Topic: Bitcoin Is Property Not Currency - page 12. (Read 14732 times)

Only if you actually have some participation in operating the pool, as opposed to merely using it. It seems possible there might be public a pool organized as a coop where the miners could vote on decisions about running the pool, etc. but I'm not aware of one. But in general that's not how pools work, aside from private pools organized by a small group of miners, and those could fit your description. The pool is a separate business and you are contracting with it.

Tyrants gonna tyrant.

Employee software engineers sure, but that wasn't my intent with the example. I was thinking more along the lines of independent software engineers working on a new project.  In the case of employee programmers, the company creating the software is again not taxed on the value of the software as it's created. They're taxed on the profit when they sell it.


Agreed that this does complicate the issue.  However, it is also akin to a group of people working together to create something, as in the software engineers above.

Bottom line is their "solution" seems inconsistent with the definition of property, and entirely unnecessary.  Miners mining for USD profit will sell their coins, and the tax value will be captured at that time.

The issue gets a bit worse with the current weird combination ruling.  Generally, capital losses cannot offset ordinary income (except a small allowance per year).  So, if you're taxed at the high value when you mine, and later sell the coins at a loss from that value, it may take a long time to recoup the overtaxation.  This is exacerbated with the odd montage ruling on mined coins.

Nice try but that one is going to go about as far as your post.

My $.02.

This might be helpful to some:

Determining Whether Sales Are Hobby or Business

Income made from online sales can be reported to the IRS as "hobby income" if the sales activity qualifies as a hobby according to the IRS, i.e. sale without the intention of making money. For example, a recreational photographer selling a photo on eBay should report the sale as hobby income. One test is whether the seller has made no profit from the hobby in two of five consecutive years. If the income does qualify as a hobby income, sellers can deduct hobby expenses from the income but cannot use hobby losses to offset other non-hobby income. - See more at: http://tax.findlaw.com/federal-taxes/do-you-need-to-report-your-online-sales-to-the-irs.html#sthash.nNPeBs1B.dpuf

So many wanted Bitcoin to go "mainstream" and now it has.

Be careful what you wish for.

My $.02.

This is confusing as hell. Really sucks for American bitcoin users.

Denmark has 0% tax on Bitcoin from today apparently:

 https://bitcointalksearch.org/topic/tax-free-bitcoin-in-denmark-530205

mighty nice place to live also.

So when will the first whales renounce citizenship?  

It is en vogue

http://www.forbes.com/sites/robertwood/2014/02/06/americans-renouncing-citizenship-up-221-all-aboard-the-fatca-express/

Americans abroad can be pariahs shunned by banks for daily banking activities.  (even without BTC involvement!)

Perhaps Iceland is an option?

The software engineers are taxed as they code. It's called salary. Even if they are paid in stock they might be taxed on the value of the stock (complex rules apply).

As an individual, though, yes this is somewhat different. If you create something as an individual you are not taxed on it right away. The IRS rules are somewhat goofy in that sense.

However, if you are mining on a pool you are not really creating bitcoins, you are providing a service to the pool and being paid a fee (usually in bitcoins) based on some formula related to the quantity of service you provided. This is a lot being an employee or independent contractor. The IRS rules are less goofy in this case, though I doubt this was really their intent. Sort of a goofiness-reducing accident.

I think that's a bit charitable. The tax code is so convoluted it's probably possible to get even the most anal of honest tax reporters on something if they wanted to.

The basis would be the valuation used for the gross income that you declared.  I showed an example above.  It would never be zero.  I agree the IRS is being inconsistent here but there would be no double taxation.

No different than lots of other assets.   Keep good records.  When you file a tax return you don't file any "proof" you just say here is my capital gains, here are the taxes.   The IRS doesn't audit every tax return so yes people do lie about capital gains.  They do so every year in every asset class you can imagine.  Now if you get audited and you don't have sufficient records well the IRS is going to recompute your taxes using the worst possible method and throw additional interest and penalties.

So it is important to separate out "the tax code" with "can I cheat on my taxes and get away with it".  They are two totally different questions.   The more you make, the more likely you are to be audited.  If we are talking a couple Bitcoins it is very likely the IRS wouldn't catch on even if you were audited (they don't have magical powers).  If we are talking about tens of thousands of Bitcoins you should be using the services of a CPA. Period.

The handling of mined coins seems inconsistent and problematic.  A painter is not taxed the value of her painting as she paints. She's taxed when she sells her creation.  A closer analogy is a team of software engineers creating a game. They're not taxed as they code; they're taxed on the income from the sale of the game.

The problematic part has been touched on above, but to add to that, if the miner is taxed at the time of mining, how is the sale handled when they sell the coins? What basis is used? I suppose the FMV at the time of mining, but of course there will be no receipt. Normally, basis is what you paid for the item, which in this case would be 0.  If it were 0, that would result in double taxation of the same income.

The IRS should revisit the rules RE: mined coins. The rest seems pretty much as expected.

We have been keeping records and printing out statements of when we purchased coins so that we can prove that the purchase of the coins so we can prove that we held them over a year.  I guess the paperwork could be forged but they could check with Coinbase for some of the purchases.  Of course Bitfloor, where we made our initial purchases, is no longer around. 

There are TWO taxable events.  The first is at the point you had taxable income, the second is at the time of the sale.

To expand on your example:

Say you mined 1 BTC today and the current exchange rate is $580.  That would be $580 in "regular income".  You can file this as a business and reduce that by the electricity and amortized hardware cost. Lets say your costs are $320.  You would file a Schedule C report the income, your expenses (like electricity) and the depreciation on your miner.  Lets pretend it works out to $320.  Then you would have a net income of $580 -$320 = $260 added to your other income (wages, tips, interest) and it would be taxed at your normal tax rate.

Now if you sold that coin today as well then you would have NO capital gain.  However lets say you held on to that 1 BTC for three months and when you sold it you got $900.   You would have a capital gain on the GAIN over the $580.  So $900 - $580 = $420.  On the other hand lets say the price had declined and you sold it for only $400.  You would have a capital loss of $180 ($400 - $580 = -$180).  The capital loss can offset capital gains and up to $3K can be applied against "regular income", the rest rolls forward to the next year.  If the time between mining and selling was greater than a year then those would be long term capital gains/losses otherwise they are short term capital gains/losses.

Note this isn't legal advice just trying to parse out what the IRS said.  It also doesn't mean I agree with any of it.  Just going by what was written and pointing out it is possible for there to be two taxable events.  It is very likely the IRS will need to provide some concrete examples with figures before this debate it put to rest.

You can deduct 3000 per year of capital losses against regular income, the rest gets carried forward. You can also use the loss as an opportunity to realize tax free gains by selling other appreciated assets. There are some edge cases where this causes a problem (for example, you have a huge loss December 31 and a huge gain the following day) but for the most part it is fairly reasonable.

If you don't understand these things learn or talk to an advisor.

If you are spending thousands to tens of thousands of dollars on mining equipment and power bills, that is a business, sole proprietorship (what you mean by self employment) or otherwise. It is not a lemonade stand or a garage sale. Possibly you could screw that up by not operating properly, keeping good records, etc. You may judge that not to be paperwork trouble and decide not to mine for that reason, which is certainly reasonable. But otherwise there is no reason shouldn't be able to treat it as a business and deduct expenses.

Even if it is a single sale (i.e you sold 110 shares) it would be recorded as two transactions.

100 shares as a long term capital gain.
10 shares as a short term capital gain.

Yes it gets very complicated, and yes there is expensive software (i.e. gainskeeper) to make sense of it all.  If it is a lot of money/value we are talking about, get an accountant.

I wonder if you could get a computer to do that. You think?