Topic: How to argue long-term capital gains? (Read 1971 times)

Learn to read. I didn't call anyone a liar. I said it's better when there isn't clear evidence that you're lying. If you really aren't lying, there'll be no annoying contradictory evidence, and you will have no problems.

If you bought coins at Mt Gox, you had to have wired money to them. How did you manage to do that without your bank or any other financial institution having a permanent record of that transaction?

So create a linkage. Sign a message from the addresses in question. That what that feature's there for, after all.

It really isn't hard to prove that you acquired bitcoins on a specific date. Unless you're lying, which nobody is accusing you of, except the IRS when you fail to produce evidence for your claim when said evidence is easy to obtain.

Everyone is very bold on the internet, can even call someone a lair without risking to get a punch on the chin.

The problem here is how to prove source of coins. An email from Mtgox can hardly be considered a proof (anyone can forge an email). Blockchain evidence is also hardly useful - unlike bank accounts, there is no linkage of bitcoin addresses to SSNs.

I imagined few people made a loss in 2013.

But if the prices stay about the same this year then I think you'll see some filed in 2014. And If MtGox don't repay anything back, there will be a lot more.

But I don't see it as an issue. If you pay taxes on gains you can claim losses. It's not like you're getting any back, just not having to pay as much.

Filing losses is not a red flag for audits.

I am claiming some long term gains for 2013. We'll see how it goes, but I do have lots of documentation. And I plan on using First-In-First-Out methods.
What I want to see is someone claiming a loss. 

It depends.

If you file as a business or even if you file as self-employed, then your example would be zero. $400 income less $400 expenses.

The IRS won't let a regular person deduct hobby expenses in the same way, but you can deduct hobby expense upto the amount of income your hobby makes (i.e. you can't make a loss). However, instead they become part of your normal deductions (Schedule A) rather than "business" (Schedule C) deductions. So to do this you have to itemize and file all your deductions including your direct hobby expenses. But this only works (and makes sense) if your itemized deductions are more than the normal standard deduction.

http://www.irs.gov/publications/p529/ar02.html

http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

The IRS is not hobby friendly. Look to see if you could classify it as a business.

Is this taxing twice?  If I pay for a miner with dollars then by the time the miner has earned btc enough to cover its purchase, its daily return will have dropped to a small fraction of what was mined while not having earned back its cost.  But one then needs to pay taxes on that investment.

Example: I bought a zTex 1.15x for $400 arriving in Feb. last year.  It could hash at 228MHs.  I didn't have a 12v power supply that could provide the necessary current but did have a 16v old zenith laptop supply and whipped up a board having a 7812 voltage regular and associated capacitors to drop the voltage and latter bought an LC meter to calibrate a coil I wound for a stepdown switching supply to replace the analog regulator for greater efficiency.  So there was some delay in getting it online and saw a first payout of .05btc on 4/4/2013.  In January this year, looking at my Kill-A-Watt I decided it was no longer paying for itself and retired it.  So, it had a productive 9 months.  Somewhere online there was a calculator that can plot backwards earning and that told me it had earned $400 in its lifetime.  (Note the zTex 1.15 was OOC for the time it took to return to Germany leaving the US on 2/28/2013, have repaired, and returned to me arriving on 4/2/2013, or well more than a month.  Ball Grid Array solder separation failure.)

If I had spent the $400 on btc I would not have to pay tax except on gain after selling or bartering.  But by spending the $400 on the ztex miner and earning back $400 I have to pay tax on that $400?! 

So, hypothetically, If a person can't find work in his field because he's too close to retirement age but has a previous social security disability that can become active and does, so he lives on social security disability instead of SSI (social security payouts for the unemployed with no income) and he is 64 early in 2013 with a dwindling IRA rolled over from a smallish 401k and puts half the IRA into Bitcoin and a quarter into mining equipment, and recalling that social security disability never fully covers the year's bills leaving a few thousand debt every January to be taken out of the now tiny IRA, as a hobby the cost of the mining equipment and of the power to run that equipment is a non-recoverable loss and not deductible in any way, all the 2013 mined bitcoins need to be declared as 2013 income but not as capital gains, the result of which hypothetically causes social security to demand the return of much of the 2013 payouts.  Also the purchased bitcoins are in large part in MtGox.  So, all in all what even with the MtGox debacle could have left this hypothetical person in a moderately better financial position in 2014, instead causes 2013 to be a bust and financial security tenuous, in fact he's almost bankrupt with the prospect the social security disability might stop with the arrival of the 2013 payments demand.  Bitcoin mining for hobbyists even with thousands of dollars mining gear is going to drop to the price of a cup of Starbucks coffee before the end of 2014.   panhandling for bitcoins here.....na

next they'll say any 60+ year old with a treadmill will be moving back his non-penalized retirement age according to the number of miles he runs each year.  No matter, if there's a social security disability debt outstanding they aren't going to pay social security retirement.

So Bitcoins purchased in 2013 can for each individual purchase be calculated for individual purchase basis, then average all those and that year's average be used to calculate taxable profit on bitcoin sales and barter in 2013.  But it's likely mined Bitcoin as a hobby won't need to be reported to the IRS until sold or bartered and then at zero basis except for transaction costs?

I know that I won't be anything but a hobbyist as calling it a business effects how the county looks at my property - they want to know if I'm conducting a business here.  That would bring in all kinds of taxes and insurance requirements.  And this time next year my gear won't be mining the btc cost of a Starbucks coffee daily after power.

The only way mining as a hobby can be seen reasonably is if one is retired and only sells or barters that limited number of btc which will bring one's income up to a taxable level plus enough to make the max contribution to an IRA.  On the other hand if one want's the btc as an investment because fiat devalues so quickly then one would take that difference up to a taxable income amount from one's IRA until it's no longer extant.  

Tree farming down here is business.  But one can call the tree harvesters and have them take trees from the private property upon which one has one's home.  The trees growing on non-tree farm, non-business property are not the IRS concern until sold.  The IRS doesn't want to know how many cumulative pine tree circumference inches are grown the past year or past 10 years.  I think hobbyist bitcoin mining is like pine trees growing on private property.

BTC can move without me owning the keys, for example if I move them from my computer to an online wallet, or buy a BTC denominated stock. Is it considered a sale event, if no dollars were involved?
Besides, keys for old wallets are long lost ... oh my.

Upload all your trade history into https://bitcointaxes.info.

We work out the cost basis, proceeds, short-term and long-term gains for every trade and organise in a FIFO list. You can also select average costing or specific identification, because it might be tax advantageous to defer some trades until they do become long-term.

All the data is then displayed ready to put straight into your 8949 form (for the US).

Mining is more complicated because it depends if you are a business or not. And then it depends if you consider it as immediately income and gains, or production and therefore all income.

e.g. if you mined 1 BTC last March. You could say you gained $10 income (whatever the price) and then you sell it in November for $1,000. You coin had a cost basis of $10 and you made $990 capital gains.

Or (and possibly how the IRS will go) you created a coin which has no income until you sell it. So in November you realize $1,000 income. Since it's better to have it as gains, you would need to show a more definite break of income and gains. Perhaps by selling the coin back in March, buying it back, then it's clear you made an investment.

If you are a business you can deduct your mining expenses, but not so as a hobbist.

The cost base is the exchange rate you used to calculate your income from mining them, since you already paid tax on that. You did pay income tax on your mined coins, right? Right?

Blockchain. To prove the coins were still in your possession up to the date you claim to have sold/traded them, you can sign a message with every address the coins ever touched since you acquired them.

It works better when you don't lie about when you acquired the coins.

It's relatively easy to claim BTC earnings as short-term gains or as regular income; you pay maximum tax and IRS is happy.
But have anyone tried to file BTC gains as long-term capital gains? I would think you need some kind of proof of purchase price and of purchase date. What is purchase price for mined coins? How to prove purchase date for coins bought on localbitcoins, and moved many times between different wallets? What if IRS looks up the blockchain and says: here, you received coins to that address 1 month ago, no long-term for you!