Your best bet is to not convert it to fiat at all if you can avoid it. I know some need to recover cost from purchasing miners etc., but if you hold you can avoid taxes and enjoy the bull run.
Not converting to fiat does not make you immune from taxes. That would be considered tax evasion, and if they catch you there will be penalties and possible jail time depending on how severe.
The above is exactly correct. With all the advances in the reporting over at Coinbase, I would not be surprised if we start receiving 1099s from them by the end of 2014
How would Coinbase figure out the 1099? If you sell bitcoin through them, how will they figure out which bitcoin you sold. What if you transferred bitcoin to your account from another account and then sold it? They could issue a 1099 showing your sold one bitcoin at $700 but who's to say how much you paid for that? I'm afraid I see oppressive regulation coming our way. The good news is, nice the IRS really starts to crackdown on bitcoin, the publicity will be good and enlighten the public about inflation, the fed and government controls.
I hope.
That is one of the main arguments against the technical impossibility of taxing bitcoin as an asset. Almost every bitcoin (and here i mean 0.00001 also!) was bought on different $ rates. So, how could they prove capital gains, if they can not stick a price tag on every separate bitcoin and satoshis you own? They just can not, unless they are going to read EVERY SINGLE transaction on the blockchain till genesis. And if you just did a mixing/altcoin buying and reselling, you completely erased your tracks.
Say people diversify, keep some on paper wallets, or even better, at blockchain.info, and just memorize the passphrase, now that is effectively a brain wallet! Not really a seizable property.
So yes, in theory as long as you keep precautions, and don't sold for fiat, they won't stand a chance to tax on you. (which is effectively a robbery. it is not for new schooling/hospitals. they did not even heard about this technology a year ago and somehow now it is part of the "budget"? come on).
On the other side, we all know government is the biggest mafia, they going to try regulate. But capital fly was never easier, and there are plenty of nice sunny places on Earth to take a 10 year old vacation from the US, and it's IRS commando :-)
Think globally!