how to report bitcoin earnings | Bitcointalksearch.org

Millionero

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Quote from: squatter on May 15, 2019, 02:07:38 PM

Quote from: Millionero on May 14, 2019, 05:59:32 PM

Since 2013, I've been buying and selling bitcoin, reporting capital gains and losses on a FIFO basis. Which by IRS rules means I have to keep using FIFO.
Consider this scenario:
my client owes me, say $8000 and sends me one bitcoin worth $8000. So far so good, right?
But I have a bag of coins I bought at cheap prices.
And if I want to cash out the 1 BTC that the client sent, by the rules of FIFO, I can't. I have to sell the oldest coin in my bag.
See the problem?

Maybe you should incorporate a company for this. It's fairly easy and cheap. That way, you should be able to separate your personal Bitcoin investments from your company's since receivables from your client become company assets, not your personal assets.

The tax treatments discussed earlier would obviously change, but it sounds like it might be worth it for you.

Yes, someone who receives bitcoin payments has two choices.
One choice is to operate as a sole proprietor, using a single exchange account and keeping track of which bitcoins sold in the tax year came from personal capital assets versus which bitcoins sold in the tax year were those received as payments. If using tax software that automatically imports transactions from your exchange account, then it would be necessary to manually add transactions to the log, because the exchange has no record of the buy price (basis) for the bitcoins you received from the clients.
The other choice is to establish a separate exchange account in the name of an LLC or corporation to handle payments, thus keeping business income segregated from the personal trading of "capital assets," in IRS lingo.
A sole proprietor isn't required to establish separate personal and business accounts, but in this case it might be worth it to avoid bookkeeping hassles. And if god forbid one gets audited, to avoid having to face a skeptical and ill-informed auditor to explain why the transactions that you reported on your tax return don't match the records in your exchange account.
~sigh

Naida_BR

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Quote from: Millionero on May 02, 2019, 02:51:45 PM

I'd like to hear from people who have been paid in bitcoin and how they reported it on their taxes.
Before we go any further, please don't waste bandwidth by *advising* me not to report my income.

The situation:

Doing remote work for an overseas client. This client pays me in bitcoin. I don't get a 1099 from this person.

As I understand, my income is the amount the bitcoin was worth when the client sent it -- regardless of whether I sell the bitcoin immediately or hold it (hodl).
This will be reported as self-employment income (since I don't have a corporation) on Schedule C.
If I hold the coins and sell them later, there may be capital gain or loss to be reported separately on Schedule D.

Is there something I'm missing?

You should state your country as well in your post.
Taxation laws are different in each and every country so taking advise from people in here will not help at all. In my opinion, I would suggest you to pay a visit to your accountant and ask him on how this income should be reported.

squatter

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STOP SNITCHIN'

Quote from: Millionero on May 14, 2019, 05:59:32 PM

Since 2013, I've been buying and selling bitcoin, reporting capital gains and losses on a FIFO basis. Which by IRS rules means I have to keep using FIFO.
Consider this scenario:
my client owes me, say $8000 and sends me one bitcoin worth $8000. So far so good, right?
But I have a bag of coins I bought at cheap prices.
And if I want to cash out the 1 BTC that the client sent, by the rules of FIFO, I can't. I have to sell the oldest coin in my bag.
See the problem?

Maybe you should incorporate a company for this. It's fairly easy and cheap. That way, you should be able to separate your personal Bitcoin investments from your company's since receivables from your client become company assets, not your personal assets.

The tax treatments discussed earlier would obviously change, but it sounds like it might be worth it for you.

Millionero

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I just found the IRS "guidance" on how to determine the basis of crypto earnings, and it's good news.

Q-3: Must a taxpayer who receives virtual currency as payment for goods or
services include in computing gross income the fair market value of the virtual
currency?
A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services
must, in computing gross income, include the fair market value of the virtual currency,
measured in U.S. dollars, as of the date that the virtual currency was received. See
Publication 525, Taxable and Nontaxable Income, for more information on
miscellaneous income from exchanges involving property or services.
Q-4: What is the basis of virtual currency received as payment for goods or
services in Q&A-3?
A-4: The basis of virtual currency that a taxpayer receives as payment for goods or
services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the
date of receipt. See Publication 551, Basis of Assets, for more information on the
computation of basis when property is received for goods or services.

Q-10: Does virtual currency received by an independent contractor for
performing services constitute self-employment income?
A-10: Yes. Generally, self-employment income includes all gross income derived by
an individual from any trade or business carried on by the individual as other than an
employee. Consequently, the fair market value of virtual currency received for services
performed as an independent contractor, measured in U.S. dollars as of the date of
receipt, constitutes self-employment income and is subject to the self-employment tax.

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

Millionero

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Since 2013, I've been buying and selling bitcoin, reporting capital gains and losses on a FIFO basis. Which by IRS rules means I have to keep using FIFO.
Consider this scenario:
my client owes me, say $8000 and sends me one bitcoin worth $8000. So far so good, right?
But I have a bag of coins I bought at cheap prices.
And if I want to cash out the 1 BTC that the client sent, by the rules of FIFO, I can't. I have to sell the oldest coin in my bag.
See the problem?

squatter

legendary

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STOP SNITCHIN'

Quote from: Millionero on May 02, 2019, 02:51:45 PM

Doing remote work for an overseas client. This client pays me in bitcoin. I don't get a 1099 from this person.

As I understand, my income is the amount the bitcoin was worth when the client sent it -- regardless of whether I sell the bitcoin immediately or hold it (hodl).
This will be reported as self-employment income (since I don't have a corporation) on Schedule C.
If I hold the coins and sell them later, there may be capital gain or loss to be reported separately on Schedule D.

Is there something I'm missing?

This is all correct. You need to keep track of the fair market value when payments are made to you. This is self-employment income and will be reported on Schedule C. The fair market value at the time payments are made also forms the cost basis for any capital gains/losses. When realized, net capital gains/losses will be reported on Schedule D.

Two things are missing; only one of them is material:

You will need to file Form 8949 which itemizes each Bitcoin position you held and liquidated.
Assuming you had net earnings of $400 or more, you will need to file Schedule SE. This is used to determine the self-employment (Social Security and Medicare) taxes due. This is an additional tax on top of the personal income tax.

See here for more info about Schedule SE.

Theb

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Quote from: Millionero on May 11, 2019, 09:03:04 PM

But now I have bitcoin income, and reporting bitcoin income is another matter. It's like getting paid in barter. Oh, and I'm an independent contractor, not an employee.

Well if you are an independent contractor you are either fully self-employed but if your business is identified as another juridical entity than your income coming from your business should be separate from your bitcoin earnings not unless you receive those bitcoin payment through your business as an independent contractor. You are right as identifying the separate taxes from your BTC earnings and capital gains when you attempt to hodl it. The only thing I can think of that you are missing is the tax deductions that comes with it involving your business which is a big thing to consider on lowering your taxes.

Millionero

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I live in the U.S.
I had a bad experience with an accountant I hired to try to help me with tax year 2014, when I had a lot of crypto transactions. This was a guy who claimed to be a bitcoin tax expert, but didn't have any bitcoin expertise or experience.
After that, I did all my own taxes for the last five years. In those years I had crypto capital gains and losses, which go in their own section of the tax return called Schedule D. It's very well defined. There's no difference between bitcoin and other assets when it comes to capital gains.
But now I have bitcoin income, and reporting bitcoin income is another matter. It's like getting paid in barter. Oh, and I'm an independent contractor, not an employee.

carlfebz2

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Quote from: davis196 on May 11, 2019, 08:30:46 AM

In which country do you live?The topic is interesting for me,because a want to report my btc earnings for tax purposes as well.The problem is that I'm not sure is bitcoin considered "money" or an "asset".If it's money,I have to pay a 10% flat income tax.If it's an asset,I don't have to pay any taxes (even capital gain tax).

Oh you do have much lower tax percentage compared to my country which do have 12%.Paying tax would depend basing on cryptocurrencies reputation on your country.If they are still on neutral or simply doesnt still consider crypto then theres no need for you to declare yet they wont still recognize such thing but if a country do have that law imposing strict compliance of tax then it would really be compulsory for you to comply.

davis196

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In which country do you live?The topic is interesting for me,because a want to report my btc earnings for tax purposes as well.The problem is that I'm not sure is bitcoin considered "money" or an "asset".If it's money,I have to pay a 10% flat income tax.If it's an asset,I don't have to pay any taxes (even capital gain tax).

jossiel

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Quote from: Harlot on May 09, 2019, 02:29:41 PM

Wouldn't that require you to state that you are employed and name your employer and the company you are working with?

This is case to case basis, you can declare that you are freelancer in a way that you provide service just like what the doctors, lawyers and other professionals do.

And the amount you receive is your professional fee whereas that will be the taxable amount whether it is paid in bitcoin or not. The best way for OP is truly to seek a personal advice from an accountant that's dealt into taxes, fees wouldn't be that much, I've asked one before.

Harlot

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Quote from: dothebeats on May 09, 2019, 01:31:50 PM

Tough call. As a freelancer myself, and have received bitcoins as well for some payments, I just declared it as a normal income tax since freelancers like me are deemed as employed still. It's as easy as that, though the process is somewhat taxing and time-consuming. I can always opt to not pay taxes because I am not forced or obliged to, but then again I'm doing this in order to not get complications as time passes by. It might be different from your country but AFAIK and have read, freelancers are considered as employees still. It only gets tricky because some countries recognize bitcoin as an asset/property and some consider it as a currency.

Wouldn't that require you to state that you are employed and name your employer and the company you are working with? Because if he is fully aware of the taxes on his potential gains will be I don't think that he need to undergo a new process. He just wants to clarify things if what he knows is right and I think he got it all covered already. I just don't think your method will be safe if they suddenly asked you for a proof of employment and other documents supporting your claim that you are currently "employed" even though you are really self-employed.

dothebeats

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Tough call. As a freelancer myself, and have received bitcoins as well for some payments, I just declared it as a normal income tax since freelancers like me are deemed as employed still. It's as easy as that, though the process is somewhat taxing and time-consuming. I can always opt to not pay taxes because I am not forced or obliged to, but then again I'm doing this in order to not get complications as time passes by. It might be different from your country but AFAIK and have read, freelancers are considered as employees still. It only gets tricky because some countries recognize bitcoin as an asset/property and some consider it as a currency.

dunfida

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Quote from: Millionero on May 03, 2019, 04:16:51 PM

Quote from: dunfida on May 03, 2019, 02:41:44 PM

Depends on a certain taxation law of each county.It would really vary. Why wont seek out professional advise related on your issue?

I might do that.

Any updates?

Have you already able to seek out some local professional? If you do then Lock out this topic or simply he do forgot this one.

imstillthebest

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Quote from: creeps on May 06, 2019, 04:49:46 PM

Quote from: dunfida on May 03, 2019, 02:41:44 PM

Depends on a certain taxation law of each county.It would really vary. Why wont seek out professional advise related on your issue?

That’s the best solution since we cannot know the exact rulings about taxation on your place. We have mo law like this right now and we don’t have any taxes to pay for the earnings in bitcoin, we are just lukcy that we are able to use bitcoin without any taxes. Usually during April people in US are selling their coin, so i think this can also be an option for you to lesses the tax.

Quote

We have mo law like this right now and we don’t have any taxes to pay for the earnings in bitcoin,

like what the guy above said . it depends on a country , some country have a law for bitcoin/crypto taxes while other's dont . on our country there was a law that is about to release . that law was about taxing the people that do have jobs or work online . i guess this will include crypto workers .

Quote

we are just lukcy that we are able to use bitcoin without any taxes

if you are only using your bitcoin from a wallet to another wallet , that doesnt have any tax but it should have a transaction fees . what about when we use other kinds of centralized wallets/exchanges/stores ? i think they can put a tax to thier service or products but we wont know it because they might hide it .

Netnox

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I think that the best option would be to classify it as a gift, and pay regular income tax on that amount. I am saying this because Bitcoin is not recognized as a currency in most of the world nations, and therefore you can't say that you received an "income". A gift can be in the form of either an asset or a currency. Just my 2 cents... if you are still confused, then please consult a CA.

creeps

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Quote from: dunfida on May 03, 2019, 02:41:44 PM

Depends on a certain taxation law of each county.It would really vary. Why wont seek out professional advise related on your issue?

That’s the best solution since we cannot know the exact rulings about taxation on your place. We have mo law like this right now and we don’t have any taxes to pay for the earnings in bitcoin, we are just lukcy that we are able to use bitcoin without any taxes. Usually during April people in US are selling their coin, so i think this can also be an option for you to lesses the tax.

coin-investor

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Here in our country, I have not yet reported my earnings in anything related to cryptocurrency, I report, my other freelance earnings and my offline business, because we still don't have regulation on how to address this kind of earnings online, maybe our lawmakers will do taxation in the future, when many people are already earning through cryptocurrency.

Harlot

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You might need to separate form 1099s for that. Your earnings outside your employment must be reported under 1099-MISC and your capitals gains from you keeping the cryptocurrency mus be reported under 1099-DIV. Although you must ask yourself are your earnings will be significant in that one time pay for you to necessary report it? You might just be burdening yourself if you are just talking about a few hundred dollars here. If you really insist don't forget to just add some tax deductions related to form 1099.

Gozie51

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Quote from: Millionero on May 02, 2019, 02:51:45 PM

Before we go any further, please don't waste bandwidth by *advising* me not to report my income.

lol... Sure, not paying of tax or tax evasion is usually a crime in most countries. I guess you are a good citizen.

Quote from: Millionero on May 02, 2019, 02:51:45 PM

As I understand, my income is the amount the bitcoin was worth when the client sent it -- regardless of whether I sell the bitcoin immediately or hold it (hodl).

Is there something I'm missing?

I don't think you are missing anything. And I think I have something to suggest to you. Hence, from the point where the coins gets to you, the percentage of what your tax is , is what you will calculate in fiat. My own opinion .

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