Topic: Bitcoin Tax Questions (Read 1608 times)

just do what you feel like doing. Stash some cash away for one or two good lawyer and let the courts decide if there ever comes up a case. You should be able to drag this case through the various courts for years and years until the case is expired - at least that is what the whales will do i think.  You can expect every court to rule differently in the beginning so you can go into revision again and again. Don't know for the states but in most countries such cases expire after 6-8 years. I have really no idea though. I just see what the rich and powerful would do in such a case. Get top lawyers - that's it. We will see a lot of bizzarre courtcases with bitcoin i am sure. They can't even define what it is - not even in the slightest. How can you tax something that you can't define yourself? You probably can't tax it after all. They need to be clear first wether it is currency or commodity. Or both? Or none of the above?  They can't really tax it as long they are not clear about what it is i think. It is not that you don't want to pay taxes. You would if you could know how and what it is exactly about - but you just don't know and they don't know either.
In germany they tried to outlaw magic mushrooms back in the day but were not able to do so for a few years because they could not define 'mushroom' properly. They had to rewrite that law several times. Expect them to write bogus laws that are not valid if tested for validity due to failure in defining exactly what they talk about.
I think taxes for bitcoin could be considered voluntary for bold people with good lawyers as long as they are not specific what exactly they talk about in their laws. Their own central banks said it has no intrinsic value and is a ponzisheme. So does tax apply to ponzishemes? What tax applies to online gambling? Is gambling income? What are we talking about here, sorry? ... if they ever happen to find a good applicable, valid definition of what bitcoin is (after years of hard work) you will already be mining and trading something else for something else.

too many questions for my newbie mind

As a miner, I'm only reporting earnings transformed into fiat through my bank via coinbase.  I bought lots of gold/silver w btc.  When I sell those, I'll report earnings based upon the basis when I bought the metals.  I use btcguild.  I downloaded a spreadsheet of the mining events, took the daily total, used the daily bitcoin average as the basis.  My CPA seems to be satisfied with that.

I did not answer, but the IRS seems to have changed on the tax issue.

The safe route I would recommend for now when sending or receiving taxable Bitcoins is to record the dollar value of the Bitcoins at the time they are sent or received for tax reporting. This will probably be a pain given how much the price can fluctuate, but it is the safest route.

1. Correct. As I said: record the dollar amount of each SD gain as you win the coins and the dollar amount of the coins you spent. You would claim the winnings as line 21 income and deduct the losses (to the extent of winnings) on a schedule A if you itemize your deductions. Maybe Satoshi Dice will implement tax forms into their site at some point, which I imagine they could only do if you registered an account with them or something.

2. You may not have to amend your previous year returns since the IRS did not regulate Bitcoin earnings in those years. The IRS also doesn't have a record of BTC you earned in previous years, so I wouldn't worry about an audit. Keep in mind that the IRS generally allows amended returns for the past three tax years only.

4. You could claim such losses on form 4684, but I imagine you would have to make a very strong case to prove you had ownership of such lost or stolen coins for the IRS to allow such a deduction. And, again, you would probably have to claim the loss on the value of the coins at the time of the theft, fraud, or loss.

5. Yes, I would highly recommend (like I said earlier) recording all Bitcoin dollar values in and out for tax purposes. A simple Excel spreadsheet would probably suffice for this.

6. Yup, same as #5. I don't think the FMV of Bitcoin varies enough from wallet-to-wallet, exchange-to-exchange, for it to matter too much which source you use. For example, I use the send value of my blockchain app to record the value of my Bitcoins.

7. The biggest target area for IRS audits will be, I imagine, schedule D Bitcoin transactions (which tend to be a target form on its own). Hopefully the IRS will release more guidelines for Bitcoin related tax reporting, but for the time being just do the best you can to record what you get when you get it. If you can show the IRS that you used reasonable methods at your disposal to record what you pay and earn, you should be fine. I also imagine it'll be difficult for the IRS, in the beginning, to harshly enforce Bitcoin transactions, given the newness of the ruling and the nature of the currency (or property, as per the IRS) itself.

This I did not answer, but these problems will be solved.

There are ways to claim losses due to theft (see http://www.irs.gov/taxtopics/tc515.html) that would probably apply to bitcoins. You may want to seek advice from a tax professional, but https://bitcointalksearch.org/topic/tax-write-off-for-coinlenders-loss-446384 has some more opinions on the topic.

Instead of bitcoin, you may want to use property or digital property with a tax professional.

Some problems that I think are awfully difficult to solve:

1. If you played SatoshiDice you need report that on your tax return.  Each winning and losing SatoshiDice bet creates a taxable event.

2. If you had bitcoin transactions in prior years, 2012 and earlier, you need to file an amended return and either pay additional tax or get a refund.

4. If you lost bitcoins you need to report that. (Scammed, stolen, pirate@40, coffee on the computer)

5. You need records or every bitcoin transaction.

6. You need records of the fair market value of bitcoins (for much of bitcoin's history there has not been a fair market, MtGox!)

7. If you get auditied then your records have to satisfy the auditor otherwise they will make the worst possible assumptions about your transactions, i.e. without a proper receipt your cost basis is $0 maximizing the capital gains tax.

  My "knowledgeable tax professional" has no clue.

If my mined coins are on an online wallet (Blockchain), am I supposed to file them then? or should they be in my possession (hardware/paper wallet)?

I'm a bit relieved that I didn't start on Bitcoins until this year... I'm hoping to learn from all who are filing taxes for 2013 with Bitcoins.

Thank you all so much for your help. Theres still a lot of questions left unanswered. I hope things will become clearer, and that there would be NEW guidelines for this new technology.

So would BTC lost to a scammer be considered a reportable loss? I sent BTC for a miner that was never delivered. Just interested in opinions. I am going to an accountant for my taxes now, jeez.

Wash sales aren't applicable to Bitcoins, only stocks and securities.

This also probably triggers a "wash sale" if your bitcoin had depreciated since you bought it so that you can no longer claim the loss.

In order to track your bitcoin correctly you need to first build a spreadsheet that has every single bitcoin transaction you've ever made in it. Mined coins are treated as personal income in the amount of the fair market value of the bitcoin on day they accrue to you. That is also their basis. Whenever you sell some bitcoin or trade it for anything else that's a taxable event. Those events in 2013 are what you need to list on form 8949.

You really should talk to a knowledgeable tax professional and not take advice from random strangers on the internet, but here's my understanding of what the IRS said:


You are providing a service (renting your hash power) to the mining pool.  As such you are engaged in a barter transaction for property called bitcoin.  You would treat this just like any other barter transaction (for fine art, computer equipment, or any other form of property).  As such, you would need to declare an income of the fair market value of each payout that you receive. Then if you sell those bitcoins (or use them in a transaction to pay someone else) later, you will need to declare capital gains (or capital loss) based on the new fair market value at the time that the bitcoins are sent.


If you send the fees to the mining pool from your wallet, then it is a capital gain (or capital loss) on the fair market value at the time that you send the fees to them.  If they simply withhold the fees before making a payout to you, then you can disregard the fees since those are bitcoins that you never actually received.


You need to keep track of the value of every transaction that you send or receive, regardless of whether it is multiple bitcoins, 1 bitcoin, or a fraction of a bitcoin.


barter income from the exchange of property for the bitcoins that you receive from the pool, and capital gains (or capital loss) on the fees that you pay to the host based on the fair market value at the time that you make the payment.

It occurs to me that if the IRS wants to use its rules to make things as difficult as possible for bitcoin accounting it could interpret the law this way. Each use of bitcoin creates two transactions: the purchase and the change returned. The change gets a new address. This could be considered a new piece of property. Thus for each transaction you would have to keep track of the original purchase price of the bitcoins, the value in USD at the time of sale (keeping record of exchange rates in the case of non-USD sales) and then the current value of the change returned.

I'm sure someone will write software to automate this process, but until they cold make it a real bitch to stay compliant. And of course as always no two agents would interpret the law the same way.

As with almost any question posed to the IRS you will get a number of different responses approximately equal to the number of agents asked.

i heard somewhere that if everything works out we are going to have to record the price we buy at and then whatever price it is when we spend bitcoin and report it as a profit loss or gain

I don't have answers and I'm hoping for some competent responses to your questions but I'm also curious what would happen if you submitted these questions to the IRS.