Still not clear on what the situation is on stocks that are denominated in bitcoins, and that pay out dividends in bitcoins, such as ASICMINER.
Is it possible for the dividends to be treated as qualified dividends?
IRS Says Bitcoin Is Property
231–240 of 317 posts
Re: IRS Says Bitcoin Is Property
#232> “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.
Those of us selling software have not frequently complained that we should get preferential tax treatment because our basis is zero and tax fraud would be almost too easy.
Tax fraud only became easy with the possibility of anonymous acceptance of payments. Now with Bitcoin you and everyone who produces intangible goods can officially complain about not getting preferential tax treatment.
Re: IRS Says Bitcoin Is Property
#233Earlier quoted context omitted.
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…
"FAIR Tax-style check-cutting probably isn't enough." I fail to see how this could be complicated. Assume poor person spends 100% of their income and all of it is taxed, so send them a "psuedo-basic-income" check of whatever minimum wage is times the sales tax.
I agree, it seems quite doable. The specific number proposed by FairTax.org for the "prebate" is relatively low, making the overall result somewhat but not very progressive (their proposal is a prebate equal to 23% of the national poverty line, e.g. $2650/yr for a single person with no kids). But that seems like a pretty simple issue to fix: just increase the amount, to whatever level of progressivity you'd like. If you increase it enough, you simplify the tax code and roll out something like a basic income at the same time.
It's true you can't approximate every possible tax curve you might desire using the model of a flat sales tax rate + a flat prebate, but by varying the rate and the rebate size you can approximate enough curves for it to be interesting.
Re: IRS Says Bitcoin Is Property
#234Earlier quoted context omitted.
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.
Well, sure, it would be easy if the pool provided you a 1099. But they don't.
I believe you just stated the new killer feature for mining pools. Miners will presumably dump pools which make their taxes harder for pools which make them easier.
Re: IRS Says Bitcoin Is Property
#235Earlier 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?
Periodically, the board of directors will go through a process for determining the value (aka the market price) for stock options. If you exercise your option and the exercise price is less than the current valuation price, then you will experience a 'taxable event.' I would guess that you'd be hit with the AMT in the US if computing the tax based on that exercise value was higher than your non-AMT computed tax. But you would want to check with your accountant.
Some companies allow you to file an 83b election, which is to exercise all your stock immediately, and as it is worth exactly what you are paying for it, no taxable event, and then take ownership of it as it vests. A person might choose to do that because in the event of going public or any time when the common stock becomes liquid, you would only pay long term capital gains rather than short term gains. The downside is that if the company exits where the common stock is worthless (not an uncommon occurrence for startups) then you would lose that money you paid originally. (but you could write off that loss, $3,000 a year, against future income :-)
Re: IRS Says Bitcoin Is Property
#236Earlier 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…
It happens to people who got good advice too. I was an investor in a startup that sold for 3x (yay!), and the deal was less than 1 yr from my investment (35% short term capital gain rate + 13% NYC rate = 48% tax rate on the spot) but the deal was 45% cash, 55% stock. So I already had out-of-pocket expenses.
But I had to wait 6 months to sell any stock (SEC rule 144, applies to anyone whose shares were not bought), during which buying company share crashed 75% unrelated to this deal.
Now, since the deal happened to be in the first 6 months of the year, I was able to net it all, and a 3x exit was reduced to ~1.5x thanks to rule 144
If the deal had happened just 3 months later (any day after 1-jul), I would have lost money - not even full return of capital - on a successful exit, and had losses to carry till the end of the universe.
The tax laws are the problem. I have a good accountant, but wasn't in the driver seat for this deal, so I couldn't properly structure it.
Re: IRS Says Bitcoin Is Property
#237Earlier quoted context omitted.
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.
Well, it is not uncommon for options to expire after you leave a company if they are not exercised. So if you take a new job and don't want to throw away your options...
Re: IRS Says Bitcoin Is Property
#238Earlier quoted context omitted.
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?
Just until you ditch citizenship of that prison country and live happily ever after spending your bitcoins in Germany or some warm paradise.
Re: IRS Says Bitcoin Is Property
#239Earlier quoted context omitted.
Actually, it says that you are taxed on their value at the time they are mined.
And then taxed again at the difference between that and their current value when you spend them? Or can we use them to buy stuff, and avoid capital gains altogether?
If you buy stuff you are taxed. If you buy 1 coin for 10$ and buy a $100 tv you owe 90$ in taxes.
Re: IRS Says Bitcoin Is Property
#240Hypothetically, if a person still had Bitcoin drawn from a btc faucet (by that person), would that count as a gift, treasure trove [+], or something else?