Bitcoin Forum

A lot of bitcoiners and altcoiners made a lot of money this year with the runup. If they cash out their profit before the end of the calendar year they (theoretically) have to pay taxes on their gains.

I'm guessing a lot of people are waiting until after the 1st of the year to sell their coins in order to cash out and realize a profit. Cashing out after the 1st of the year allows them one whole year to find tax havens such as mortgage interest and Roth IRAs.

Will people be selling a lot after the 1st of the year?

Yes everyone will cash out at once  ::)

...While not cashing out saves them this headache altogether... hmmm.

hodl instead of sodl until 2016???

My understanding of tax law in the US is that, for forex (and bitcoin), you pay taxes on a marked to market basis. You calculate dollars out (or dollar value of bitcoins) minus dollars in, and pay taxes on that. It does not matter whether you "cash out" or not -- the tax is the same.

If you've been hodling since the beginning of the year and haven't done any day trading, you don't have any taxes since you haven't realized profits. I think the idea here is that some of these long term hodlers may be waiting for the beginning of the year to realize their profits so the income isn't factored into their 2013 taxes when they file them in April.

That's what I was thinking. Also another strategy is if you sold during the year and rebought. If the price drops significantly, you can resell and rebuy to offset capital losses, but with slippage that might not work at all.

I sold ~$50k this year (Novemberish) to see what will happen with my taxes. I should know by April 15th if I'm going to continue to live in the US or not as I still own coin. If you guys want, I can start a blog about it or something. Right now I'm just doing as many home improvements and charity donations as I feasibly can.

There will be no major cash out, US citizens only hold a small part of the BTC in circulation
And you forget that holders are greedy, we are all waiting for the next bubble aren't we

I was wondering the same thing.

This applies to most countries I guess, I mean paying taxes from income in previous year  :)
And I dont plan to sell, because the right time to sell is when you dont need to sell anymore

Do bitcoin profits count for taxes if you only have usd on an exchange but haven't withdrawn?  Bitcoin is very risky - I could make another trade tomorrow and lose it all or the exchanges could shut down and run away with the funds, get seized, or get hacked, and I could lose everything that way. This type of exchange risk isn't there in the stock market. The money I have on exchange is like imaginary cloud money goxbux disneydollars etc that could all be lost - I don't see it as real money that I've actually made yet. So I don't think taxes should need to be paid anyway until you actually withdraw USD back to a bank. What do you guys think?

In fact I lost money from BitFloor - can I deduct that?

I presume we can deduct silk road loses?

Or if you could post in this thread. I think I will do the same.

The problem is how many accountants are well-versed in bitcoin, not to mention altcoin transactions? Would your local CPA know how the IRS considers these investment vehicles? Or am I going to have to find a bitcoin accountant online?

I'll try doing Google searches to find out.

All good questions. I'll try to find out by finding an accountant who has experience with these things.

Many people think this but it is wrong per US law.  Any transactions are considered taxable, it doesn't matter if you withdrawal the funds or not.  Poker players on Stars or Tilt asked many of the same questions who were in a very similar situation. 

Think of it as day trading.  You add funds to ETrade.  You buy and sell Tesla stock.  You make money on some trades, you lose some.  You never withdrawal funds.  You still owe taxes on all the trades. :)

Now of course how does the IRS track offshore trading platforms...that should be the next question...ie, they can't.  The US tax system is mainly based on the honor system.  Until you get audited of course!

I'd also like to find an accountant who understands bitcoin as mine is considering it currency trading ala Forex. I don't know if that is correct or not. I'd be happy to go to someone else who is an expert in this. There were a lot of losses and even more wins.

If names come up, please let us know. I'll also look....

Yes. But without that USD entering your bank account, how will IRS know?

Question is, will you report each trade?  ;)

Hell, BTC-E doesn't even require dox.....

(ahem, I mean, pay your taxes......)

 :D

It would be more wise for those who are taking earnings out throughout 2014 to take it out steadily throughout the year.

To take it out on January 1 when the price could jump 10x (as it has done most years) by 2015 would be foolish.

This is pretty tricky because I've sent lots of coin between exchanges and arbitraged btc and alt coins. So I'll try telling my accountant "I bought some btc at btce and sent it to mcxnow where I traded worldcoin. Then I bought litecoin and sent to cryptsy where I bought ppc and sent it back to btce. I now have a portfolio of usd, btc, ltc, ftc, and xpm which have weekly fluctations inbetween some value and no value."

Show me a man who pays taxes on his Bitcoins and I will show you a fkn loser.

Keep your pennies gentlemen. You will put them to far more positive and productive use than your governments will.

As far as I understand it, Coinbase does not kick out a 1099 to the IRS.

Do what you will with that information.

Secondly, even ebay has a policy that they don't report until you've filled two requirements: 

1)  You have done over $20,000 in business, and
2)  You have over 200 transactions within a calendar year.

Its not or.  Its and.

Is there any way to avoid paying taxes?
 

Can I just open a new bank account outside the US and transfer my BTC there?

All good questions.  It would be much easier for everyone involved if the gov't just taxed fiat leaving the exchange.  I wonder how on Earth people pay their taxes on automated trading algos?  What a nightmare.

Also, what's to stop someone from saying:

- I lost my Bitcoin private keys, thus I have 100% losses.
- Those Bitcoins are not mine, I day traded them for a friend.
- The dollars on Bitstamp (for instance) aren't really dollars.  They are (potential) claims against money in Bitstamp's bank account.

I think the bottom line is the IRS needs to make compliance easier in order to encourage compliance.

Yes I plan on selling in early 2014 to fund 2013/2014 Roth IRA contribs.

If I withdraw btc into cold storage, and they are just in the cloud, then there are no assets in any account in my name. In that case, does the government still consider the btc to belong to me, and that I hold any assets? Also, does the government yet consider Btc a thing or a legitimate asset/currency? Does the gov give btc a value? Where does the value come from?

The real question is, how does the IRS handle people losing their private keys?  In my opinion, it is no different than precious art lost in a house fire.  Total loss.  In that case, what's stopping people from telling the IRS that they lost their keys whenever they get audited?  It is a claim which cannot be refuted.  In that situation, I can't see the IRS being able to collect taxes on anything but fiat transfers back into one's bank account.

I think you're right. However, in my case and in the case of many others, we made just a few transactions and held for a good part after that. So the few times I bought in low and made money and then lost because I kept buying and the price went down, I am about even on completed transactions. However, the early purchases I have kept and haven't cashed out so they are not yet realized gains since I have not transacted them after first buying them.

If it's true that coinbase.com and the exchanges don't report a 1099 to the IRS then the IRS won't know for the most part. The part that gets tricky is when you buy a Lambo or other extravagant items. In my case, I want to buy a house for the interest benefit. I have to show a certain amount of equity in order to qualify for a loan.

As far as losing private keys, you could certainly make the same point that a gambler makes when he says he may have won over $10,000 at one sitting (gets reported to the IRS) but then lost it at the tables the next couple days and thus owes nothing on the previous day's winnings.

some may claim their miner's as 'cost basis' as well...  they didn't just appear in your wallet without expenditure.  Electricity as well.  Maybe even maintenance/administration costs too.  All those USBees can be a nice tax write off in this manner

if you wait until 2014 youre just delaying the tax until next year.

if you have to pay taxes on capital gains shouldnt the IRS have to pay me for capital losses if i lose my investment?

If I wait until 2014 to sell I can deduct the cost of mortgage interest when I buy a house after the first. If I were to sell them today I wouldn't have that deduction and would have to pay on the entire profit.

It's funny how the taxman is always there to collect when you win, but never around to help when you lose.

Although I agree, I still think there is going to be a ~10% cash-out. Why? Because I've considered doing the same thing myself. Depends on the price really.

If anything, I'll cash out a bit before the first since at the end of the year I can calculate how much I can cash out and still keep my income low enough to have 0% on long term capital gains.  Ah, the joys of being back in school and living on a graduate teaching assistant's mesely pay.  I finish my masters in May though, so I don't know what taxes will be like for 2014.

Several posts in this thread assume that trading bitcoins on an exchange is a taxable event for U.S. persons. I believe that is true only if at some point they are coverted to fiat or used to purchase a physical commodity or service. Suppose you bought bitcoins on an exchange using a fiat currency. Your basis is whatever you paid for the bitcoins. If you trade those bitcoins for another virtual commodity such as litecoins without ever converting to a fiat currency or anything physical, then I believe it is not yet taxable, and your basis remains at whatever you paid for the bitcoins. That is my interpretation of the U.S. GAO report on virtual currencies: http://www.gao.gov/products/GAO-13-516 . I am not a tax accountant. If I am wrong about any of this, please correct me.

If you're going to go early and anticipate the sell off, don't you think other people might anticipate your anticipation and sell earlier than that? And what about the people who anticipate the anticipation of the anticipation and sell off even before that sell off??? We might as well all sell off now to avoid those issues.  ::)

Bitcoin was a silly stoner/hacker's coin back then.

That's an interesting link.  I think it is describing more of using virtual currency to buy or trade for something "real", like a product or service which may or may taxable.  Yeah, Uncle Sam is so helpful sometimes!  I don't think it specifically addresses trading a virtual currency for a profit, or loss.

But again, just because sometimes doesn't get converted to fiat, doesn't mean its taxable.  I'm not saying trading coins is or isn't, I'm not an accountant, but I'd be careful if one day you ever get audited!!

There were plenty of people who had millions of Dollars in Bitcoin even at those prices. I can understand this is hard to gather if you just came around though :)

There was some ''smart money'' in it, but nowhere near the amount of corporate/semi-corporate money that is currently in BTC. So, you can't really say what is going to happen.

I was around on the forums. There was also plenty of 'dumb' money in :D

I was talking about those who dumped +50k USD on bitcoin back then, not your average lucky nerd/stoner.

I'm talking about those that did it the other way around ;)

I think this is exactly correct.  We cant compare last year to this year.  There was barely any press about it, no trusts being set up, not much if any mainstream acceptance yet, and of course no corporate money with big time backers.  I dont think we'll see any changes from 2013 to 2014 simply because of taxes.

Will somebody PM when it's time to sell a bunch of bitcoins next year.  I don't want to miss out.

Well, sorta.

The rules for gold and collectibles are mostly about the rate.  They don't want you using the 15-20% rate.

You recognize (report) the gain in value every year, but you don't owe the tax on that gain until you realize the gain (i.e. sell).



Very likely.  You should probably have a tax professional do it.



There is a line-item for income (or loss) from illegal activities.  I shit you not.



They do, but they don't pay you in dollars; they pay you in tax credits you can carry forward into the future.

And I continue to be amazed.

No, when you rebuy there is no capital gain/loss until you sell again.  If you sold up high and rebought you still need to come up with the cash to pay your taxes on the gain you realized when you sold.   

Where the fuck did I say anything about trying to front run some stupid theory about people cashing out simply because it is a new year?  I want the profits in 2013 taxes because I can be certain of their impact.

Not everyone's reading skills are sufficiently up to par ;)

My accountant has advised me that I should report these as "Other Income" for my Mining/Arbitrage/Trading LLC I set up in 2012, which basically means Bitcoins are taxed at the highest rate possible (akin to an increased salary). I might even have to pay more in Social Security tax, we still don't know.

Until we get clarity from the gov't on this, I'm going with my accountant and taking as legal of a route as possible. If cryptocurrencies do get taxed at lower rates, then I can always go back and file a claim for what they owe me. I do agree that these should be taxed at capital gains rates, but capital gains have very specific designations in the tax code (or so I'm told) and because the IRS is slacking off, we presently think that Bitcoins fall under Other Income at the present time. I don't think more familiar CPAs are going to be universal in their assessment of this, so take what I have to say here as you may. I'm just going the extra precautionary route though I'm definitely complaining every step of the way. Also, this $50k I made was a sale of only a small portion of my holdings, so this is kind of a "let's figure out what happens" sort of thing.

Also, because of the sharp contrast in my previous to my present bank account standings, I'm sure to get audited, so I imagine I'll have a lot to say to the IRS about this as well. This is partially the reason for why I was thinking of doing a blog, so I can complain about everything that happens and how unfairly I'm sure to get targeted. Maybe they'll surprise me and it'll be a cheery process or there won't be an audit at all. I find both unlikely.

TLDR; I'm going to be a shining beacon of the opposite that I want to be regarding taxes on cryptocurrencies. If the feds screw around with me, I'm leaving this god-forsaken bananapetrodollar republic and making sure they don't make another dime off of me and no one will be able to say I didn't try to work with them on this.

What's stopping someone from opening up a bank acct in another country, transferring BTC to that country's local exchange and withdrawing to the bank? Or using an ATM anywhere around the world, then storing the fiat in a bank. Would coinbase report to the IRS how many bitcoins you bought and when? Please respond

Most of us have already thought about this. In fact, back in 2011 when I first bought into bitcoin when the prices were going up I had that very thought. But getting a foreign bank account is difficult and I believe many countries have agreements with the US to report any balances if a person is suspected of illegal activity.

This happened in Switzerland recently. The Swiss have always had the utmost security when it came to banking matters until the US strong-armed the Swiss into releasing bank records on US citizens. Many Swiss banks now refuse to accept accounts from Americans.

Perhaps one could set up an account in the Cayman Islands. In fact, I do believe I will look into doing just that. Thanks for the inspiration.

I'm right behind you brother. If I get any sort of pushback by the IRS I will move out as well. I have friends in Thailand who say I can get a flat in a tower on the ocean for $1000/month. I'll just move into my friend's building and hang out with Thai supermodels.

What you say about talking to an accountant of course makes sense and I would suggest anyone who is going to spend any of their bitcoin loot to do the same. I plan to use mine for a down payment on a house. I want to diversify my investments from just bitcoin to bitcoin and real estate in case my bitcoin holdings drop because of some unforeseen news.

Yes, I will have to declare some of my gains in taxes but I hope to offset those with mortgage interest payments.

See this link for some info:

http://www.bitcointax.info/

Thanks for the link. I was going to post something similar in a little while to get another angle on the situation.

Well, it's midnight in Beijing right now. I don't know if the Chinese have the same tax write-offs that we do that would cause them to potentially sell in the New Year. It will be interesting to see.

Well after midnight ("Asia time") and the price is higher, not by much, but slight upward trend.

I think eventually there will be accountants who become very familiar with the tax codes for trading and selling bitcoin.  And by familiar, I mean there will become some sort of precedent that most will follow.  It happened with online poker.  Most CPA's didn't know how to calculate the gains or losses.  Then someone (a Mr Fox or someone) created a poker specific tax site and he became the go to guy for many professional poker players.

See this link for some info:

http://www.bitcointax.info/


perfect - thank you!

and a happy and prosperous 2014 to all!

quick question

if i bought and mined bitcoins but NEVER sold any,

do i need to declare anything during my taxes in 2014? do i need to let irs know that i hold bitcoins ? or can i be hush about it since i never made a recognized gain?

There is a thread about this in https://bitcointalk.org/index.php?topic=379425.0

Generally taxable events are created from selling something, whether real estate, stocks, gold, etc.  Because you "found" bitcoins, basically a cost basis of zero, and/or bought bitcoins, it should not be considered a taxable event.

thank you

Well in about 60 minutes it will be midnight on the East Coast of the US. We'll see how things go then.

Sell Sell Sell

This post is kind of irrelevant, because it's all about when someone CASHES out.

Says who?!  Who knows how the IRS will eventually classify coins, but lets assume its a commodity like oil, gold, wheat, corn, etc.  You put money on an oil exchange, Forex or something.  You buy some oil futures.  You sell some oil contracts in 2013.  You keep the money on the exchange.  Guess what?  You still owe taxes on that sell assuming you made some money.  Cashing out has NOTHING to do with a taxable event.

Looks like someone dumped a few thousand coins on Gox. The beauty of the market is such that someone dumping coins like that still can't bring it down significantly. The market takes a more broad case of selling to bring it down very far.

Most of the exchanges have enough support and buys to now handle a couple thousand coin sell.  If someone with a super large, 10k batch or more wants to dump at one time, that will drive down the price.  But even with that sort of sell, you can see the current order book, it would only be temporary.

much of that order book is dynamic...  have you forgotten how crashes work with bots?

Oh I understand that the order book is a living dynamic organism all in its own! Especially with the advent of computerized trading.  I'm not saying it would "crash" with a large order, I just think there would be enough "bots" jumping in on the buy side to have decent support.