Topic: I have a ton of old bitcoins I want to sell, how do I handle the taxes? (Read 1761 times)

Good point. If you lost money then you can also claim a loss and maybe reduce your tax liability.

Not sure how you are when it comes to your finances.  I would find a local buyer.  Sell for cash and burry it.
Or do what you do with your cash. Or Have a yard sale claim you sold stuff.

I would avoid the taxes.  All depends on your life style and what you have or how you move your cash.

If you do that then losses can be taken into account too. You can proof that you own the addresses the coins went through with providing signed messages. If needed. And if you lost something then, in most countries, you should be able to claim that as loss. It might be that this loss can be calculated against profits in the next year then.

Though... another reason to not hold your coins on exchanges. Sind it's impossible to show that you owned the coins on their addresses.

I have had the same problem. Some of the coins I got early on were bought without a paper trail. What I did assumes you paid about the rate when you bought them. Look at the date you first got a specific bitcoin and use the historical data from google or elsewhere to arrive at a purchase price. Then take the date you are selling/spending them and you will have your gain value. Your tax liability (in USA) will vary, but may be 10-15% of the gain you made. It may also be 0%!

You may want to use a "first out" method of accounting for this. So when you sell a coin consider it to be the first one when calculating a gain. The second time you do it, calculate the second coin. If you have been buying them all along then your total tax amount will go down over time. That is assuming you paid more for the more recent coins. 

I am a lawyer based in Malta and I specialise in Bitcoin and Virtual Currencies (probably the first lawyer to do so here in Malta). My LL.D. thesis focused on the AML aspect rather than taxation, however I have been researching the latter as well since it is a common topic which crops up quite frequently. Should you need any advice on the matter, feel free to contact me on [email protected] - I can provide detailed advice on how to handle tax charges on profits vis-a-vis Bitcoin.

If you want don't want to crash the market then you should find a private buyer and sell all your bitcoins to him. You should make a contract with the help of a lawyer so you can put terms of the sale. You should also contact an accountant for more detailed answers to your questions.

Just declare them as 0 cost basis like you said and pay taxes on the profit.

You do already owe for every time you sold on an exchange even if you didn't cash it out into your bank account. But with no data to prove it either way I don't see what you can do and I don't see how the tax man would ever find out about it so I wouldn't really worry about it.

Possible solution

NEW YORK (InsideBitcoins) — With the IRS announcing in March that it considers bitcoin “property” for tax purposes, it’s very fitting that people are starting to trade the virtual form for the real variety.

The first major real estate transaction to be settled in bitcoin took place earlier this year by BitPremier, a startup founded by Alan Silbert and funded by the Bitcoin Opportunity Corp. The property was a villa in Indonesia sold for $600,000 by the delMango Villa Estate in February.

The latest to join the Bitcoin real estate party is a 1.4 acre home with views of the Pacific Crest near Lake Tahoe in Truckee, California. The property was sold for 2,749 bitcoins or $1.6 million last Thursday, August 7th according to The Wall Street Journal.

The name of the buyer has not been announced but it’s rumored to be a “Silicon valley entrepreneur” who actually had the idea to use Bitcoin for the transaction.

Read more Bitcoin real estate

Rights against self incrimination? What does self-incrimination have to do with anything? I don't mind paying the full tax rate on my coins. I was planning to treat them as all being obtained at $0.00, because they were. What is the issue here? As long as I pay taxes, that's all they care about, right?

Then he's only left with the right against self-incrimination: https://en.wikipedia.org/wiki/Self-incrimination#Truthful_statements_by_an_innocent_person

Even if that is the case... he can't proov anything of that. Even when he would show the last address these coins came from, it would be less than a year since he claimed he moved it around all the time. No proof that he held them for a year.

And probably he sold and bought them all the time anyway.

That is a VERY difficult topic i had to deal with too.

Lawyers have no clue, right. Though you might meet lawyers that are specialized in bitcoin. Every country should have such. Ask the exchanges in your country which lawyers they use.

Then... the problem is you can't proof anything. Of course you can claim profits, the IRS will happily take your money for that but you can't proof your expenses. And the thing is, you need to proof expenses and the IRS need to proof you had income.

So i think be cautious and maybe do as you thought to do. Though you should be able to explain where the money comes from. If you explain you won it by trading on an exchange that is gone and you only have your notes anymore then that is what they will accept.

I know this is a VERY fearsome topic. But in your situation you can't go back or forth really.

Good luck with that.

The problem I foresee with any kind of tax situation where capital gains are applicable is determining the actual cost of the coins i.e. the cost when you acquired them, and providing the necessary proof of such.

If you have that then the capital gains calculations should not be that difficult. I think where it becomes a bit of a headache is where one no longer have such proof.

Avoiding paying taxes on it, is probably not the legal way to go forward with it, and if you intend to do that, you might just sell it for cash. You can also just do it over time. Selling through any other digital means would likely mean you can be reviewed for paying taxes.

Depends on where you live.

The tax lawyers you've talked to advised the safest and most sensible option.
That being said even tax collectors aren't sure how to treat Bitcoin capital gains, it could be possible to just not pay anything and be legally fine with it.

Germany.

I agree about the micro transactions issue. It's just my opinion, but if you have a total cost you have paid, I'd also report it as a single transaction.  But best would be if you could separate out short-term and long-term for the best tax effect.

I have a ton of bitcoins from about '09 that I've decided I want to start selling them off. The problem is, over the years, they have been moved around a lot. Different exchanges, back and forth between exchange-money and bitcoins, many times, but I've never put them into my own bank account. I mean maybe a few here and there, but whose counting. The problem is this, most if not all of the exchanges I ever used are gone. Shut down. Inaccessible. It also goes without saying that these are certainly not the same coins I had years ago.

I was thinking of just selling them off over time, declaring that transaction that makes it to my bank as capital gains, paying the tax, and being done with it. I don't see any way I can get history of all those micro transfers over the years. I've talked to tax lawyers, they haven't a clue on anything about bitcoin. They told me to just treat it as the single sale of a commodity (each bank withdrawal), pay tax on the capital gain, and be done with it.

Thoughts? Suggestions? I want to reiterate the sheer amount of bitcoins I have. Selling them all at once would absolutely crash the market, which I do not want, and the amount is certainly high enough to potentially warrant an audit, so I want to prepare for that. I don't plan to take any deductions so I don't think the audit risk is too high. I have no objections to paying taxes and want to make sure I do it correctly.