US tax obligations with bitcoin increase in value - page 2.

abyssobenthonic

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Quote from: mcdett on May 05, 2011, 09:12:53 PM

Buying and selling stocks (out side of ira) require payment of gains at the end of the year regardless of selling (sometimes shares are sold simply to pay tax on gains).

Not in the US. Capital gains taxes (the only applicable taxes in this case) are paid only after selling.

If you hold shares in an investment company (e.g. a mutual fund), the fund is buying and selling all the time and thus distributes capital gains through to you (this property is what allows an investment company to not pay taxes itself, as long as the gains are passed through to the owners of the funds), then you do get a capital gains tax liability even though you haven't directly received any gain, though.

tomcollins

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Quote from: Cryptoman on May 06, 2011, 09:12:47 AM

Quote from: ribuck on May 06, 2011, 09:04:33 AM

Quote from: mcdett on May 05, 2011, 09:12:53 PM

Most of my earning have come from mining on two machines way back when the mtgox price was.... .20 cents a btc (early 2010). I generated quite a few coins. This to me is a taxable event because I now have something of value that far exceeds the costs of electricity and hardware.

Suppose the MtGox price had plummeted and your BTC had become worthless. Would you have been entitled to a tax deduction for your losses? If not, it hardly seems fair for you to be taxed on your gains.

It seems everything is classified as a hobby with write-offs disallowed until you make the first cent of profit, then it's a taxable enterprise. The laws are always slanted in favor of the US Treasury. However, if it Bitcoin became classified as a true currency, you could likely write off the first $3000 per year in losses (with carry forwards allowed). This is my understanding at least.

Laws on hobby income are weird. The government tries to make everyone report things as a hobby unless it's in the governments interest to make you classify as a business. I had hobby income for a few years where I may have been able to count it as business income, but it made no sense. I would have had few deductions and would have had to pay the extra social security and medicare taxes on it. Usually, the government is very strict about what counts as a business. I filed as hobby for a while. Then they mailed me and said the previous few years should count as business income and I owed a lot of money. It took a big fight but eventually they let me count it as hobby.

You can profit and still have it counted as a hobby in some cases (I won't advise on which cases those are, though, save that for a lawyer). Even if it's not a currency, you could deduct losses (if I traded baseball cards at swap meets, I could deduct losses if I had been profitable in the past).

tomcollins

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Quote from: mizerydearia on May 06, 2011, 08:48:57 AM

Ohnoes, I must permit the government to steal a percentage of money from me and possibly later to allow me to collect a percentage of the stolen monies at a later date? What is the reason for this again?

Not getting assraped is a good reason to conform. When a mugger puts a gun in my face and demands my wallet, I pay him. It doesn't make him right.

Cryptoman

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Quote from: ribuck on May 06, 2011, 09:04:33 AM

Quote from: mcdett on May 05, 2011, 09:12:53 PM

Most of my earning have come from mining on two machines way back when the mtgox price was.... .20 cents a btc (early 2010). I generated quite a few coins. This to me is a taxable event because I now have something of value that far exceeds the costs of electricity and hardware.

Suppose the MtGox price had plummeted and your BTC had become worthless. Would you have been entitled to a tax deduction for your losses? If not, it hardly seems fair for you to be taxed on your gains.

It seems everything is classified as a hobby with write-offs disallowed until you make the first cent of profit, then it's a taxable enterprise. The laws are always slanted in favor of the US Treasury. However, if Bitcoin became classified as a true currency, you could likely write off the first $3000 per year in losses (with carry forwards allowed). This is my understanding at least.

ribuck

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Quote from: mcdett on May 05, 2011, 09:12:53 PM

Most of my earning have come from mining on two machines way back when the mtgox price was.... .20 cents a btc (early 2010). I generated quite a few coins. This to me is a taxable event because I now have something of value that far exceeds the costs of electricity and hardware.

Suppose the MtGox price had plummeted and your BTC had become worthless. Would you have been entitled to a tax deduction for your losses? If not, it hardly seems fair for you to be taxed on your gains.

proudhon

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Quote from: ploum on May 06, 2011, 08:59:15 AM

I think that the topic is not whether or not the laws are good.

The question is "If you want to respect the current law (regardless of its stupidity), what should you do?"

So please, don't fall in the anti-government rhetoric as nearly every other topic here. The question is interesting by itself.

Not only is the question interesting, but I think it's important. There's a good chance some people are holding quite a bit of USD value in bitcoins, and if the project continues to grow in the same way, then there could be many more. Regardless of what any of us think of the laws, we are subject to them, and there could be very real tax or other implications associated with using, holding and exchanging bitcoin. I'd like to know what those are as far as I can know.

ploum

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I think that the topic is not whether or not the laws are good.

The question is "If you want to respect the current law (regardless of its stupidity), what should you do?"

So please, don't fall in the anti-government rhetoric as nearly every other topic here. The question is interesting by itself.

mizerydearia

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Ohnoes, I must permit the government to steal a percentage of money from me and possibly later to allow me to collect a percentage of the stolen monies at a later date? What is the reason for this again?

marcus_of_augustus

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Eadem mutata resurgo

yeah, like nobody is aware of the fucking gargantuan taxes the banksters are shafting us with every year .... !

mcdett

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Quote from: just_someguy on May 05, 2011, 09:27:36 PM

Quote from: error on May 05, 2011, 09:16:01 PM

Interesting reading. I'm so glad Bitcoin allows people to escape this system.

Bitcoin won't help you escape taxes. You are always free to lie on tax return if that is your inclination.

I am certainly not implying that I want to lie to the feds. Quite the opposite. I think it is important for every geek on this site to be aware of tax liabilities when they buy and sell btc.

just_someguy

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Quote from: error on May 05, 2011, 09:16:01 PM

Interesting reading. I'm so glad Bitcoin allows people to escape this system.

Bitcoin won't help you escape taxes. You are always free to lie on tax return if that is your inclination.

just_someguy

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I'm not aware of any tax you have to pay on holding stock that has increased in value.
You have to pay tax on dividends but bitcoins have none.
Are you referring to mutual funds?
You have to pay taxes on your portion of the buying and selling inside a mutual fund regardless of whether you sold shares of the mutual fund itself. This sounds like what you are describing.

error

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Interesting reading. I'm so glad Bitcoin allows people to escape this system.

mcdett

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Quote from: just_someguy on May 05, 2011, 09:04:03 PM

Mining is an interesting case though. There would be two ways to look at it:
You just received goods for services (barter income) and it is taxable immediately OR you have a gain when you sell with a cost basis of 0$.
Either way I imagine you could write off what it takes to run your mining operation.
Very interesting question.

Most of my earning have come from mining on two machines way back when the mtgox price was.... .20 cents a btc (early 2010). I generated quite a few coins. This to me is a taxable event because I now have something of value that far exceeds the costs of electricity and hardware. I don't believe one has to "cash out" to be exposed to tax liability.

Buying and selling stocks (out side of ira) require payment of gains at the end of the year regardless of selling (sometimes shares are sold simply to pay tax on gains).

just_someguy

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IANAL but I believe you are supposed to report a capital gain on anything you buy then sell at higher value.
If you don't sell them and they aren't paying dividends then I don't know how you could possibly have a tax liability.
Even then it would just be the difference between your cost basis and what your purchase price was.

Mining is an interesting case though. There would be two ways to look at it:
You just received goods for services (barter income) and it is taxable immediately OR you have a gain when you sell with a cost basis of 0$.
Either way I imagine you could write off what it takes to run your mining operation.
Very interesting question.

tomcollins

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Quote from: mcdett on May 05, 2011, 08:50:13 PM

I think Im going to have my corp accountant write a brief on tax obligations with trading and having btc increase in value. I may publish the report here on the forum under a cc license.

... or maybe there is an accountant on this site who can speak authoritatively on the subject.

My understanding is that I would need to report the gains at the end of the year.

Thoughts?

Another thing I'm considering is hiring a local attorney who is knowledgeable with FTC laws to write up a brief on the legality of doing btc trading against USD. I figure being on the correct side of the law when you liquidate could go a long why in protecting your earnings.

Dont trust this as fact, but I'd imagine you are subject to the same rules as capital gains. So if you don't sell, you don't gain yet. But hopefully someone actually knows.

mcdett

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I think Im going to have my corp accountant write a brief on tax obligations with trading and having btc increase in value. I may publish the report here on the forum under a cc license.

... or maybe there is an accountant on this site who can speak authoritatively on the subject.

My understanding is that I would need to report the gains at the end of the year.

Thoughts?

Another thing I'm considering is hiring a local attorney who is knowledgeable with FTC laws to write up a brief on the legality of doing btc trading against USD. I figure being on the correct side of the law when you liquidate could go a long why in protecting your earnings.

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