Topic: How Will the IRS Tax Bitcoin? (Read 5098 times)

I wonder to what extent it might be possible that the lack of IRS guidance is putting an upward pressure on price.

Personally, I have no desire to take profits in fiat whatsoever yet (I don't necessarily mean cashing out of Bitcoin entirely a la what the cynical mainstream media pushes as the "bubble" narrative), simply because the risk of having to deal with audits and scrutiny is not worth it even if you have nothing to hide and everything is completely above-board.

Could it be that the lack of guidance actually promotes the fairly commonly-held notion that "once it's time to cash out, you won't need to cash out"?

I can declare anything but how will I prove my loss? Screenshots? List of transactions and a statement that the username "btcloser" belongs to me?

Yes, yes you could.

It's not that simple. Let's say I buy bitcoins on LocalBitcoins and sell them later for a loss. I declare that loss to IRS - will I be able to deduct that amount from my income? I highly doubt it.

Excellent (free) advice from a tax attorney posting on reddit:

https://bitcointalk.org/index.php?topic=398262.new#new

No, if it happens it's taxable. If you fail to declare it, you are evading taxes and just haven't been caught (yet).

Only if you declare that you bought it and have some evidence. You must also have evidence that you either hold it at the end of the year or that you sold it during the year, right?

If you buy gold for cash in person, guess what? It is taxable.

The only reasonable decision to make by IRS is that there's no tax on digital currencies. If I buy btc on LocalBitcoins or similar site anonimously and sell them later for a profit, how will they control that? For gold, stocks etc. it is different because there's no easy way to make anonymous purchases, so they can easily find if someone "forgot" to declare gains.

There is no guidance on when to recognize mining income kendog77 - I think the IRS will ultimately say it is taxable at time of receipt of the coinbase and valued  using a reasonable valuation method (pull it from coindesk?) either on the date the block is included in the blockchian, the date it has sufficient confirms (6?) so as not to be considered an orphan or the date it reaches the 99 confirms required for it to be spendable.  I think any convention on timing of the three is supportable, but once you select a method you will have to stick with it for other income from the same mining operation.

You might choose to report it on disposition or sale of the BTC but you may need to consider disclosing what you are doing on the return to avoid significant penalties.

Now how you tax it - ordinary income, capital gain, etc., will be more of a conversation between you and your accountant.  They may also disagree with what I state above.... the 'right' answer is not entirely clear and I have spent several hours on mining income recognition.....

Note if you are in a pool or mining as a group the above may be quite different as the mining pool structure will impact how the income is recognized.........

my two cents.

Is Bitcoin mining income taxable the moment it is received, or at the time it is converted to goods, services, or fiat?

Sanity has no place in taxation either.

So here's a story about tax fairness...

I have a friend he's in the cigar business. Totally legal business, but of course it's frowned upon by the government and society at large what with all the cancer thing and of course the smell of cigar smoke. He must pay 75% excise taxes on cigar sales. Is this fair to the cigar business? Imposing such a high tax? Or if you took the tax away, now is it fair to the rest of normal society who hates smelling cigar smoke and paying for cancer treatment?

Tax policy is not about fairness, and many times it is about the opposite of fairness, which is power. Non-smokers have the power. Iowa corn farmers have the power. Which side of the power coin (u see what I did there?) do you think bitcoin falls on? And what do you think the ultimate tax treatment for bitcoin will be? Fair or unfair to bitcoiners?

I suppose "fairness" is one way of saying it, but honestly, I'd just be happy with consistency at this point. Why do we change subsidies for say, agriculture every year? I live in Iowa and I'd be happy with just eliminating everything, including ethanol subsidies. All I'd ask is that we get rid of oil and other subsidies as well. Let them all compete on an even keel, the market will sort them out. If something is "bad" then the environmentalists will boycott that product and the companies that distribute it, thus decreasing demand. It seems kind of self-explanatory at this point, I'm not sure why government in particular has to be involved.

Anyway, I'm preaching to the choir I'm sure. Sanity simply has no place in politics.

your looking for fairness in the tax system

what's the old saying "who said life is supposed to be fair?"

Thanks, and I seriously mean thanks for contributing. You and hanwong's comments are both appreciated.

I do trust my tax advisor to handle this professionally and I actually spoke with her this weekend about it, but I can tell you there's not only a dearth of people informed on how to do this, but a dearth of accountants that are *willing* to do it, so the fact that you're willing to provide any advice at all, with or without the disclaimers is beneficial.

I don't think Goat or I really have any animosity toward the IRS itself, but I, at least, feel like if those with billions of dollars in assets, like the Warren Buffets of the world get to talk like they aren't being taxed enough while still setting up charitable trust funds with billions in holdings for their kids, there's definitely a double-standard going on. It's like they want the rest of us to be punished for not taking advantage of loopholes which they consistently abuse. I don't want there to be loopholes I have to pay to take advantage of, I'd rather see a system where everyone just pays a set rate and the gov't doesn't pick who gets credits and who gets subsidies.

I believe that's probably the biggest problem with fiat, anyway, the way it's been gamed. Anymore the amount of paper with numbers on them you hold is meaningless, it's the power with which you wield it that matters. I'm not sure why this ruse wasn't uncovered earlier, honestly. We owe Satoshi a lot more than we think.

The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties...

ur welcome.

to be clear, I don't believe I said the non US wife needs to pay US taxes on Thai income. In fact the last post to another poster, I said that if the wife is truly a non US person and the US citizen chooses to file MFS, then the wife's income may be excluded from the US income tax return.

But my overall point in that last post was that, in an audit situation this will be hard to explain, a US citizen not having filed or paid taxes in years, living abroad with no income, with a wife that can buy a 200K car, now you go to the IRS asking for a favorable tax treatment of bitcoin gains. In that type of situation, I do not foresee a favorable encounter with the IRS. Although the rules and the law states one thing, how field agents apply these rules and laws to your specific situation is an entirely different story. In my opinion, if I saw this situation, I know what the field agent would do. He would launch a rectal audit to try to sniff out if you've done anything wrong in the past. Now if you survive that audit because you absolutely haven't done anything wrong in the past, then congrats. It's just like a black kid wearing a hoody walking down the street. He's done nothing wrong, but that doesn't prevent the police from stopping him and asking him questions. Now go and ask how many black kids have been stopped by police having done nothing wrong, but ended up in trouble anyways.

In any event, since I'm ignored , I hope that little story was illustrative and helpful to others who are in delicate tax situations.

The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties...

To determine whether the spouse is or is not a US person is fairly complicated with a long list of tests. The US citizen has the option to file MFS or MFJ, with many advantages and disadvantages to consider.

If the wife is truly a non US person, and he chooses to file MFS, then her income MAY be kept off of his income tax return. As always the true test if this possible scenario of keeping her income off of his US income tax return, contains many many hoops you must jump through.

If your just asking about what the law is, then the above statement is correct. If you care about how a real life situation where a US citizen hasn't filed or paid any taxes in years, lives abroad, has a wife that can afford a 200K car, but your still asking the IRS to give you the best possible tax treatment of your bitcoins so that you can minimize your pound of flesh you have to give up, well I have no comment there.

hanwong, his wife is not a U.S. person, correct? So he has to file "Married, filing separately", and his wife is not required to do anything, correct? I understand why his wife needs a taxpayer identification number (to list on his filing), but why does she need to pay U.S. taxes too?

tbh

the issues with bitcoin taxation aren't that thorny. any good accountant you can find will be able to sort it out. Just pay your dues to the man and you should be fine.

The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties...

I'm just playing agent Smith here...

IRS Agent Smith thinks :I don't like the tone this guy is taking with me. He is not submitting to my authority: "So you had a bank account? Foreign bank account? (go google the penalties for not reporting a foreign bank account)" "So you received interest of less than $400 a year? How did you survive living on less than $400 a year? Possibly some illegal activities?" "Oh you didn't live off of your interest income, you lived off of savings? Let's take a look at those years you earned all that "already taxed income" and see what if we can make some adjustments."

Morphs back into Morpheus...You see how this game goes when you think you didn't do anything wrong? There is nothing wrong in trying to minimize your taxes. But when you take the attitude, that many in this community have, that I am going to use the law to get around the simple fact (but not a law) that the IRS will get a certain percent of what you make, then you will start getting into trouble.