »

itbeho wrote: post #208
ChuckMcM wrote: post #135

Earlier quoted context omitted.

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 exe…

How would you determine market price for stock options in a startup that's not public yet?

It would not be prudent to exercise options that are not liquid. There is no benefit to doing that.

You don't, for example, usually get meaningful voting rights with those shares.

Re: IRS Says Bitcoin Is Property

#224

Post by molsongolden »

jrockway wrote: post #198
SilasX wrote: post #112

Earlier quoted context omitted.

The fact that "it's always been that way" is no refutation of the fact that "it's a problem" that you could lose money and yet still owe taxes as if you had gains because capital losses (hysteretically) saturate at $3000.

It's not a problem if you immediately sell a portion of the coin to cover your tax liability. This is how employer stock programs work; when shares vest, some are immediately sold to cover the income tax. Then, if the shares decrease in value and are sold, you have a normal capital loss to deduct. If they increase in value and are sold, you have normal capital gains. This is money, not "do whatever you want".

It doesn't seem fair or correct to compare Bitcoin to employer stock programs. The IRS seems to be doing this as well. Stock and stock options are generally granted in exchange for work performed for an employer so you have earned those amounts but Bitcoins are created through mining not given by an employer.

Re: IRS Says Bitcoin Is Property

#225

Post by ry0ohki »

thatthatis wrote: post #194
ry0ohki wrote: post #159

Earlier quoted context omitted.

The same way cash transactions are trackable, which is to say they are not. In either event you can choose to evade the taxes but it's probably not a wise bet.

They aren't trackable, but when you pay cash for a $90,000 car and a $350,000 boat the fact that you've clearly under reported something is observable and to my knowledge sufficient information to prosecute for tax evasion.

How would that be any different then if you paid Bitcoins for a car or a boat? Once you convert it into something tangible it's easier for the IRS to figure out.

Re: IRS Says Bitcoin Is Property

#226

Post by patio11 »

sliverstorm wrote: post #203
modeless wrote: post #180

Earlier quoted context omitted.

I think he's talking about mining, which is now subject to income tax (likely 25%) and self-employment tax (15%).

In that case, it seems only right that tax should only be on net profits, right? I.e. after your opex such as equipment costs & electricity?

The IRS literally said exactly that, assuming you run your business like a business. This would require, among other things, adequate record keeping to substantiate what portion of your electrical costs were necessary and customary in your business, since you can't deduct the personal use portion of the bill.

You'd probably have to depreciate equipment rather than deducting it, unless it has an expected useful life under a year or hits some de minimis threshold. (The IRS rule on this one is really wonky. Suffice it to say that most Bitcoin miners have to depreciate not deduct.)

Re: IRS Says Bitcoin Is Property

#227

Post by loumf »

ChuckMcM wrote: post #135
loumf wrote: post #73

Earlier quoted context omitted.

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 exe…

Ahh. By the time this information filtered to me in 2001/2, it became -- exercising options is always a taxable event. So that's the rule I live by and always make sure that there is a way to get cash simultaneously. I didn't realize it was because of the AMT.

Re: IRS Says Bitcoin Is Property

#228

Post by LoganCale »

PeterisP wrote: post #139
sliverstorm wrote: post #99

Earlier quoted context omitted.

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.

Many people have mined across dozens of different pools over the years (and for different currencies as well), and many of those pools are now defunct.

Re: IRS Says Bitcoin Is Property

#229

Post by loumf »

SilasX wrote: post #112
slg wrote: post #101

Earlier quoted context omitted.

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…

The fact that "it's always been that way" is no refutation of the fact that "it's a problem" that you could lose money and yet still owe taxes as if you had gains because capital losses (hysteretically) saturate at $3000.

This would be a problem if bitcoins were illiquid. They are not, so it's easily solved. The IRS simple rule is to treat all income as incurring tax on the moment it is received.

They make allowances for things that are not liquid.

Re: IRS Says Bitcoin Is Property

#230

Post by zacinbusiness »

derekp7 wrote: post #202
zacinbusiness wrote: post #193

How does this work for a coffee shop that does not exchange bitcoin for dollars? Say they sell a medium coffee for $4.44 (that's the price I pay for my coffee at my normal "spot.") Or you can pay, say, .002 BTC (I'm guessing here on the amount BTC). But let's say if you send them bitcoin that they just keep it or spend it somewhere else that also accepts bitcoin (and preferably that also doesn't cash them out).

If bitcoin is property, then this should be handled the same way barter is handled. Taxes would be paid on the fair cash value of the property. This is also what would keep USD in use -- it is the only currency the government accepts to pay taxes.

Ah interesting. Would price volatility make this practice too difficult? Or would the market eventually reach a basic equilibrium price?
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