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IRS Says Bitcoin Is Property

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Re: IRS Says Bitcoin Is Property

#281

Post by sokoloff »

gamblor956 wrote: post #263
molsongolden wrote: post #164

Earlier quoted context omitted.

This seems insane. If I build 3 chairs I do not include the market price of 3 chairs on that day in my gross income, I sell the chairs and recognize the income generated by the sales.

Bitcoins earned through mining are considered compensation for providing resources to the Bitcoin network to compute hashes verifying transactions. IOW, it's not at all analogous to building 3 chairs yourself.

Should I file a Schedule F (income from farming) for my herb garden? I actually looked through the instructions for schedule F and I don't find any clear basis to allow me to not file it.

In practical terms, I'm not worried, as I suspect that I'd have a net loss, but assuming a net gain (that the fair market value of the parsley and sage I got from the herb garden exceeded my out-of-pocket costs to run the garden), I think I have to file a Schedule F per the regs.

For the record, it seems perfectly consistent to treat BTC as capital property; it doesn't seem reasonable to treat them as ordinary income.

Re: IRS Says Bitcoin Is Property

#282

Post by stevewilhelm »

beagle3 wrote: post #242
stevewilhelm wrote: post #168

Earlier quoted context omitted.

> 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.

You can purchase put options or employ other strategies to hedge against risk when one owns a large position in a single stock.

Re: IRS Says Bitcoin Is Property

#283

Post by foobarqux »

JumpCrisscross wrote: post #209

If I had more time on my hands: (1) Launch a Bitcoin capital gains/losses tax approximation application (the "App") in beta. User keys in their Bitcoin addresses. App searches the block chain for the user's entry and exit times. App searches exchanges for the most favourable pricing source. App then returns an approximation of taxes owed/to be credited (e.g. in case of coins lost at Mt. Gox). App has a prominent disc…

Who is this supposed to be targeted at? Most retail traders' BTC acquisitions/dispositions don't hit the blockchain.

Re: IRS Says Bitcoin Is Property

#284

Post by gamblor956 »

sokoloff wrote: post #281
gamblor956 wrote: post #263

Earlier quoted context omitted.

Bitcoins earned through mining are considered compensation for providing resources to the Bitcoin network to compute hashes verifying transactions. IOW, it's not at all analogous to building 3 chairs yourself.

Should I file a Schedule F (income from farming) for my herb garden? I actually looked through the instructions for schedule F and I don't find any clear basis to allow me to not file it. In practical terms, I'm not worried, as I suspect that I'd have a net loss, but assuming a net gain (that the fair market value of the parsley and sage I got from the herb garden exceeded my out-of-pocket costs to run the garden), I…

You should ask a tax lawyer or an accountant. But a "garden" is unlikely to be a "farm" within the meaning of the federal code, especially if it's just a hobby activity rather than a bona fide business intended to make money. (See http://www.irs.gov/pub/irs-pdf/p225.pdf, which notes that a farming business requires a profit intent.)

As for treating BTC as capital property--they are, under IRS decree--capital property for all US FIT. However, like all other capital property when received as compensation they are also income and get taxed like income. BTC doesn't get special rules just because it's digital.

Re: IRS Says Bitcoin Is Property

#285

Post by molsongolden »

gamblor956 wrote: post #263
molsongolden wrote: post #164

Earlier quoted context omitted.

This seems insane. If I build 3 chairs I do not include the market price of 3 chairs on that day in my gross income, I sell the chairs and recognize the income generated by the sales.

Bitcoins earned through mining are considered compensation for providing resources to the Bitcoin network to compute hashes verifying transactions. IOW, it's not at all analogous to building 3 chairs yourself.

I don't know if I agree with taxing them as compensation but at least this view makes the IRS guidance appear logical. Thanks for the explanation.

Re: IRS Says Bitcoin Is Property

#286

Post by gamblor956 »

hitchhiker999 wrote: post #21
shmerl wrote: post #13

Earlier quoted context omitted.

Exactly. They write: > “The danger is the creation of an electronic black market, similar to the cash economy,” But how can they avoid it if Bitcoin does work like cash in many aspects and they have no control over it?

In short, despite what many seem to think ?? -> Anything they do / will do / or try to do is simply a hack. The problem they have isn't going away - they'll eventually need increasingly draconian legislation to monitor bitcoin transactions. It will be (almost entirely) up to trust in the long run.

The problem that techies don't seem to realize...is that the system has always been about trust from the very beginning.

It was only within the past decade and a half that the IRS even acquired the ability to to spot discrepancies in returns based on filings from different taxpayers (due to the increase in e-filed return. Before that, enforcement relied almost entirely on random audits and tip-based investigations.

Re: IRS Says Bitcoin Is Property

#287

Post by molsongolden »

derekp7 wrote: post #276
molsongolden wrote: post #224

Earlier quoted context omitted.

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.

So here's a question for everyone -- if I take a few hunks of wood, say worth 10 bucks, and use it to craft a musical instrument that can be sold for $100, does that count as $90 in income, even if I just leave it on a shelf?

Not at all. That is the way I was seeing it but gamblor956 explained the reasoning behind the IRS guidance in a response to one of my comments below:

"Bitcoins earned through mining are considered compensation for providing resources to the Bitcoin network to compute hashes verifying transactions."

When viewed as compensation then the treatment seems consistent with NSOs or barter transactions.

Re: IRS Says Bitcoin Is Property

#288

Post by mpyne »

Consultant32452 wrote: post #149
mbreese wrote: post #92

Earlier quoted context omitted.

If you're mining in a pool, you should have a record of when you got each fractional allocation of Bitcoins. You could then look up the Bitcoin/USD rate at that time from historical data at one of the exchanges. This is going to be one very large spreadsheet. One benefit is that you can probably batch rounds together and only count the bitcoins as "realized" when they are sent from the pool to you (at payout). This w…

Theoretically you could probably choose any arbitrary price on the day you "receive" the bitcoins.. which given the nature of bitcoin price fluctuations could be significant.

Yes, but as long as the way you pick that price is reasonable at estimating fair market value and consistently applied that shouldn't be a big issue.

Re: IRS Says Bitcoin Is Property

#289

Post by sokoloff »

gamblor956 wrote: post #284
sokoloff wrote: post #281

Earlier quoted context omitted.

Should I file a Schedule F (income from farming) for my herb garden? I actually looked through the instructions for schedule F and I don't find any clear basis to allow me to not file it. In practical terms, I'm not worried, as I suspect that I'd have a net loss, but assuming a net gain (that the fair market value of the parsley and sage I got from the herb garden exceeded my out-of-pocket costs to run the garden), I…

You should ask a tax lawyer or an accountant. But a "garden" is unlikely to be a "farm" within the meaning of the federal code, especially if it's just a hobby activity rather than a bona fide business intended to make money. (See http://www.irs.gov/pub/irs-pdf/p225.pdf , which notes that a farming business requires a profit intent.) As for treating BTC as capital property--they are, under IRS decree--capital propert…

If I spend $10 buying a disposable planter and herbs, and over the course of the year, I harvest $20 FMV of herbs, I have made a profit. Profits from a hobby activity must be reported as income. Time permitting, I will ask my CPA/EA when we go over my taxes. (I'm quite certain that I spent more gardening than the value of the food I extracted, and hobby losses are not deductible, so I'm quite sure I'm clean...)

I'm not suggesting that BTC should have special rules because it's digital, but rather questioning whether mining BTC should be treated as compensation for personal labor (ordinary, active income), treated similarly to a dividend or interest payment, or treated as an outcome of a business activity (like raising beef cattle, food crops, or extracting energy from wind/solar). To my mind, the activity seems more closely aligned with the last group, and pretty far removed from compensation for personal efforts.

(None of this applies to me personally, as I've never owned a BTC, but these topics strike

Re: IRS Says Bitcoin Is Property

#290

Post by predius »

logfromblammo wrote: post #274
bduerst wrote: post #270

Earlier quoted context omitted.

In barter exchanges, this is almost never the case, and is more suspicious when reported as such.

The whole point of barter is that the stuff traded by each side has roughly equivalent value to the traders. Seems like the tax rules outlaw pure barter and make you use dollars in your transaction whether you want to or not.

Which is the point, the IRS doesn't want barter to be normalised because that would mean some people could claim barter and escape paying tax.
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