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IRS Says Bitcoin Is Property

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Re: IRS Says Bitcoin Is Property

#241

Post by beagle3 »

ogreyonder wrote: post #131
Anderkent wrote: post #86

Earlier quoted context omitted.

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…

It's an excellent idea if you can do it - but sometimes you can't - e.g. If you are in the 6 month lockup period following an IPO or grant or other SEC rule 144 event. It runs afoul of said law to even hedge with options or on the open market.

It is crazy, but it is that way.

Re: IRS Says Bitcoin Is Property

#242

Post by beagle3 »

stevewilhelm wrote: post #168
Anderkent wrote: post #86

Earlier quoted context omitted.

Doesnt selling stock immediately rather than after a year mean your tax rate on it is higher?

> Doesnt selling stock immediately rather than after a year mean your tax rate on it is higher? This is the exact thinking that got many people in trouble during the dot.com bubble. They exercised their options and neglected to sell and hold enough capital to pay their tax obligation. Then the bubble burst and stock prices dropped, in some cases to nothing, within a year. The IRS still wanted the capital gains taxes…

But do see my other comments on SEC rule 144 - sometimes you are forbidden from selling in a way that exposes you to loss risk that cannot be mitigated without running afoul of security laws.

Re: IRS Says Bitcoin Is Property

#243

Post by [deleted] »

donpdonp wrote: post #182
makr17 wrote: post #174

Earlier quoted context omitted.

> If its treated as property then the maximum is 20% of capital gains. if it is _long_ _term_ capital gains. short term gains are taxed at the same rate as regular income.

Long term gains apply to assets held over one year. The rate on such gains for an income under $36000 is ... wait for it ... 0%!

[deleted]

Re: IRS Says Bitcoin Is Property

#244

Post by dragontamer »

Xcelerate wrote: post #62
chime wrote: post #56

Earlier quoted context omitted.

How much did you buy them for? That is your reportable loss.

Well crap. I bought them for about $50 in Feb 2013. EDIT: Now I don't know what to do. This is kind of confusing. I bought 1.82 BTC in Feb 2013, traded, played around with them, and lost some. Then I sold what I had left to Gox USD about 5 months ago ($500) and repurchased 2 BTC during the "withdraws are disabled" period a few weeks ago. I'm going have to read more about this I think.

I'm not a lawyer or a tax advisor... but I'll tell you what I think so that you can kick-off your research.

You spent $50 and then sold them for $500. That is a $450 short-term capital gains tax. If you held onto them for more than a year, then it'd be a long-term capital gains tax. (But since you were actively trading, its definitely going to be taxxed at the higher short-term rate)

You then re-bought the 2BTC and totally lost them. That would be a capital loss (which if reported, will lower the amount that you are taxed)

Re: IRS Says Bitcoin Is Property

#245

Post by jrockway »

molsongolden wrote: post #224
jrockway wrote: post #198

Earlier quoted context omitted.

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.

I agree with you completely.

That said, it doesn't matter what is and is not "fair" when dealing with the IRS. Choice A is to do what they tell you to do. Choice B is to fight them in court.

This thread assumes you want to go with Choice A and that you want to limit your liability if something goes wrong. Like most risk-management techniques, it does decrease your returns.

(Tax lawyers might have some better advice. Perhaps you can mine into a blind trust, and pay income taxes in 5 years on the current value of the coins? Dunno, not a tax expert or a laywer. I would consult with one if I was mining a lot of Bitcoin.)

Re: IRS Says Bitcoin Is Property

#246

Post by Tloewald »

dasil003 wrote: post #151
humanrebar wrote: post #126

Earlier quoted context omitted.

> 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.

When it comes to the IRS the prudent thing is to treat them as a force of nature.

...so avoid them and move as far away as possible?

Re: IRS Says Bitcoin Is Property

#247

Post by knome »

ThomPete wrote: post #125

Interestingly Denmarks IRS just ruled that it's not taxable. (in Danish) http://epn.dk/samfund/politik/ECE6587289/afgoerelse-gevinste...

All this has given me a thought. If in the video game based economy for TF2 you receive a hat that can be traded on the marketplace or traded to others, do you have to consider that a taxable event? If you have something rare and it's potential value goes up, is it a capital gain? Is the depreciation similarly a loss?

Re: IRS Says Bitcoin Is Property

#248

Post by uiri »

patio11 wrote: post #226
sliverstorm wrote: post #203

Earlier quoted context omitted.

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 u…

I think that given the speed at which bitcoin mining hardware is obsoleted, it is perfectly reasonable that most ASICs would have an expected useful life of under a year.

Re: IRS Says Bitcoin Is Property

#249

Post by dragonwriter »

modeless wrote: post #180
outside1234 wrote: post #165

Earlier quoted context omitted.

If its treated as property then the maximum is 20% of capital gains. Do you not think you should pay taxes on gains?

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

Per the notice mining is subject to income tax always, and to self-employment tax only if it done by the taxpayer as part of a "trade or business".

Re: IRS Says Bitcoin Is Property

#250

Post by genwin »

Xcelerate wrote: post #62
chime wrote: post #56

Earlier quoted context omitted.

How much did you buy them for? That is your reportable loss.

Well crap. I bought them for about $50 in Feb 2013. EDIT: Now I don't know what to do. This is kind of confusing. I bought 1.82 BTC in Feb 2013, traded, played around with them, and lost some. Then I sold what I had left to Gox USD about 5 months ago ($500) and repurchased 2 BTC during the "withdraws are disabled" period a few weeks ago. I'm going have to read more about this I think.

Don't take my advice: Forget about it. Don't spend many hours trying to report a relatively small loss the IRS presumably doesn't know about, especially of a new type of property the IRS might be very interested to know (if only via an audit) how much more you have possession of.
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