Topic: Interested in USA tax consequences/various "creative" accounting / avoiding flag (Read 1127 times)

I think that you give a lot of good pointers here.... and likely variations of strategies that a lot of long term bitcoiners attempt to employ in order to simplify some of their accounting matters  - which can be quite the pain in the ass in and of itself.

It seems to me that this past year I am kind of stuck because I did so many transactions through my bank, but as I mentioned in OP, I think that I found ways to considerably lessen the tax consequences of my bank related transactions for 2016 by the way that I account for them as short term gains, and buy back within the same day.

I understand that most of the time long term capital gains would be better than short term capital gains, but in this instance, I believe counting them as short term gains considerably works to my advantage in terms of how much of a gain is realized and then attempting to contain the amount of information that I am actually submitting regarding my holdings... and it is reasonably in the "avoidance" category rather than "evading" .. .hahahahaha

Also, I had heard that with USA jursidiction, there are ways to avoid taxes by spending coins outside of jurisdiction rather than within USA jurisdiction... so if the coins are spent over seas could be a way that there is no need to account for them in future taxes.

If you want to avoid taxes, I would think that the first thing you should do is put it into a software wallet.  Once no one else (like Coinbase or anyone) is responsible for your coins and can't track your activity, they won't be responsible for anything you do related to taxes.  I think even Blockchain.info is good enough for this as I don't know any record of them interfering with people.

The second thing you should do is cash your Bitcoin out into cash on LocalBitcoins.  If you cash out your Bitcoin in cash in an anonymous method like that there's no way that the government can find out where you've put the money as they can't access your wallet and track how much Bitcoin you have to see that you don't hold it anymore - so they'll only have record of you buying.

Then you don't have to declare it.  Viola.

Nearly no one actually declares earnings in Bitcoin for tax purposes, recently there was an article on Press about it which I think was saying that less than 1000 people have actually declared Bitcoin for tax purposes - the truth is that it's easy to get around and they're not actually that interested in finding out about what you've done with your Bitcoin unless you throw it right in their face.

Thanks.  Those are decent and informative links.

I don't think that I can get away without saying anything because (without giving too many personal details) I had over $50,000 get cashed out through one of my bank accounts (even though I bought them back) it is kind of difficult to completely leave that kind of information and quantity out of my tax statement and to take a chance that the IRS may come up with their own (after the fact) interpretation that has much more tax consequences than my own pre-emptive strike interpretation.

Bitcoin is considered as a commodity in the US according to cnbc.

And here it says; your trade profits may be taxed. But there isn't anything certain.

And this is what you are looking for probably:
https://www.thebalance.com/filing-taxes-on-commodities-trading-809335

Can't you just leave it and play dumb? Let them think about it. When they ask you, you pay whatever they ask? Would it be a crime to do so?

Maybe that is the solution for some other guys in some different situations?  I don't know.

There a lot of regular bitcoin people that report their bitcoin tax matters, and maybe I am looking for one of them to chime in rather than someone suggesting that I should never do something that I already did... and I had been buying BTC for more than 3 years (since late 2013) using those systems such as Coinbase, Circle, Uphold and Gemini.

1) I cannot say fuck you, because I have wages that could be garnished and I have assets that could be seized.

2) Maybe it was not a good idea?  But it seemed to be an easy way to get into bitcoin  and to build a stash, but in the end, you could be correct that the ease and convenience causes more grief than what it resolves?

You have to start early and NEVER file taxes because once you are marked on their system they get the authority over your US money.

Why don't you just say "fuck you" and show your middle finger .!. //-.-\\ to the tax guys like a real American?

Seriously dude wtf? Why did you mess with the banks in the first place? Maybe its because you needed to buy too many bitcoins and banks were the only way? It will only bring you pain now.

I had expected that at least a few people would have been interested in posting about this tax subject.  We have only about 3 more weeks until the first deadline in the USA (for those folks who plan to file close to the deadline, but do not intend to seek 5-6 month extension of time)

Any thoughts? or insight?

It is tax season in the USA.


Anyone interested in talking about USA tax consequences and various "creative" ways that BTC accounting might accomplish ways to adequately deal with Bitcoin trades (transactions) that might otherwise get flagged by the IRS in the event that a proper accounting (or reporting) is NOT made?



I mean our goal as BTC holders or traders is to appear to be "avoiding" taxes and NOT "evading" taxes, right?  


So we have to figure out ways to make sure that we do not raise any red flags with the IRS in our accounting methods and to transgress into the "evading taxes" category, right?

Personally, I have several bitcoin accounts; however, I only used one account (My circle account) in 2016 to cash out bitcoins to my USA bank and into dollars.  

In total, I have used four accounts to transfer from USA banks to my various bitcoin accounts.  And, we know that once bitcoin is in bitcoin, then we can move it all over the place and back again, right?

Here's a summary of the status of my 2016 bitcoin accounts that are connected with USA banks.

Uphold - (only used this account to deposit from fiat into bitcoin in 2016)

Coinbase - (only used this account to deposit from fiat into bitcoin in 2016)

Gemini -  (only used this account to deposit from fiat into bitcoin in 2016) they issued me a 1099k, which seems to reflect amounts that I paid into them and not amounts that I transferred to my USA bank.

Circle - (used this one quite a bit for cashing out of bitcoin and into my bank in 2016).  I think that I had cashed out more than 100 times through the year but Circle did not issue me any kind of 1099 form regarding my transactions (whether that is the form or 1099B or 1099K.  

I am kind of wondering, since Circle went out of the buy/sell BTC business, are they going to be reporting to the IRS - and wouldn't they also issue a 1099 form to me?
  
My usual practice would be to cash out BTC on Circle while simultaneously buying back BTC on some exchange that I have dollars (more or less an equivalent amount of BTC in order to take advantage of arbitrage gain opportunities. Some of the other Circle transactions were merely someone paying me with bitcoin for some kind of goods or services and I would convert those BTC to dollars the same day (and accordingly cash out).  

I have created a list of my BTC transactions that are connected to my cashing out of BTC and into my bank account in which I am planning to report all of those trade cashing outs; however, I was not planning to report the payment of goods and services transactions.  My thinking is that the transactions where I get paid in bitcoin and cash out into dollars right away are not substantial and/or necessary to account to the IRS.


Part of my current dilemma is this:

Some people think that you only need to count the BTC transactions that go through your bank, and other people think that you should be more thorough with your BTC accounting.  Part of my dilemma also is that I am reporting something that Circle appears to not going to report; however, I have so many Bitcoin transactions, that I would run a major risk if I do not  say something and account for a decent portion of those BTC cashing out transactions.

As I said, for the most part, my deal that I intend to report has been to buy back back the BTC, within about a day of when I cash out through the bank - kind of taking advantage of arbitrage opportunities.



So far I have:

Filled out schedule D (which is a 1040 attachment) to link short-term capital gains (seems to be cheaper than if I attempted to count those transactions as long term gains, especially when I had already established a practice of buying back BTC right away).

I also used form 8949 (which is an attachment to schedule D) to list the bitcoin transactions on a monthly basis.  Therefore, I put the totals of the BTC transactions for each month, and the gains in each row, and at the bottom I added up all of the months to come up with a grand total for transaction amount and a grand total for gains.

I also used schedule C-ez (which is an attachment to the 1040) to report expenses and losses.  One time in 2016, I had a guy who did not pay me for the bitcoins that I sold by reversing his Venmo payment to my bank, so I counted that transaction as a loss.


Question:
Anybody have any tips and tricks regarding how they are doing this, and do you think that my method or my thinking is screwed up?  I am working on finalizing my tax forms in the coming days, and probably going to finalize them and to file them in about the coming week.