Topic: Bitcoin Is Property Not Currency - page 6. (Read 14732 times)

There are lots of ways to cheat on your taxes.  It is called tax evasion.  There are also lots of ways to legitimately reduce your tax liability.  It is called tax avoidance.  How difficult it would be for the IRS to catch you cheating is a completely different topic than the tax liability.

Tracking cash is also hard.  An employer could pay all his employees in cash, keep fake books, and cheat on his taxes that way.   It doesn't make the tax liability go away.  So keep in mind when you are asking a question, which question are you asking.

A US citizen (and in most cases residents) owes US taxes regardless of where the taxable event occurs.  It doesn't matter if you leave the US and NEVER come back.  The only way to avoid US taxation is to renounce your citizenship (which generally requires you to already have citizenship in another country).  Now if you are asking if you could "get away" with traveling to russia to do cash deals for rubbles and then laundering those funds though a bunch of offshore accounts?   Maybe but that is asking "will I get caught", not "is this legal".  Honestly if it is a small amount of money it probably isn't worth the trouble and if it is a huge amount of money speak to a good offshore lawyer and CPA.  Tax avoidance not tax evasion. 

likewise people living in states with a "use tax" usually don't report their Amazon purchased and pay said use tax.

That doesn't mean it isn't the law to pay use tax in some states though.

I was thinking along the same lines, specifically the philosophical and functionally fundamental aspects of property ownership will inevitably have to be reexamined.

If I sell btc on a exchange I will report it. I will not be reporting any capitol gains from anything I buy with btc.  As far as the IRS will know my bitcoins will remain forever in cold storage.  They simply can't monitor this..

Because if you MINE your bitcoins in 2014 - and say you don't sell any: you OWE TAXES on the mined amount when taxes are due on April 15, 2015.
If you eventually sell / trade for goods your bitcoins in 2017, then come April 15, 2018, you ALSO owe taxes on the profit/loss at that point.

Only if you mine and sell coins in the same year does the profit/loss equate to only owing taxes on the selling amount.

The part that sucks (which particularly happens to people on game shows) - is that you took in some earnings/winnings like a new car worth $30,000. You owe taxes on that gain immediately THAT year (say the bill is $10,000!) You can't afford it, so you MUST sell your car THAT YEAR to pay the tax bill. So winning a $30,000 car is really a headache to come out with $20,000 in cash. Many game shows now award people the cash equivalent of the prize so people can pay the taxes and then use the remaining money to buy what they want.

Assuming the property is held by somebody in the US then they are subject to capital gains tax regardless of where the exchange is done.

Are there ways to hide income?  Sure. But now you're probably also guilty of tax evasion and maybe money laundering.  Does it matter if you don't get caught?  I guess that's for you to decide.

The IRS depends on taxpayers being honest.  Many aren't honest.  Most probably don't get caught.  Some do.

What if this property is moved oversea and never exchanged at home country? If people avoid centralized exchanges where all the bitcoins can be traced to person, then there is no way to properly identify the ownership of each coin

The IRS has simply given us their interpretation of how the existing laws apply to bitcoin.  The IRS has said nothing about the practicality of enforcing these laws.  These IRS statements give the taxpayer and the IRS auditor guidance.  If you follow these IRS guidelines you aren't likely to have any legal complications.  If you decide the IRS is wrong and you do get caught then I suppose you could probably bring the IRS to court but it'll be an expensive and uphill battle.

Personally I assumed BTC was subject to capital gains long before this.

they will make an example of a few people who will be audited comprehensively.
once you hear on the news some guy got 20 years in jail for tax fraud because he didn't report his bitcoin capital gains properly you will think twice before attempting this.
if you refuse to give the IRS any information they will throw you in jail obviously...
 

Such an argument doesn't really mean anything for tax purposes.    The IRS wants you to pay tax on your earned income, i.e. you are a miner generating bitcoin - expenses, your are a merchant selling product for bitcoin - value of inventory and expenses, or you earn wages in bitcoin.    If you lose all your bitcoin after receiving it, a business might be able to deduct a catastrophic loss, but it just means you are out of luck.  The same rules apply to you if you are being paid in USD.

If you give it to someone as a gift, it is regarded as income when they receive it.  The same rule applies with cash, goods and services.

The treatment of capital gains is different, you pay a tax on the gain made from holding it.  If you buy bitcoin, then proceed to truly lose it, you will never be able to trade it for money or goods and services and realize a gain, thus never paying a capital gains tax.  The same rules apply when you buy something considered property by the IRS, i.e. you buy a house then sell it at a higher price in USD.  If the house burns down, hopefully you have insurance.

If you are holding bitcoin in a trust, then you probably want ask your tax lawyer how the capital gains are going to be handled.

US tax law never changed just because bitcoin was invented.  The IRS just clarified that you pay capital gains on bitcoin at a lower tax rate on the gains made by the price going up, rather than as regular income at a higher tax rate.

If you ask me this is just an attempt to keep those that don't really understand what a bitcoin is away from gaining any interest.  Build a straw man argument of sorts and present it as fact and end all be all of the discussion.

This does bring up a existential question on what property really means.  Afterall what does it mean to own a bitcoin?  In the technical sense it just means knowing the private key to a wallet that has bitcoins;  In the literally sense ownership means knowledge.  If I were to share my private key with 10 people are they now owners of that wallet or is the wallet still mine ?  What if I loose my private key and the bitcoins are lost forever do I still own that wallet , did I ever own that wallet ? I think bitcoin is going to force a fundamental chance on how property is viewed in the world.  Its certainly going to be interesting.

Are any of you that were mining in 2009/10 gonna go back and document all this for the IRS? I love how the IRS can just apply this to past, present and future. 

Your bank, seeing incoming USD coming from a foreign exchange, will report it to the IRS.  The IRS may come after you for the tax on all that income assuming you are some kind of drug dealer.  Tax court doesn't assume innocent till proven guilty.

It may be time for you to head for your bunker and declare yourself sovereign citizen.  The problem is that it will be really tough to deal in bitcoins without electricity or internet in your bunker.  Just saying...

One might argue that all of the bitcoins already exist, its just that you have to unlock them. Unlocking requires hardware, electricity, man hours which you should be able to write off. If you pay yourself the man hours to build and install and maintain the mining rig  those can prob also be taxed but then used to write off a loss? But I'm arguing here that bitcoins do exist before they are mined. They exist in the protocol. You can not simply pull something of value from thin air. The protocol pays it to you for solving it's algorithm.

this is correct buy irs rulings are not law...

Question, How is the IRS going to go after all who are mining BTC and how will the IRS go after all of us who purchase goods with BTC. And how will the IRS go after the ones who gamble and receive earnings with BTC 

What if we all refuse to give any information to the IRS regarding our BTC trades?

I say we End The IRS and EndTheFed!!

That is the point of a centralized bank currency.  The intent by the government is to inflate its value at a rate that discourages holding on to it as an investment, and instead keeps circulating in the economy like a hot potato.

I don't think that is what they are saying though. If that is what they are saying then why bother telling us to base the value on what they were worth at the time they were mined? If what you are saying is accurate then there would be no point in worrying about what they were worth when MINED, only what they were worth when SOLD.

Bitcoins are no different than any other commodity. You are 'given' 10 live chickens. Find a reasonable market value for the chickens. There are thousands of different farmers markets selling chickens in the world. Pick a reasonable middle.

If you find that each chicken is worth $5, then when you sell them at $2 each...

You owe ($5 x 10) $50 minus your loss of  ($3 x 10) $30 for the 'loss sale', so you have $20 in taxable income. This is the same as $2 x 10 = $20, the price you sold them for.

So in your version, where you mined them at 300 and sold them for 125, you'd just pay taxes on the price you sold them for - as long as this is in the SAME YEAR.

If you mined the bitcoins on Dec 31, 2014, and they were worth $5 each that day, you'd have a taxable income addition of ($5 x 10) = $50, then SOLD them on Jan 1, 2015 for $2 each, you'd report a LOSS of $30 that year.

Note that I keep saying 'taxable income'. This is NOT the actual tax you owe. It's all determined by how much money you made the year you file. Say you made $7,000 in bitcoins in 2014, but no other income. If you're single, your standard deduction in 2013 is $7,600, so all of it has been deducted, and you actual owe $0 in taxes. (You'll actually GET money from the US Government in this case, because your income is so small, but that's another story)

The tax code is complicated, but it only takes a few hours to understand the basics of it. And you should - it will help you the rest of your life.