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IRS Says Bitcoin Is Property

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Re: IRS Says Bitcoin Is Property

#291

Post by URSpider94 »

phogster wrote: post #142
patio11 wrote: post #85

Earlier quoted context omitted.

This is not an anomalous case in taxing business income. A few startups asked me to do work on a barter basis. (Can you do a week of marketing work for us if we build you an iPhone app?) I told them that, if I were to agree to do that, I'd be legally obligated to value my work at it's market price and file an informational return to the IRS showing that amount of money given as payment for services rendered, which th…

Wait, are both parties responsible for paying taxes in this case? In the normal case the party receiving payment for services rendered is the one that pays income taxes. Here both are providing and receiving a service at the same time.

If the barter is for services (I mow your lawn if you do my taxes), then yes, both parties would owe income tax on the fair market value of the services -- it would be the same as if they had paid each other the same amount in cash.

If the barter is an exchange of goods for services (I'll do your taxes in return for 10 dozen eggs from your farm), then the party that received the goods in exchange for their services owes income tax on the fair market value of the service provided. The party that provided the goods would owe income tax on the capital gain of the goods (fair market value minus the cost paid, or basis).

If both parties are exchanging goods, then it gets more complicated. In some cases (I trade you the deed for my apartment in the city for the deed for your beach house), the IRS deems it a "like-kind exchange", which is NOT a taxable event -- the basis of the old items carries over to the new properties. However, if I exchange my apartment for your car, then it's not a like-kind exchange, because the items exchanged are not of like kind (makes sense?), and both parties pay capital gains (or can claim a loss) vs. the fair market value of the exchange.

To add to the fun, one can do a delayed like-kind exchange by storing the proceeds with a "qualified intermediary", a form of escrow agent. This is often done with real estate, since it means that the counterparties don't have to be willing to swap deeds. To give a specific example, I could sell my apartment in the city, deliver the proceeds to a qualified intermediary, and use them later to buy a beach house, and it would be treated as a tax-free exchange by the IRS (if the prices of the two properties are equal and some other criteria are met).

Re: IRS Says Bitcoin Is Property

#292

Post by URSpider94 »

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.

You can do pure barter, you just have to pay taxes on the transaction -- and those taxes must be paid in dollars.

This is part of what it means to be a national currency -- it's what the government accepts for payment of taxes.

Re: IRS Says Bitcoin Is Property

#293

Post by URSpider94 »

Zarathust wrote: post #157

I don't see how this law could be enforceable. Hiding bitcoins from the IRS seems to be trivial and lying about the real acquisition value as well. This is very different from stocks where all trades are overseen by the SEC. You can't just go to a neighbor's house and pay for stock in cash without telling anybody else.

A lot of people used to think this about Swiss bank accounts, until the US government compelled them to hand over their account records. Now a lot of Americans are on the hook for years of back taxes, and potentially for criminal tax fraud...

Re: IRS Says Bitcoin Is Property

#294

Post by URSpider94 »

maxerickson wrote: post #217
hkphooey wrote: post #201

Earlier quoted context omitted.

> If you obtained stock prior to 2011, and sold it, the IRS has no idea what the cost basis is Any links to this? Isn't it based on FIFO or LIFO and you just have to be consistent in your approach? Why specifically 2011? Thanks in advance.

As of 2011 brokerages are required to keep track of cost basis information.

.. not just keep track, but report the basis to the IRS.

Re: IRS Says Bitcoin Is Property

#295

Post by URSpider94 »

hkphooey wrote: post #201
ewoodrich wrote: post #69

Earlier quoted context omitted.

If you obtained stock prior to 2011, and sold it, the IRS has no idea what the cost basis is, so this is voluntarily reported by the filer (and this will determine your capital gains). Of course, if you fudge this number to the point it is noticeable, you're looking at between a 20% and 100% penalty, or possible civil fraud. Bitcoin is really no different. It doesn't matter if there's no easy way for the government t…

> If you obtained stock prior to 2011, and sold it, the IRS has no idea what the cost basis is Any links to this? Isn't it based on FIFO or LIFO and you just have to be consistent in your approach? Why specifically 2011? Thanks in advance.

You don't have to use any particular approach, you can choose to match up purchases and shares however you wish (FIFO, LIFO, per-sale tax optimization). You just need to make sure you track what you're buying and selling, so that every purchase and sale are matched.

As of 2011, your broker does this for you -- and different brokers offer different levels of sophistication in their tracking. Some only offer FIFO and LIFO, others will do more complex optimizations for you.

For purchases before 2011, you need to save info on your purchases lot-by-lot and match them up yourself. This has screwed me several times, when I can't remember when I bought a certain stock and can't put my hands on the appropriate statements at tax time. Royal pain.

Re: IRS Says Bitcoin Is Property

#296

Post by URSpider94 »

quakkels wrote: post #75

I can't tell if this is good or bad. But, does it strike anyone else as odd that the IRS ignores that bitcoin _is_ actually currency? Can they even declare it to be property when the reality is that it is currency?

Collectible antique coins are also currency -- a buffalo nickel is still legal tender, but you'd be a fool to use it in a bubble gum vending machine. Nonetheless, the IRS treats them as property, for purposes of taxation.

Re: IRS Says Bitcoin Is Property

#297

Post by DrStalker »

uiri wrote: post #248
patio11 wrote: post #226

Earlier quoted context omitted.

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.

For tax purposes does it matter when the device is obsolete or when it reaches the end of it's expected lifespan as functional hardware?

Re: IRS Says Bitcoin Is Property

#298

Post by tsotha »

stevewilhelm wrote: post #282
beagle3 wrote: post #242

Earlier quoted context omitted.

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.

Not always. Sometimes that's against the rules, depending on exactly how the stock is awarded.

Re: IRS Says Bitcoin Is Property

#299

Post by thaumasiotes »

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.

I was pretty sure the point of barter was that both sides realized a gain. That's the concept of "gains from trade".

I mention this because you specifically call out "equivalent value to the traders".

Re: IRS Says Bitcoin Is Property

#300

Post by tokenizerrr »

sillysaurus3 wrote: post #218
gnaritas wrote: post #207

Earlier quoted context omitted.

Are you the average user? I doubt it, what I said is very much true and you've offered nothing to disprove it.

Sorry, you're right, I didn't provide enough detail. If the average user can figure out how to use bitcoin, then they can figure out how to use Armory. Most people have an old laptop or computer that they can afford to keep disconnected from the internet. If it's not connected to the internet, then it's not susceptible to hacks. It also offers a way of doing secure backups, so that if your computer is lost in a house…

Slightly offtopic, but a raspberry pi makes an awesome cheap offline bitcoin wallet.
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