Topic: How to file your taxes with Bitcoin Income? - page 2. (Read 13547 times)

I could certainly comment on those issues.  I'll even include a basic thought process here for the first question to provide some evidence of my qualifications.  Payment of payroll in Bitcoin would appear to require an immediate valuation of the compensation on the date paid.  The source of the valuation is probably a bit flexible, but consistency would likely be the rule that would be most important.  Thus if you valued with Mt.Gox once, you should probably do so every time (unless you can document a very specific reason why you change, such as the site is not available on the date).  Might make sense to build a formula that does a weighted average of multiple sources just to try and smooth out some volatility.

You would report the dollar-value estimate as compensation and withhold an amount of cash valued at the required tax table rate.  If you're trying to pay only in Bitcoin though (no cash portion of payment), you'd need essentially build an employment agreement that included an "employer buy back" of the right amount of Bitcoin to withhold for the tax.  I.e., employee is to be paid 10 bitcoin, withholding requirement is 1 BTC, you agree to buy (for cash) the one bitcoin back immediately at payroll, thus providing sufficient cash to cover the employee's withholding. 

The amounts granted as compensation and withheld would then feed directly into the appropriate W-2.  Of course, this is all assuming a W-2 employee, if you're looking at 1099s it would be far simpler.

Do you feel comfortable advising corporate clients about running bitcoin payroll in the US,  paying payroll taxes at the right rate (in USD of course)., and accounting properly for cap-gains or mark-to-market valuation of "retained" earning or such issues?

I ask in public, because others may be interested in whether you can address these scenarios more specifically. I am *not* asking for answers here, if you say "yes I can do", we can take the rest of the discussion to PM.

Serious interest (funded, incorporated, already have 2 CPA on retainer, so have paid for this before - need BTC expertise or insight).

OK, so I've finally come up with something worthwhile I can "sell" for bitcoins based on this post.  I'm a licensed CPA who is willing to offer some suggestions on how to deal with specific situations that may arise from the sales or holding of Bitcoin or other crypto-currency.  I'm not specifically offering tax advice aimed at avoiding any penalties or amounts owed, nor am I offering to prepare a tax return.  For obvious reasons, I'm not going to disclose my license information on these forums.

However, if you're interested, I'm happy to have a conversation via PM and then you can pay what you think the information I provide is worth (in BTC or LTC of course).  If you ultimately decide I'm a phony, feel free to pay nothing.

Also, for any trolls out there, this is not a FUD post at all.  My guess is most of your have already decided whether you're going to follow the U.S. laws and tax code if applicable.  If you've decided not to concern yourself with it, that's your own business.  This is only an offering to people who are interested in real advice from somebody who understands both the technology and the financial ramifications of using it.


BitCoin: 1Lh5sAtxy4BqddMFu1Vu9dL5u4JfSnA1LE
LiteCoin: LTziohcPos9PRb3EM6EKQaxMHAQbrdiicq

The tricky part and this is where a tax consultant would help, is that BTC mined would be valued at the current rate when they came into your possession and would likely be counted as income for reporting purposes (minus expenses incurred to aquire them). If you later sold that BTC you may also be liable for Capital Gains if the Profit is over a certain amount

from the IRS:
If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200.00. If the gain is more than $200.00, report it as a capital gain. Capital gains are reported on Schedule D, Capital Gains and Losses, and line 13 of the Form 1040, U.S. Individual Income Tax Return (2005). For more information, please refer to Publication 525, Taxable and Nontaxable Income.

I was pretty sure that 1099s are what other people give you when you are their contractor... if you are doing the work yourself and no one is paying directly (like mining) then it is revenue and you should treat yourself as a sole proprietorship. Part of my income each year as a sole proprietorship comes from Google Ads, which they send me a 1099 for and the other income is from people sending me checks for my service which I include as revenue.

Claim all that on a Schedule C included with your Form 1040.

Does HR Block even know what Bitcoin is?

You want a 1099 form and you fill out all income on that. You call yourself an independent contractor.

I've made money before as an independent contractor and it's fairly simple. Get a 1099.

buy bit coin, never sell it back to USD, use it, no need to file.

You do understand that a Tax refund is a REFUND of money you already paid out of your paycheck. If you file taxes and you get nothing back... YOU DID A GOOD JOB! You paid what you were supposed to and don't need to pay any more.

If you get to the end of the year and you OWE taxes... the hope is you were able to use that money all year long to do something productive and pay it the following year in April and now you can say Uncle Sam let you borrow his money to buy BitCoins and make a 1000% profit with it. GREAT JOB!

Also, your situation is that of a Sole Proprietorship. You have expenses and you have income... not Capital Gains. Capital Gains is for investment gains and is also taxed higher I believe.

Exactaly, you mentioned bitcoin profit.

Profit = Revenue - Expense

Bitcoin Related Capital Gains (Revenue)
Sale of Bitcoin - $200

Bitcoin Related Capital Loses (Loss)

Electricity $30/month = $360
Internet $50/month = $600
Computer Purchases that Year = $500

Bitcoin Related Net Profit (Loss) = (1260)  <- thats negative

If you mine, then it is income.

If you invest, then it is capital gains.

My understanding is that I will file any GAINS only, as capital gains. Since I have not sold much of the bitcoin I bought, I have not yet realized any gains. Therefore, I only will declare and pay taxes on the difference in price on bitcoin that I bought and then sold at a profit.

Nothing to do with income.

If you're a business that sells in bitcoin, then you have sales, franchise, and corporate taxes, or self-employed taxes and pass-thru, depending on the business type.

Given how much incorrect info is floating around here, ask an accountant (I'm not one, I pay one to answer these questions)

I have seen many people say you only have to file them when you convert USD to BTC. What about buying goods or services. Gift Cards, Gold? Would these be taxable?

First you should read the tax code and find the part that says you have to pay tax on bitcoin profits.

Thanks,  Im in the clear this year.

Next year ill tell you the results when I sit down with my accountant.

At certain income ranges you don't even need to file a return.  Though if you need to report capital gains I'm not sure if you can avoid it.    The threshold is $400 for net self employment income.  

 - http://www.smartmoney.com/taxes/income/in-some-cases-you-dont-need-to-file-a-tax-return-20713

If you claim the mining income as revenue then you can deduct the electricity and amortize the hardware cost (instead of Section 179 expense since you wanted to depreciate over multiple years.)


Either cashed out or spent or gifted even.  

Related:
 - http://en.bitcoin.it/wiki/Tax_compliance

[Disclaimer, I am not an accountant.]

Oh hi Maria,


how have you been? Scamming life not working out for ya?

Assuming you sold the gold on ebay, you made taxable income.

Now about about the cost of electricity to run your computer, the cost of your computer, and your monthly subscription fee.

Chances are, after that, your net income was 0.

Which one do you report, and which form do you use?

Hell, if I scored an ASIC right now.  The income would defiantly raise a eye-brow or two.

I farmed about a half million gold in WoW last year. How much do I owe the IRS?

https://bitcointalksearch.org/topic/reporting-bitcoin-mining-earnings-to-irs-post-fincen-156418

What I understand from the above thread, and what most people are saying in this thread, is that you have to report only what you gain when you exchange BTC to USD. I think it would be reported as a capital gain.

That makes sense for you since its sales from BTC, and which is pure income.

In this situation, what about the expenses incurred to generated the BTC.   I known I could consider it as 100% income, but that's just setting me up for a headache next tax season.