Topic: Bitcoins and Tax (Read 9603 times)

the 2018 tax code has a FIFO stock sale provision which will/could be applied to holdings of crypto's.  what this means is if you have a long term hold of BTC and sell it, you can not assign the cost basis to that sale, it would be assigned to the first purchase. 
Lets say you own 1 BTC with a cost basis of $100 from 2015.  In 2017 you purchased 1 BTC at a cost basis of $5,000 and then the same day with no change in the price of BTC (not including the spread) sold 1 BTC to buy 100 ETH.  Under the old rule, you would use the cost basis from the transaction that day, thus incurring no gain. 
Under the new rule, the buyer of the 100 ETH would have to use the cost basis of the original BTC purchase ($100) , thus incurring a large capital gain of $4,900.

Im not a CPA but that is what i read into the new tax law provision

https://www.investors.com/politics/editorials/the-secret-tax-hike-on-investors-in-the-senates-tax-reform-plan/

And indeed the crypto currency will remain another currency from the regular currency, and it can be said as an alternative currency that maybe in the system payment of tax slightly different than the regular currency.
I myself do not knowing it yet exactly how the payment system, but I think.. probably this will be more simpler than the tax that has been applied to the regular currency.

This paper explains the tax impacts clearly: https://scholarship.law.duke.edu/dltr/vol16/iss1/1/

You should pay tax for btc only if you are selling them for a profit . if you just buy and keep holding it there are no taxes. a capital gain tax is applied when a profit is incurred.

Right now that is scenario very plausible, but more and more the technology is aiming to disrupt that as well. The ethical part of the transactions will be on every person and himself alone because today it´s just too hard to create a wallet for every transaction that you do just to keep the anonymity, but newly decentralized app wallets will do that automatically and will almost be impossible to trace the expenses of person on the ledger, plus many wallets will incorporate obfuscation and Lightning on their platforms. So, even now when most of the transaction can be tied to a person IRS reported that only 8% declared gains in cryptocurrencies, how will they handle the future. Let´s just wait and see.

Probably afraid that laws are not precise enough and people can be targeted by gov agents eager to claim some money from unsuspecting traders and grab a fat raise before Christmas. It seems that the US law is currently protecting the government not the people. If I were in the US I'd refrain from selling my BTC for anything but cash and keep all my wallets on a hidden drive in case they decide to roll in with battering rams and handcuffs.  

Just so everyone knows, quickbooks won't process your echeck payments if they know you deal with crypto. Thoughts on this???

This problem will be solved only when there is a possibility to use Fiat. The government can track only deals with Fiat. I think that even in the presence of a bitcoin ATM to the cost of the exchange will include tax. If the online stores will start to accept bitcoins on for some time government will lose the opportunity to request from us taxes.

In order to regulate Bitcoin they will add some taxes to Bitcoin acceptance. Government's always look for their benefits but they are not understanding what method we have to follow for Bitcoin taxes.

First of all no government can leave financial gain from any asset go unregulated. Otherwise, there would huge cash inflow in such high return yielding asset like cryptocurrencies and that is exactly what they don't want. They simply can't control cryptocurrencies but can only regulate it to some extent. Thus, they'll do it and I feel there is no harm in doing so. This in turn makes it a more trusted asset and cryptocurrencies still need that trust because many are still skeptical and regulations are needed for safeguarding public interest as well. So, on the whole it is kinda give and take relationship.

Obviously, the government will exhaust and consider all of the possible means in order to regulate and impose tax on bitcoins due to the increasing number of users every day. Due to its decentralized nature, the government cannot impose tax, but the problem rises when an individual is paid using bitcoins as his/her salary. If he/she would send his annual income report, then he must disclose all bitcoin salaries thus making him a criminal for not paying tax. It is a very complicated process as no laws are specifically made for bitcoin. Therefore we must enjoy the benefits of it while still not paying taxes because I believe in the future, they will impose it.

It is somehow possible that many governments are trying to put taxes on use of cryptocurrency to regulate its use but the miners , traders and bitcoin users will oppose such action for sure . The most important of bitcoin is that it is decentralized , and putting taxes on it will be like destroying the key feature of bitcoin .
Rivals will try their best to turn down bitcoins.

Are you an IRS agent? What good is it to pay taxes? For example, I don't trust their government and do not agree with how money is spent from the budget of my country. Why should I sponsor? Bitcoin was conceived as an independent economy from the state. Only in this case it makes sense. You offer your own hands to destroy bitcoin?

to pay tax on bit coin really it is good. because every day more people investing bit coin for selling or buying so if the government keep tax then that country economy growing to good. because then we have chance who using bit coin legally and illegally so tax on bit coin is very good idea. really i would like to encourage to this act.for paying tax improves that country growth so i like to help in my country growth.

That is why it is very important to develop trade with bitcoins. I'm sorry that the miners do not understand. In the pursuit of profit they do not understand that now they have to promote trade with bitcoins. To the point that you need to make free transactions for small purchases in online stores. Only the free circulation of bitcoins in trade can make the community independent.

This is a very bad idea.

https://en.wikipedia.org/wiki/Structuring

You can´t fly under the radar by doing this, banks are aware of structuring/smurfing and you
will get in huge trouble with your local tax collector and probably also face
legal consequences for tax evasion.

Depending on your country of residence you might have other options to cashout
your Bitcoins without paying taxes. But doing what you suggested is not one of them!

At the moment there's now way to impose taxes on bitcoin earnings. Unless you cash out at a bank, but then you just do it in smaller quantities.

For now the government in my country does not charge any taxes for every bitcoin transaction done, all transactions incur a fee for a very small fee. although bitcoin is still considered illegal by the government in my country, but its circulation is still permitted, as this is no regulation that regulates taxes for bitcoin transactions in my country, but if at any time the government has legalized bitcoin, it is likely they will attract tax from bitcoin.

Some notes on Tax confusion. I think this is all correct.

Long term capitol gains apply to coins held over a year. It is one of the cheapest taxes available. It is half that of income, which is 30-35%.

If the price goes down you can actually CLAIM A LOSS on your taxes.

There is legislation pending in the U.S. that will eliminate the tax on bitcoin purchases under $600.

For trading you will want to use some of the tax calculating software. Trading any currency is hard. In fact this is easy compared to trading fiat currencies. Welcome to global markets!

You can use FIFO, but you could also go with LIFO. However, whatever you start with you must continue to use.
http://www.diffen.com/difference/FIFO_vs_LIFO
 

The US is one of few countries where dual citizens must pay dual taxes regardless of their primary residence location.  That is to say that US citizens must pay the same US taxes on their income regardless of where it came from and/or where it resides.  If there is an exception to that, it would likely be one where taxes where higher when money/income were not in the US.  They also have plenty of other ways to track your income, for instance, any US-based exchange and likely any exchange in any in any of the fourteen eyes countries.  Even trading outside of that jurisdiction doesn't guarantee they won't know, for instance, see the btc-e.com takeover landing page, where the IRS logo is present amongst other US LEA logos.

I can't understand how the IRS determines that your bitcoins are in the US? They can track only those dollars which are credited to your account. As far as I know the United States still do not recognize bitcoin currency. This means that your savings in bitcoin can not be considered income.

If the bitcoin will be legal it will pay a tax. There is many rules, regulation, limitations that you need to follow on that. But if the bitcoin will not be legal I will be happy because there is no any rules, regulation, limitations that you need to follow from the government. There is no any problem that you will face.

You could use a software to calculate or you could use the average price for the year.

I am baffled by the number of people who clearly seriously believe and continue to post arguments like this.  As a US citizen:
1) You would most likely get paid once every week or two, and each payment would be a lot, not each day's portion of the payment.
2) If you were paid in a foreign currency daily, you would need to track the value and the cost basis the same way, too.
3) If you were paid in a foreign currency, you would also owe taxes on the value in US dollars at the time of payment (argument that the company paying you would withhold presumably applies to BTC as well if it is on a payroll).
3) If you were taking losses on currency as personal losses (because you clearly aren't a business), you couldn't claim them against your taxes like you can capital losses on investments.
4) If you were to find a chunk of pure gold in your back yard, you would owe taxes at the time of receipt the same way and may have to sell those items in whole to pay the taxes.
5) When you sold the gold, you would pay the collectibles tax rate, which is even higher than the currency tax rate, which is higher than the capital tax rate that applies to bitcoin.

Getting BTC treated as a currency would be like shooting yourself in the foot just so you could shoot someone who you are jealous of in the foot as well.

If you think I am wrong on any of these points and would like to convince me as much, please thoroughly review these two threads about the same before doing so:
https://bitcointalksearch.org/topic/m.9768244
https://bitcointalksearch.org/topic/m.9768244

Circle has some pretty lousy buy and sell limits though even if they approve your account, and right now it's on a pretty bad delay for approval.

Even after verifying my bank account and a card they'll only let me sell $1000 of bitcoin...pretty lousy and the rules for increasing the limits are complete mysteries compared to Coinbase.

The tax situation in the US is a COMPLETE NIGHTMARE.  If you get paid 0.5BTC per day as part of your income or whatever when it comes time to do your taxes you have to actually figure out how much BTC cost on every single day to figure out your income and thus your income taxes.  Even worse, if you sold it off you have to then calculate out how much you sold it for and whether you're taking a capital loss or a capital gain, which is a complete nightmare.

Even worse than that is that if you run a bitcoin mining business and you hold onto your bitcoins you can end up owing a ton of money in taxes despite not holding bitcoins worth anything close to what you're being taxed for.  That is, if you mined 50 bitcoins when they were $1000 but never sold any of them, the IRS will tax you on $50,000 of income, nevermind that you still hold the bitcoins and they're only worth $315 now.  This actually *FORCES* miners to sell a large portion of their bitcoins to at least be able to pay their taxes.

And selling the bitcoins themselves is a nightmare because if you keep mining and you are selling let's say, 30% of each day's minings will the IRS force you to use a FIFO accounting method for the capital gains?  Because if so, you will NEVER benefit from long term capital gains rates because you're constantly forced to sell off your oldest bitcoins.  Since bitcoins are actually trackable and do differ in quality (older coins are spendable without fees whereas newer ones usually require more tx fees) one could make the argument that you can sell specific coins such that this does not apply, but that of course requires you to track a whole other layer of complexity to prove to the IRS that this is legitimate.

The only people who really benefit from this ridiculous taxation scheme are people who bought their bitcoins early on, who'll actually get to use the long term capital gains tax rate if they sell off their bitcoins.  That and my accountant who is going to be billing me some serious hours for going through the bitcoin charts and figuring out just how much income the 0.02 bitcoins I mined were worth on what day.  That's 365 days of math to add up, and then even more nightmares trying to figure out which bitcoins I spent are which-I'll probably end up paying income taxes but having large capital losses that can't be used against the income but can only be carried forward against future capital gains.  This taxation is complete garbage right now and this is WHY THE PRICE IS SO LOW.  No business can currently hold bitcoin without being subject to owing tons of income taxes on money they don't even have if the price of bitcoin drops.  That is completely insane and the reason why nobody is holding the bitcoins they receive.

Honestly if you want to build a serious bitcoin business I wouldn't even bother to do it in the US, the tax rules are moronic because they're clearly not meant for a digital currency. 

bitcoin was never about evading taxes remember that first

if you want to evade taxes there are multiple ways to do this




secondly

this I believe is how governments will tax bitcoin, but all they can do is hope people will declare what they have

https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia---specifically-bitcoin/


this in itself makes it a legitimate currency, but who cares, people now have a way to make and have their own currency however they want

interesting to see how the governments are going to keep up with legislation and regulation when people have multiple avenues to increase wealth that is not illegal but not within the legal framework


e.g. how many people are going to pay capital gains tax when using localbitcoins or a decentralised exchange

States do that : they don't help in anyway but they want their cut when it suceeds, mafia style : "pay us so we can "protect" you"

I would caution anyone trying to convince themselves that there are no taxes on bitcoin in the U.S. That is false. You owe on the appreciation in value of any bitcoin you own. That is to say you owe capitol gains. If your salary is being paid in BTC then you also owe income tax.

It is quite possible that the IRS is behind the learning curve on this and may not be able to determine if you owe. In that case you may be able to stick the bill to those who pay your share of taxes. However, if you are caught do not waste your time and money fighting it. You will owe the back taxes plus penalties and late fees.

Not applicable to US residents but we just released a report on the taxation and regulation of several Bitcoin activities in Germany. It may be an interesting read even for non German-residents. At least it shows that Governments have cryptocurrencies on their radar and that you should not try to evade taxes just because this technology is new and awesome.

i want some info on that too.
thank you

You can actually sell to them then?  Is it safe and legit?

I don't really see the problem, it took me 15 min to get familiar with: https://www.circle.com

Great information. 


What should I be using then?  Circle I am not familiar with?  I am living in the US and am not sure what other places I can sell coins to if I so choose to.  Thanks for the help!

Dont use Coinbase! There are much better alternatives, i.e. Circle, ..

Bitcoin purchases aren't tax deductible. But you can claim capital losses from trading at a loss, up to the value of your other gains that year and $3,000 income.

So if I can't use Coinbase to sell my coins, what can I use?

And does this work the other way around, if you purchase coins can you use them as a deduction on your taxes?

All the reason to stay away from coinbase.com. 
They are in bed with the banks, and according to Andreas Antonopoulos, most likely have a goal to sell out to JP Morgan.

I think the government will start getting a lot more serious about taxing/tracking bitcoin transactions once corporates start using it widely. They wouldn't want any revenue to go under the radar.

Mark my words, coinbase.com will be the first crypto web wallet site to start issuing 1099s to their users.   They are basically like the paypal of cryptos. 

Taxation is the only reason governments are really looking at regulation.   At the end of the day, they really don't care if a few people are using it to buy drugs.   If they can tax the sale of the drugs, they will be more than happy.

There is no threshold for capital gains. The "$600" is often misunderstood, it is a form filing requirement for business and just not relevant to capital gains.


Yes, just like last year and the year before, people will pay taxes on any gains they made selling or spending crypto-currencies.

There is nothing to worry about. When you spend a coin, you just need to know what you bought it for and when, so you can work out if you made a profit (or loss). You then declare that on your tax forms as capital gains/losses (Schedule D). The only time you can ignore it is if the gain is < $0.50, because you only report rounded whole dollars.

Coinbase has a Gains report, so just use that. Or use bitcointaxes.

One of the articles I read mentioned transactions consisting of $600 or more, so you're probably fine.  I'd say you are ok regardless because this is all in relative infancy and the IRS is just now starting to actively take interest in it.  Most people aren't even aware that the IRS is claiming they will tax bitcoin now.

So will people be taken for taxes this year because of property?  Is there a small amount of coins you can sell without worrying, I have sold some through coinbase(probably under $200) should I even be worried at all?

Isn't there though? The IRS is now treating bitcoin as "property" instead of currency for tax purposes. This means that people (in the U.S.) treating bitcoin as an investment could be subject to capital gains taxes when they sell it. I don't know the name of the law this falls under though. 
http://dealbook.nytimes.com/2014/03/25/i-r-s-says-bitcoin-should-be-considered-property-not-currency/?_php=true&_type=blogs&_php=true&_type=blogs&hp&_r=1

http://www.irs.gov/pub/irs-drop/n-14-21.pdf

http://money.cnn.com/2014/03/25/technology/innovation/irs-bitcoin/

Wow, that is one stupid ass statement.

and imagines when anon features will hang bitcoin, no one can prove that anymore, bitcoin should be tax free, treated as a currency

 They can try to tax bitcoin, but it shows that the government is so ignorant about the Bitcoin. How can they ask for taxes if they cant prove who make the transactions?

There may not be a law that requires you to pay taxes on your BTC, but evading taxes is illegal in most (if not all countries).   If you are buying and selling a few BTC per year, then you will probably be overlooked.   But if you regularly have deposits in excess of 5-10k in and out of your bank account, and claim nothing, you will more than likely get audited, and then you are up shit creek...

+1

If Bitcoin is property it therefore would be subject to all sorts of sales
taxes as it changes hands.

The bigger question is how could the IRS possibly enforce this? With help from the NSA?

So what does that mean about  mining equipment? Are they tax deductible?

Don’t you just love how specific the rules are for us small guys, while the big guys like Goldman Sachs get million and billion dollar tax breaks for no good reason?

The unfortunate truth is that it's an object of wealth, therefore is subject to tax just like anything else - you may be able to avoid it if you just don't trade it for FIAT however if you make a large enough purchase like a house you'll be getting some questions....and probably a hefty tax bill from the IRS lol

If Bitcoin is property it therefore would be subject to all sorts
of sales taxes as it changes hands.
This is an attempt by the IRS to tax Bitcoin to death.

+1

They should make this even more complicated and onerous,How is the tax paid,
 in Bitcoin? Is it calculated in USD?

there are some countries where bitcoin is tax free, they declared it, i don't remember now the name of those

Haha its not wow gold when they have changed it back to Fiat, it really would depend if they sold

it back on an exchange that has their details and most probably be reporting to the tax office

and with your details attached, that being said their would have to be a reasonable amount

of money in it for the tax office for them to bother chasing you.

Their is plenty of people running non bitcoin enterprises that have staggering tax bills who

probably thought at the time they weren't going to get caught either.

If you made money from mining the coins it would be very easily to write of all your

taxes as business expenses which they most probably where anyway, unless you

managed to mine bitcoin out in the rain at some stage or from your car.

You don't need to worry about paying capital gains tax - that's the friendlies tax of them all. We have a situation on our hands in Australia with the Goods and Services Tax. You can find out more about it here and take action:

https://www.change.org/p/treasury-of-the-australian-government-make-australia-a-bitcoin-friendly-country

Please sign and share!

You are correct that no law mentions specifically when forcing people to pay taxes. However there are laws that make you pay taxes when you sell your assets for more then you purchased them for. There are also laws that say when you engage in a transaction that does not involve money (a barter transaction) then you must "pretend" that fiat was exchanged prior to the transaction to get both the cost basis of the item being purchased and the sale price of the item being sold.

  I got the point, correct you are right 

There is NO LAW requiring you to pay any taxes on your bitcoin.

If the IRS said you had to pay taxes on your WoW gold, would some of you dunces pay them for that, too?

But I assume that Bitcoin will be taxed accordingly based on each country's tax percentage.

If you buy things like a nicer car and a bigger house then what your (reported) income would suggest that you can afford then the IRS could charge you for tax evasion. The IRS would likely not be able to charge you if you only buy a few small things with your unreported income, but small things add up over time and over time it is easier for others to see that you are really making more money then you say you are making.

not the one done face to face, what if i sold something and i pay it in bitcoin face to face? impossible to track


explain "much higher standard of living", the problem is all there, if he just use the not reported income for something small like pc component and electro domestic stuff, they won't trace him, foods is also a good things to buy, if you want escape taxes

Does anyone knows where I can find a list with countries which have already impose taxes on gains from Bitcoin? I've tried searching the internet but I couldn't find anything.

If, in your example, Steve were to spend his coins on some amount of goods and/or converts his BTC into fiat then he would likely be able to live a much higher standard of living then what he is reporting as his income. This alone is something that the IRS can use as evidence of tax evasion. This is assuming that Steve does this over many times and earns a lot from doing this verses the amount he earns from his reported income. If Steve only makes a little bit then it would be hard to detect but would still be unethical.

The problem comes when Steve sells his bitcoins. If he is unable to spend it on something anonymously, it might be a problem to him.

Ok, but consider a situation like this:

Steve completes a task or sells a service. Steve gets paid in bitcoin. Steve never reveals his real idenitity to his customer/employer. Wouldn't Steve have to be a moron to report his bitcoin earnings in this case? Or am I missing something?

How do governments enforce income tax? How does government enforce taxes on any private transactions?

In the USA:
The I.R.S. No one wants to fuck with the I.R.S. Bitcoin is a general ledger, they literally can see every single transaction that ever takes place..

It's inevitable that countries would try to tax bitcoin, it's either that or ban it. But if someone only deals in bitcoin, how are the governments going to enforce that? That's the big question to me.

Reading today a post on onestopbrokers.com from the source theaustralian about paying capital gains tax on selling Bitcoins it seems to me that more and more countries are looking to control the idea of cryptocurrencies. Yes, on one part this is good not only for the "security" of these assets but also for the community in general but on the other hand it seems that the meaning of buying and selling crypto currencies in general but also paying with these assets for purchasing stuff is loosing the meaning of the idea of creating and possessing such assets. It seems that crypto currencies will be "another" currency like the others.
I don't know, maybe I'm wrong because I'm new to Bitcoin and crypto currencies but this is how I feel.