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IRS Says Bitcoin Is Property

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Re: IRS Says Bitcoin Is Property

#311

Post by runeks »

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…

> (1) [...] User keys in their Bitcoin addresses. App searches the block chain for the user's entry and exit times.

How will you know which output is spent on purchasing something for bitcoins (a taxable event), and which is change, sent back to the user?

You'll see a bunch of transactions like these:

Redeem 3.4784 BTC from output 1 from tx 23e23f23f23be52bef98a8b... Send 0.879 BTC to 1CjPR7Z5ZSyWk6WtXvSFgkptmpoi4UM9BC Send 2.5993 BTC to 1NxaBCFQwejSZbQfWcYNwgqML5wWoE3rK4

Has the user spent 0.879 or 2.5993 BTC on something?

Or has he just sent money to another wallet, or deposited with an exchange?

The index number of the non-change output in a transaction is intentionally randomized, so it can't be figured out, from blockchain data, which is the payment and which is change.

Re: IRS Says Bitcoin Is Property

#312

Post by gamblor956 »

sokoloff wrote: post #289
gamblor956 wrote: post #284

Earlier quoted context omitted.

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 n…

Ah gotcha. I see what you're missing now.

It is possible for compensation to also be business activity income. Compensation, tax-wise, simply refers to getting paid to provide labor or a service. Whether that service is a business activity of the service provider is a separate question. (Labor is generally not a business activity, and generally employees are treated as providing labor to their employer).

IOW, mining is compensation, but if it is a business activity of the miner, then they can deduct their losses/expenses against their mining gains. Someone who only mines as a hobby (i.e., they don't put much effort into it or attempt to maximize profits or minimize losses) doesn't get to do that even though they are also providing a service.

Re: IRS Says Bitcoin Is Property

#313

Post by logfromblammo »

thaumasiotes wrote: post #299
logfromblammo wrote: post #274

Earlier quoted context omitted.

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 ".

Gains from trade are theoretical numbers, based on the shapes of the supply and demand curves. As long as those numbers are positive, trade still happens. When zero, the traders are indifferent to the trade. So when things like monopoly pricing, taxes, and price discrimination com into play, a certain quantity of trade will simply not happen.

That value is not something you can tax directly. It's more like happiness than cash. In the barter, the traders walk away with the same value of goods, but greater happiness. I'm not sure what dollar value the IRS places on happiness, but based on their behavior, I'm pretty sure it is $0 per smile.

Therefore, neither trader in a normal barter should realize a taxable gain.

Re: IRS Says Bitcoin Is Property

#314

Post by VLM »

_delirium wrote: post #233
VLM wrote: post #176

Earlier quoted context omitted.

"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…

It boils down to redefining the national poverty rate as a certain low fixed consumption/spending, rather than a certain low fixed income. Given that for poor people its pretty strictly income=spending its not a huge change.

Re: IRS Says Bitcoin Is Property

#315

Post by gnaritas »

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…

> If the average user can figure out how to use bitcoin, then they can figure out how to use Armory.

I don't agree. Using coinbase is vastly easier than setting up Armory and managing your own security on your own PC.

> Most people have an old laptop or computer that they can afford to keep disconnected from the internet.

They won't understand they need to; they can't even stop opening exe attachments in their email and running them, you seriously overestimate the average user.

> If it's not connected to the internet, then it's not susceptible to hacks.

Way over their head.

> It also offers a way of doing secure backups, so that if your computer is lost in a house fire, you'll still have your coins.

Doesn't matter, you lost them at the word "install".

Re: IRS Says Bitcoin Is Property

#316

Post by thaumasiotes »

logfromblammo wrote: post #313
thaumasiotes wrote: post #299

Earlier quoted context omitted.

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 ".

Gains from trade are theoretical numbers, based on the shapes of the supply and demand curves. As long as those numbers are positive, trade still happens. When zero, the traders are indifferent to the trade. So when things like monopoly pricing, taxes, and price discrimination com into play, a certain quantity of trade will simply not happen. That value is not something you can tax directly. It's more like happiness…

In barter, both parties believe that the value they walked away with is greater than the value they put into the deal. In principle, that's exactly what the IRS wants to tax. A currency system should generally preclude any barter by assigning reliable values to both parties' goods, such that the one whose stuff is assigned a higher monetary value by the market will be unwilling to make the trade, since they could do better by just selling their stuff and buying the other party's. (A raw trade could still happen where the market value of each party's offering is somewhere within the bid/ask spread of the other's.) But that's independent of what "barter" is. Barter is just trade unmediated by a currency. You can realize taxable gains through barter in just the same way that my uncle once paid his rent for a month by selling an art object he bought at a garage sale for under $100. Despite being mediated by cash, that was a highly uneven trade, and barter is no different.

In a happy coincidence for the IRS, assigning monetary values to everything makes it trivial to assign a value to the trade for the gaining party to pay tax on. Again, not relevant to what barter is.

Re: IRS Says Bitcoin Is Property

#317

Post by logfromblammo »

thaumasiotes wrote: post #316
logfromblammo wrote: post #313

Earlier quoted context omitted.

Gains from trade are theoretical numbers, based on the shapes of the supply and demand curves. As long as those numbers are positive, trade still happens. When zero, the traders are indifferent to the trade. So when things like monopoly pricing, taxes, and price discrimination com into play, a certain quantity of trade will simply not happen. That value is not something you can tax directly. It's more like happiness…

In barter, both parties believe that the value they walked away with is greater than the value they put into the deal. In principle, that's exactly what the IRS wants to tax. A currency system should generally preclude any barter by assigning reliable values to both parties' goods, such that the one whose stuff is assigned a higher monetary value by the market will be unwilling to make the trade, since they could do…

Given that the IRS can operate under any rules that the government pleases itself to create, regardless of any connection to reality, I don't think anyone there even attempts to discern whether a given rule is actually generating revenue or just fruitlessly destroying commerce.

As you say, anyone with enough cash available would always prefer settling with two trades using money instead of one barter trade. So really, the barter tax is only levied on people who don't have the money to pay it and on tax avoiders. The tax avoiders find another loophole; the poor people remain screwed.

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