Topic: New IRS rules for BTC as related to US Tax payers - page 2. (Read 5913 times)

Its not even legal tender so the merchant would have to convert back to fiat anyways. If they need fiat to operate their business

The easiest way to do this is through a service similar to credit or debit cards.   Isn't there some service for this already?

Its a pain to use bitcoins currency.   No different if you work for dollars then instead of a checking account you buy gold.  When you need dollars you sell that gold back to dollars to make purchases

Obviously bitcoins would have to be taxed, and to be frank I loathe the people on this forum who are always saying "screw the NWO  government, Alex jones is my hero and they'll never catch me!" But the tax code renders bitcoin as a currency useless. It's still fine for making big purchases now and then, but if you wanted to walk around a city and use it like cash, buying lunch here a few drinks there, dinner here...it turns into an accounting nightmare.

It isn't really good or bad. People that thought they could somehow get away with not paying taxes in the US are naive as hell.

If anything I think overall it is good because they clarified that you can indeed pay a lower tax rate for long term gains.

I doubt this news is the reason for bitcoin's price being down, it has taken a hell of a beating lately and been extremely volatile. I wouldn't assume that this news is even affecting the price.

So if the IRS ruling was good for bitcoin, what's up with losing almost 20% of its value today?

https://bitcoinaverage.com

Yeah but if you mine other coins than BTC it adds a whole extra layer of complexity, since altcoin prices are usually denominated in terms of how much BTC they are worth, NOT how much USD, adding a whole step to the process as I described.

This is the crux of it. Current rules will never allow widespread adoption. Way too much hassle for the consumer, unless you are only using BTC to make large purchases every now and then. Which is absolutely not the goal...or at least not in my mind.

You have to keep track of everything

If you mine them the price you got the BTC is 0$ + costs; if you sell them on an exchange, the selling price is what you get and if you buy something with the BTC it is the market price of that item

When you sell you use the btc you got the cheapest or the price of the oldest coins first or if you want to gamble with the irs you use a price average

More infos here from a us tax lawyer : http://www.reddit.com/r/Bitcoin/comments/1uccfz/i_am_a_tax_attorney_here_are_my_answers_to_the/

The biggest problem I see is that there is no centralized body tracking the prices of bitcoin and other coins. So who's to say whether a bitcoin or goatcoin or dumbasscoin was worth 215 satoshis or 250 satoshis or 200 satoshis at the time it was exchanged/spent/mined? And even the exchanges mostly track the prices in terms of btc value, not USD - so are people going to calculate how much xyz-coin was worth in terms of BTC at the time they mined it, then calculate how much BTC was worth in terms of USD at that same time?

One person could say well I mined 5000 abc-coins and exchanged them at a rate of 200 satoshis each on mintpal, and then check the price of BTC/USD on BTC-e.

A second person could mine the same 5000 abc-coins but exchange them on cryptsy and get 215 satoshis each, then check the price of BTC/USD on Coinbase and arrive at a completely different result.

And who is keeping track of the history of all these values? What proof do you have if the IRS audits you down the road, and joe-blow-exchange which you had used to swap many of your coins, is closed/out of business and cannot produce records?

This could get very tricky. I think it would make a lot more sense if they just said look, when you convert any coin to USD then you owe taxes on the gain based on how much fiat you got right then and there. As far as coins spent at merchants, I can't even think of a feasible way to deal with that... it's one thing if you make a large purchase, but what if you made many small purchases? Mountains of paperwork...

The long and short of this is that it's time to get yourself a copy of quick books and truly run/account for your mining operation like a real business.  This way you can fully exploit the tax code.

H@shKraker

Thanks for clearing that up. Your explanation is thorough and really helped me grasp how to calculate expenditures in BTC. However, for the average person, this is just too much. You don't have to do any of this nonsense with dollars. So, I get how bitcoin could possibly survive as some sort of alternative to gold and then therefore exist in a commodities world, buying and selling futures, things like that....but becoming a viable currency....I don't see it.

Except not all of them have USD trade pairs. What are we supposed to reference in this case as "fair market value"? The altcoins worth of Bitcoin to USD value?

The IRS allows a number of methods to determine basis.  The default option is FIFO.

So if you bought the following Bitcoins

10 BTC @ $10 ea
20 BTC @ $30 ea
50 BTC @ $60 ea
10 BTC @ $20 ea

and then you decide to sell some Bitcoins (either for fiat or in exchange for goods and services) and the exchange rate today is $50 per BTC then you simply start at the oldest coins.

If you sold 10 BTC it would be ($50-10)*10 = $400 capital gain.  
If you sold 20 BTC it would be ($50-10)*10 + ($50-20)*10 = $700 capital gain.
If you sold 70 BTC it would be ($50-10)*10 + ($50-20)*20 + ($50-$60)*50 =$500 NET capital gain.  Note the third batch is sold at a loss.

Understand capital losses would work exactly the same.  Someone who bought BTC at the peak and then today decided to spend/sell them would get a tax break on the difference in value.

There are more complex forms of computing basis by tracking each individual coin but it doesn't NEED to be done.  It is done by people who want to control their taxes (note it doesn't reduce your taxes but it allows you to control when you pay it).  Hedgefunds and major companies will almost certainly be using coin control to pick the exact coins they sell/spend in order to exactly control their tax liability.

Any company doing international sales is already doing the same thing when it comes to getting paid in Euros.  For most merchants which don't hold BTC there is never any gain.   For merchants that do, and can't do it themselves I am sure processors like bitpay will provide services to track all that and give them a report at the end of the year.

It's not a bitcoin tax. It applies to ALL cryptocurrencies.

So does this mean we'll be taxed on alternative currencies too, or only if we sell them for bitcoin?

My guess is that a bitcoin tax will only promote an increase in altcoin usage (assuming it is only btc that will be taxed). Time to buy more litecoin!

Thanks so much for clearing that up. This is why I ask questions!

Bonam,

Oh yea ... you're right, avg cost basis is another viable calc method and one absolutely SHOULD use it if that's the one that has the tax advantage.  Guess this is why my wife is the CPA in the family.

H@shkraker

Are we gonna see huge spike in prices of old usb miners (333Mh/s)? 

thank you sir.

The UK initially came out with some pretty stupid ideas about crypto taxation. After talking to folks they revised that to something more sensible. Perhaps the same will happen here.