Bitcoin Forum

http://www.businessinsider.com/irs-bitcoin-is-property-not-currency-full-release-2014-3

Major ruling - BTC is property, not currency.  Basically means if you mine it at $600/coin, and then buy a product that costs $1,200 down the road for 1 BTC, you owe taxes on that $600 gain.

Is it good or bad?

It seems like a reasonable ruling, however where are they going to catch the tax cheats?

If you convert your BTC back to fiat at a IRS-reporting-compliant institution, it is obvious that the IRS will note that you probably have gains there.

But as BTC is used more as a currency, in that you make small purchases with BTC, will sellers have to report all their BTC transactions to the IRS?

Overall: Depends on when you bought it, and how you got it.

Purchased BTC when it was at $1,000 and used it to buy goods = Good, you can write the loss off as an investment loss.

Purchased BTC when it was below $600 and used it to buy goods = Bad, you owe taxes on the gains.

Mine BTC = bad, for two reasons.  
First, you owe taxes on the value of any BTC you mine on the date you mined it.  
Second, while you can write off the cost of mining to offset the taxes from the first point, anyone mining off of their personal computer (or a computer used for anything other than mining) will not be able to write off any expenses, and will owe taxes on the full value of what they mined.  The IRS has some very strict rules on personal businesses, and has been heavily cracking down on these deductions the past few years.

Oh bitcoin, what have you become? Taxed by the very thing that you were created to eliminate...  :'(

They go after the businesses (think overstock), and request a list of people who purchased goods using BTC.

Kind of similar to what Italy has done recently with focusing their audits on people who shop at certain stores.

Seems to be unenforceable in my opinion.
how are they going to know what you paid for them or if you mined them? How would they know when you bought them or if you'd had them for 3 years prior?
quite a few variables that are not explained very well here.

And a clear path forward: relocate.

Wall Street Journal's Q&A Via Zerohedge. Notice the interpretation of wsj on the "meals" in number 3 and the one before last collide unless 600 USD is a normal lunch price for a WSJ writer:



"How is virtual currency treated for federal tax purposes?

Bitcoin and other virtual currencies are treated as property, not as a currency. Therefore, an investor who buys bitcoin would typically have a capital gain or loss when it’s sold but wouldn’t have foreign-currency gains and losses.

If a taxpayer receives a payment in virtual currency, is it considered income?

Yes, the fair-market value of the currency (in U.S. dollars) on the date the payment was received is considered to be income. For more information on exchange rates, see the notice.

Does a person who makes a payment using bitcoin have a gain or loss on the transaction?

Yes, typically. For example, say a person buys $5,000 of bitcoin, which then doubles in value. If she then uses the bitcoin to pay a $10,000 tuition bill, she could have a $5,000 taxable capital gain on the transaction.

This clarification means that people who use bitcoin in small amounts, such as to buy a meal, could face onerous record-keeping issues.

Is a person who “mines” a virtual currency considered to have received income?  

Yes, and if the taxpayer engages in mining as a trade or business, self-employment tax is often due.

Does virtual currency that’s paid by an employer in return for services meet the definition of wages for payroll-tax purposes?

Yes, and it’s also subject to income-tax withholding.

Must payments made in bitcoin be reported to the IRS?

Yes, if they meet the requirements for information reporting on payments made in property. Typically, the threshold is payments of $600 or more.

Will taxpayers be penalized for having treated bitcoin transactions in a different manner before today’s notice?

They could be, especially if they underpayed tax or didn’t report income, or both. But the IRS noted that penalty relief “may be available” to persons who were required to file information reports but didn’t, if there’s a reasonable cause for the nonfiling."

Think of it like a parking garage.  If you can't prove when you got in there, the garage assumes the worst and hits you with the highest fee.

It is good and bad...depends on each persons situation.

First are you a US taxpayer...

If yes, then it depends on whether you mine or buy/sell.

Buy/sell are easy.  If you by at one price and sell for another you have a gain/lose of the difference.

If you mine then Q8 of the release applies; then I read it as the IRS thinks we should realize the gain when "mined" based upon some exchange price.  This is nearly impossible, since each pool pays a tiny fraction of a bitcoin with each block solved.  Most pools don't keep exact enough records to know when each tiny fraction of a bitcoin was paid to each user.  I only know when I sent the accumlated tiny fraction to my personal wallet.

Does anyone see it differently?

What is the "requirements for information reporting"?  Essentially, any transaction over (XBT/$600) involving an American taxpayer must be reported to the IRS?

There will be an App for that. At the end of the year just import it into Turbo Tax or whatever. Just makes you tax return filing a little bit bigger.

I consider it super good news. There never was a chance of it not being taxed, so the question is which taxes apply and at what rate. The USD I work hard for are taxed as income at around 30%. My bitcoin gains, which mostly I earned while sitting on my ass are taxable at the lower capitol gains rate. even better, If I had a loss I could claim losses now. This is going to be big news for businesses sitting on the side lines. They have been waiting for a ruling that gives them some direction in implementing bitcoin.

This is going to be both good and bad.  In reality this ruling now treats Bitcoins just like physical gold coins.  For institutional investors and investment companies who deal in large quantities, this is good because the rules are clear and there is now no question on the legality or illegality of bitcoins.  For the casual user, similar to a gold bug who buys/sells in small amounts with cash at local coin shops, bitcoins are now in the same boat.  If you want to avoid the IRS, buy/sell on exchanges outside the US or for cash in person.  Small time bitcoin users will mostly be unaffected, while the big players now have legal legitimacy to it all.  Overall I think this is a positive step for the bitcoin economy and should boost long-term confidence.

This is insane if they expect miners to go off of moment of holding/creation for gains

Would this include Alt coins? I mine a variety of coins and have thousands of them. Then I have at the least 30 or so Alt coin to BTC trades going on each day.

Do they expect me to base the gains on when I get the actual BTC? or the Alt coins?

Then there's my tiny little bluefury making a whopping .00002 btc a day. Do they really want a gain for that fraction when after a few months I have enough to even hit the withdraw limit from a pool?

Fuck, this is how you kill mining for the common person.

I would think that the IRS would start using standardized historical data on the XBT rate.

You could fudge your taxes putting more income in capital gains vs. non-gain income depending on the historical data set that you use.

Personally, I think the special capital gains rate should be eliminated that the general income tax rates should be lowered in compensation, but that is politically impossible.

So, if I mined through 2013 at an average price of say $200/btc and put my coins on gox, then lost them with gox's closure when the price was ~$500 then...

I pay income tax on the $200/btc mined coins - my mining equipment and electricity expenses

Can I then claim property loss at the price when gox closed?

I would assume there are thresholds on how much of something you produce before you have to declare self employment. Is growing two tomato plants considered self-employment in the US? Then again government's job is not to make sense or be reasonable.

The ruling is for "virtual currency" it does not mention Bitcoin specifically, so yes would apply to alts.

If you had the ability to pay taxes in btc it would be real money.

This basically treated btc as property and when you sell it you either have a loss or, hopefully, a capital gain.

Stores would simply factor this cost into their prices and the consumer would be taxed at the point of sale because the store will pass the cost of the tax on to the consumer.

No need to keep a list of btc users or anything for that. It's not really a tax on the consumer. It's a tax on the capital gain of the business of the seller. They would just pass it to the consumer to avoid net loss.

Your transactions would be reported to the IRS by the legally compliant second party if they exceeded $600.   That's what the IRS will know, and your records would have to show that after your pay you taxes.

This guidance confirms what we already knew: bitcoin is property and is taxed accordingly.  The only thing that has changed between yesterday and today is that individuals and businesses now have greater clarity.

Remember also there is the letter of the law and the practical law. How many of us record and calculate gains from a spring garage sale? I think I'm supposed to, but I don't. Or let's say you find a wedding ring while hiking in a park. You must claim the wealth you obtained from your treasure, but I bet very few do.

If you really want to be accurate you may find that you have very precise records from your bitcoin client, exchanges, and the blockchain. I was able to find almost every transaction I have done. That allows me to do "first in" accounting.  Those first coins I bought for pennies are going to be taxed dearly. Over time that should reduce if the price stabilizes. Or I may have to pay more if the price climbs again. Either way I'm only paying on my profits.  

Not like gold coins at all!

Gold coins are taxed as collectibles which are taxed at 28% for long term gains and are not eligible for long term gains at all in several states (such as MA). Completely different than bitcoin!

the power elite have succeeded

bitcoin is effectively banned

Could you transfer your first purchased BTC to an IRA vehicle?

Am I correct in thinking that this guidance affects miners more than anyone else?

No, America sees the glimmer of bitcoin and wants in.

What? lol. This is the best news for American bitcoin holders this year. Now I know the rules. There was never a time when bitcoin was not taxable.  Why do people keep thinking that unlike all other objects in the universe, bitcoin is not taxable. It just is not and never was true.

by making bitcoin so difficult to transact in it's impossible?

have you ever filled out a tax return and had to report capital gains?

no?

Hmmmmmmm.

You pay income tax on your $200/btc mined coins, and then you take a capital loss for the coins (again at $200/btc).

Alternatively you could declare a gain of $300 and then a loss of $500 but it would end up the same anyways as $300 of the loss would cancel out the gain.

Hopefully you had other capital gains that year you can cancel out because you can only deduct $3500 in capital loss off of your income per year (you can carry it over to future years though).

If you actually mined a lot of coins, never sold them, and then lost them all when gox went under you could actually end up owing more tax than money you have because of the inability to deduct your capital loss.

+1337
I'm starting to suspect that some are hodlers just because they don't want to pay sh*t to the taxman. That's my case at least. And relocation is my top priority, before which i won't liquidate sh*t.
It's another way about how taxes can make something valuable.

Gold coins are treated as collectibles and taxed at 28% tax rate for long term holdings:
http://www.irs.gov/taxtopics/tc409.html

Since the new guidance does not mention virtual currencies as collectibles I would assume that the 15% applies (or even 0% .. or 20% ... see above) for bitcoin long term holdings. This is much better than 28% on gold coins and going to be both good and even better  :)

I think many people are misinterpreting this guidance.  It is just saying that "bitcoin is property."  When determining the appropriate course of action, ask yourself what course of action you would take in an analogous case using physical property that you're already familiar with.  Here are a few examples:

Growing a few dollars of tomatoes and trading them at the local farmer's market for some jam has the same tax implications as mining a few dollars of bitcoins and trading it for a beer at a local bar.  

Purchasing a 1 acre greenhouse and growing $1,000,000 of tomatoes and selling them to Trader Joe's has the same tax implications as setting up an industrial bitcoin mining operation and selling $1,000,000 of coins to Second Market.  

Cashing in one of the gold coins your grandfather gave you when you were a boy has the same tax implications as cashing in a bitcoin you acquired a few years ago.  

Selling the 10 BRK-A shares on the NYSE for $1,860,000 that you bought for $100,000 many many years ago has the same tax implications as selling $1,860,000 of bitcoin that you acquired last year.    

Receiving $50 of scotch as a gift from your buddy for helping him move has the same tax implication as receiving $50 of bitcoins for helping a forum member write some software.  

Receiving $120,000 a year from your engineering job has the same tax implications as receiving $120,000 of bitcoins as a paid developer for a bitcoin start up.  

So if Bitcoin is property and not currency in the eyes of government, why do we need to follow KYC and AML laws?

For individual Bitcoiners, the only enforcement they will see is self enforcement.
The IRS cannot prove that you have Bitcoin property.
Only the owners of private keys can prove ownership of property.

You may be able to prove that you sent coins to an address I own, but what if the
corresponding keys were lost, stolen/hacked. Again, you cannot prove ownership
is still under my control.

This will be interesting.

Oh my.  What does this mean for bitcoin payment processors like BitPay?

Say I use BTC to buy $1000 in gold from someone who uses BitPay.  This exceeds the $600 reporting threshold.  As BitPay is doing the BTC->USD conversion, the gold dealer gets paid in cash and has no reporting responsibility.  However, in this scenario, I believe BitPay would have a reporting responsibility.  Ugh.

Edit: It turns out the IRS Q&A addresses this in Q-15 (below).  Form 1099-K is filed by the payment processor for funds paid to the merchant.  It's not immediately clear that there's any reporting by the payment processor that would pertain to the bitcoin spender :
===
Q-15:  Are there IRS information reporting requirements for a person who settles payments made in virtual currency on behalf of merchants that accept virtual currency from their customers?

A-15:  Yes, if certain requirements are met.  In general, a third party that contracts with a substantial number of unrelated merchants to settle payments between the merchants and their customers is a third party settlement organization (TPSO).  A TPSO is required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000.  When completing Boxes 1, 3, and 5a-1 on the Form 1099-K, transactions where  the TPSO settles payments made with virtual currency are aggregated with transactions where the TPSO settles payments made with real currency to determine the total amounts to be reported in those boxes.  When determining whether the transactions are reportable, the value of the virtual currency is the fair market value of the virtual currency in U.S. dollars on the date of payment.

See The Third Party Information Reporting Center, http://www.irs.gov/Tax-Professionals/Third-Party-Reporting-Information-Center, for more information on reporting transactions on Form 1099-K.
===

This is not correct. I reviewed this with BCB several months ago to be sure.  BitPay is a third-party payment processor that facilitates the transaction between buyer and seller.  Any obligatory reporting falls on the buyer or seller.  For example, there are no reporting requirements when buying a coffee or a TV from Overstock, and the reporting requirements fall on the seller when buying a car from a dealership.

When Goat bought his Lamborghini, he paid via BitPay.  BitPay had no requirement to report this transaction, and probably a legal obligation not to.  However, the Lamborghini Dealership would have reported the transaction just like how they would report the transaction if Goat had paid via wire transfer or cash.  

Btw how do we prove when we obtained the coins?

The closest place I figure the IRS can truly trace, is to the Fiat conversion.

I use coinbase so they'll have a deposit and then a bank transfer.

How do they how long I've had the coins before that transfer is up to me if using a private wallet. If you use an exchange like cryptsy, they could possibly get that info from them.

Is this FIFO, do wash rules apply??

It is stupid to think you have to pay taxes on mining and then pay taxes again on use(assume btc is up) which you probably already paid taxes on the goods anyway.

So triple taxation for mining and using btc?

This is a shot directly at btc. Make is so unfriendly no one can possibly use it.

Thank the special tax rates for capital gains.   Income is made through labor or by capital gains, and your accounting for the IRS will determine what kind of gain it is.   This is why Mitt Romney paid a much lower tax rate than the typical American middle-class family, or why Warren Buffet pays a lower tax rate than his secretary.

Any politician that makes a move to get rid of the tax code of the special treatment of capital gains will be confronted by a huge army of highly-paid lobbyists fueled by dark money.

Given that the IRS has decided bitcoin is property (like shares of stock) I would assume wash sale rules apply.

The triple taxation argument is a strawman.  It's no different than 1) paying taxes on your salary, 2) using that salary to make money in the stock market and paying taxes on the gains, and 3) spending that money and paying sales tax on what you buy.

Let's make this clear.  If BTC is worth $500 when you mine it and $600 when you spend it, you pay taxes on the $500 of mined value when you mine it.  You pay taxes on the $100 increase in value when you spend it.  The total $600 essentially only gets taxed once.

The idea that I generate a bit of tax bookkeeping every time I buy a bitcoin latte *is* rather annoying.  What I would do personally in that situation, rather than keeping track of and reporting each individual transaction, is to total them up on a monthly, quarterly or annual basis, and report as an aggregate transaction: Spent a total of 2 BTC for 40 dinners worth a total of $1200.  Cost basis of the 2 BTC was $900, so a net taxable gain of $300.  A BTC wallet app could easily keep track of it.

Edit: On second thought, wash sale rule probably doesn't apply to bitcoin as it's not a "security".

I wanted to clarify when the $600 rule applies.  An example would be if you operated a gold-4-bitcoin shop and used BitPay as a payment processor.  

If you only sold $400 of gold via BitPay that year, nothing would happen. However, if you sold $100,000 of gold via BitPay that year, BitPay would be required to report this amount.  In no case does BitPay care who your customers are, they just need to keep track of the total funds they transfer to you.  Your customers are your business, not BitPay's.  

These are the same reporting requirements as for PayPal or Visa.  

Thanks for the clarification.  I picked up on that when I looked up the details on 1099-K reporting, which I suspect BitPay is likely already doing.

Perhaps strawman, but unless I get do deduct the cost of mining from the equation, it is unfair to be sure.  Not to mention quite difficult to track.

Also I don't think you can simply roll up your you liability into anything other then per transaction.  The only way I know you can roll up stock transactions is if you have a broker license.  Otherwise every sale must be meet with the purchase.

http://www.foxbusiness.com/markets/2014/03/25/irs-rules-bitcoin-as-property-subject-to-tax/

"Bitcoin miners -- those people who validate Bitcoin transactions on their home computers -- will now be subject to tax on gains.

As a profession, "mining" will be considered a trade or business, subject to self-employment taxes.

You guys wanted bitcoin to "go mainstream" and it has.

Happy now?

My $.02

.)

the ruling just opened another can of worms.

i still don't understand their reasoning for making miners pay at "time of mining" and not at time of selling.

if you mine REAL gold and add it to inventory i don't believe they pay taxes on INVENTORY! only when they sell the gold, the diamonds, the property.
paying taxes on "inventory" makes no sense at all.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Inventory-Manufacturing-Tax-Tips

or am i just not understanding this at all

Full text of Notice 2014-21 Here:
http://www.scribd.com/doc/214527517/US-IRS-Bitcoin-Guidance



IRS Virtual Currency Guidance: Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply
 
IR-2014-36, March. 25, 2014

WASHINGTON – The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as Bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.

In some environments, virtual currency operates like “real” currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes.  General tax principles that apply to property transactions apply to transactions using virtual currency.  Among other things, this means that:

•   Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
•   Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.  Normally, payers must issue Form 1099.
•   The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
•   A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. 

Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted today on IRS.gov.

It's actually an advantage.  Capital gains are taxed at lower rates than other income.   I'm sure the IRS would be happy if you considered it inventory then paid the higher income rates on your appreciated inventory than paying taxes on income on when it was mined, then paying capital gains after you realized it as profit.

A clear definition: Digital Asset

it's truely showing the government is two steps behind the technology and understanding.
you are technically correct as well. and what if a US citizen provides hash power to say a company in Ukraine. this ruling is honestly pretty shitty mostly because it shows how truly behind the times the gov can be. they kind of failed at understanding what this is.
once more countries go the way of denmark, germany, UK i can imagine many US citizens giving up their citizenship

If you itemize deductions, I see no reason why you cannot deduct mining expenses as "miscellaneous investment expenses".

Note that strictly speaking, the IRS may not allow aggregating transactions, but from a practical standpoint, if it results in the right amount of tax paid and I can defend it should I be audited, I think it's fine.  

There are some precedents in aggregated reporting, even if you aren't a broker.  You are explicitly allowed to aggregate various purchases (see page 68, bottom of middle column: http://www.irs.gov/pub/irs-pdf/p550.pdf).  For Section 1256 (futures) contracts, all the broker even reports is an aggregate net gain/loss (in part due to the high transaction volumes in trading these instruments).  There are also specific exceptions listed in the Form 8949 instructions.  Granted, none apply directly to bitcoin "sales" per se.

It's generally difficult to roll up stock transactions because they're reported individually by your broker on a 1099 and the IRS likes to see things match up.  Assuming that retailers or payment processors aren't going to generate me a 1099 record for every bitcoin transaction, I believe it's immaterial whether I report separate transactions for my morning coffee, lunch, and dinner purchases versus a single transaction for "miscellaneous bitcoin transactions" containing the net total basis and proceeds (keeping long and short term transactions separately).  The IRS isn't going to know without my telling them anyway.  If called to task at an audit, I would hope that the common sense argument - "Did you really want 20 pages containing the 1000 or so $5 transactions I made?  The end result is the same tax." - would settle the matter.  Yeah.  I know the IRS doesn't always work on common sense.  I'll take my chances.

Note that IANAL.  These are just my opinions and how I've decided I'd report the tax consequences of my bitcoining.

Not bad, not bad at all!

That makes it sound like pool participants are not miners; they don't validate transactions. I think the tax treatment is likely to be the same though, you are a provider of computing services to the pool which pays you a fee (revenue when received).

You still are a contractor that receives income in the form of BTC.  The tax man says you owe normal income tax on this.

When you convert your BTC to fiat or other property in consideration, you are realizing a capital gain, and the tax man says you owe a capital gains tax on this.

OK, now I'm confused.  Is the $600 limit per transaction, or accumulitve throughout the tax year?

Point of confusion here...

My understanding is when mining we are supposed to account for BTC payout at value on the date paid, understood. So the risks of holding onto the BTC as it loses value are ours to bear should we decide not to immediately convert to USD. But if we hold and show a gain we also need to pay tax on the gain from payout to exchange if their is price appreciation. Can we also record and, if greater than -$3k in a year, carryover losses to future filings?? First thing I think is this makes holding onto mining income in the form of BTC much less attractive, from a tax and complexity perspective at least. I get it, but I just think it's dumb to be taxing the mining payouts on the value received.

Second issue is related a bit to above... Equipment costs. Nobody mining at current difficulty is producing anything significant enough to report unless they bought some gear. So we've got equipment costs, electricity, losses on equipment sales, etc. I started mining in early November, have been pretty smart about it, but I honestly think I'm showing a net loss when I run all the numbers. I bought a lot of equipment with mining revenues, so there's more expenses. I mean, am I really gonna report all this shit and have it show a loss? I'm not a tax guy, and I'm not starting an LLC, so how or why exactly would I report a bunch of activity from an unprofitable hobby? I mean, taxes are applied to profits, not revenues, and none of this gear can be depreciated because the useful life is under 1 year. I'm just not seeing it, can anyone clear me up?

Sounds to me like this guidance was designed with the big guy miners in mind, I.e., corporate mining operations.

Schedule C (if run as a business) or Schedule A (if a hobby).  If you don't understand the difference or don't know what to do, which seems to be the case from your question, get good advice.

You need a tax accountant if you don't understand the process, but basically your expenses that are not equipment (electricity, internet) are deducted from your gross business income.  If it is shared with your residence, there's IRS rules that determine how much you can deduct.   The equipment is on a depreciated schedule, you deduct a portion of what you paid for it from your gross income each year until the equipment is sold or retired.  This will all go on a schedule C, which is filed with your tax return.

This is bad, they are not recognizing bitcoin as being a currency, they are requiring everyone to do some bookkeeping nightmare, if you do not think  it is a bookkeeping nightmare, think of it this way replace the policy for Bitcoin and apply it to the dollar, could you accurately track each dollar gained and spent retroactively for a few years and make that balance your income with an accuracy of 100%. Most likely not, most of us could not, we simply do not do any bookkeeping when going to a restaurant, getting a haircut, paying the bus, putting fuel on car, buying coffee, and so on,  it is simply not done, and most people do not do it weather it is the dollar, euro, or some other currency why should it be different for digital currencies.

if the dollars devalues and it is inflated, we are expected to report that as a gain, it makes no sense, do you report such gain with gold? most likely not since it is the dollar being devalued, loosing its purchasing power it is really not a gain if you use a superior currency which is not based on debt and it is anti inflation.

It looks like the IRS wants us to pay the inflation tax to protect the dollar, that can not be good.

One of the qualities of Bitcoin is that it allows the average person to buy an expensive house without getting into debt, that is not possible with the dollar since as the dollars are being saved they are being devalued due to the inflation tax.
With this ruling it will make it impossible to save for a house or retirement with Bitcoin, your savings will go to the IRS instead of the house, for retirement the same thing the IRS will get to enjoy the money, and when you are old you will get screwed since the IRS will have all your money and not you.

You  should not have to pay tax if you do not touch the dollar with Bitcoins, Bitcoins should be treated the same as the dollar, you do not pay extra taxes on the dollar if it appreciates in value vs gold for a given year, or vs Bitcoin, why should bitcoin pay extra taxes if the dollar does not.

This ruling sucks. good luck having your retirement in Bitcoin.

Lets treat bitcoin in the spirit of Satoshi, and all  this nonsense can be ignored.

The only good think about this ruling, now I can claim I own property even though it is on the cloud, soon they will want to tax the cloud, air, and other things that today are not being taxed.

In the near future when the pollution is huge due to government policies you will have the air tax,  breathing clean air will be a taxable privilege, and tax advocates will claim if you do not want to pay the air tax then do not breath clean air. when in fact air was originally tax free and clean, and due to government policies it got polluted, and then the air tax will come along.

Talking about an air tax may sound funny but it could be a sad reality in the near future, just a few years ago no one though the IRS would tax a  number based on 0 and 1, and now a number that represent money can be taxed, even though officially it is property does that mean numbers have ownership? it is a bunch of nonsense to get money which shows the dollar is not doing well against bitcoin.

Why should we help the banking industry, by making bitcoin subject to rules which the dollar is not.

well thats my opinion, once again I will say regulation is bad, freedom is good.



 

Yeah boy! I like the boss.

I emailed a CPA on Saturday for tax help, worked with him in the past, mentioned Bitcoin, crickets chirp... Radio silence.

400gh/s here, my understanding is that because I didn't enter into this strictly for profit that it is a hobby. I read up on the distinction a few weeks ago, in the end all signs pointed to hobby. Thanks for the helpful response!

Equipment costs aren't an expense?? Since when?

If it's not planned to serve a useful life of greater than 1 year it is not a capital expense and cannot be put on a depreciation schedule. A piece of gear being used for less than a year in the production of "goods/services" as far as I know is classified as an expense. This isn't a fucking dump truck, it's a block eruptor. Sounds to me like people that know nothing about mining dreamed this shit up, I'm seeing people trying to jam a grey area into black and white. Let me tell you, none of this gear will serve a useful purpose greater than 1 year.

I didn't mean to imply that.  They are a capital investment, and the expense is deducted over several years.

For example, you buy a new oven for your bakery business.   Instead of deducting the entire expense of the oven for that year's tax return (and not showing a profit), the expense is deducted over several years and offset against each year's gross income.

YOU CANNOT DEPRECIATE THIS GEAR.read above.

None of this is like an oven, none of this gear is plugged in with a forecast of anything more than 8 months, max. ASIC equipment has a short lifespan and low salvage value, you cannot capitalize it. Do you mine at all?

Then there might be a ruling by the IRS to clarify.  The last time I filed a schedule C was as an independent computer consultant, and computer equipment was regarded as an asset that is depreciated.  I even had to pay a local business property tax on it.

If you buy then sell your equipment within the same tax year, then you might be able to make it an expense.  Consult a tax accountant.

It seems you are most opposed to the capital gains tax, correct?  Imagine that the IRS said instead that bitcoin would be free from capital gains tax.  Think of the outrage this would cause!  Stock, gold and bond investors would all be crying out for changes to the laws so that they too could avoid paying capital gains tax.  And once they succeeded in eliminating the capital gains tax, enterprising individuals would more easily find ways to structure their income to avoid paying any taxes at all.  

In my opinion, the ruling was correct in all respects except it should have distinguished between "hashers" and "miners."  "Hashers" are employees of the pool and this should be interpreted as income at the moment the coins awarded (as per the guidance).  "Miners" are independent explorers who may or may not find coins and should be taxed when exchanging their coins only.        


Bitcoin is working exactly as it should.  I'm surprised more people don't appreciate what is happening here.  

another reason this ruling makes no sense when it comes to mining.

when you purchased your mining rig if you paid either dollars or bitcoins chances are they were already taxed, since if you purchased bitcoins to buy the gear the purchased of bitcoins most likely was done with money already taxed.

And now with the difficulty increasing to extremely high levels, mining can be a loss, break even, or a  profit depending on many factors.
At the very least you should be given the change to recover the investment, investment which in many case is never recovered do to the many factors that are in the game.

I like to support the bitcoin network since it is not just about money, it is the financial revolution that is taking place, participating in a financial revolution has personal value, so even if mining costs a little bit, many of us would get audited if we continuously reported losses increasing our loses with an audit, the IRS could see this as fraud.

So if you operate a mining rig at a loss and report it to the IRS you could be subject to and audit leading to a fraud charge, the IRS is to collect money not give tax credits, they are evil, and having to account for every satoshi earned every 10 minutes is complete bullshit.

This law is also not enforceable, the bitcoins are on a public database in every part of the world, they will use this law to harass business that  work with bitcoins by making compliance extremely complicated.

Just as bitcoin is a financial revolution, we also need a tax revolution so that our financial revolution is not destroyed.

we need more anonymity, more decentralization, decentralized exchanges. put it this way if bitcoin was centralized it would have been killed early in 2013, like egold, and liberty reserve were killed.

It is not easy with bitcoin we are facing the big guys, but in the end I am sure we will win, we now need a tax revolution.

I'm mining with under 500gh/s in a pool, have a read through my post as to why this is confusing and not really a good thing. Pretty sure people here don't think I've been around the block, won't get into my finance experience but I'd say I kinda know my shit, and generally for a small mining setup in an apartment this is somewhat of a confusing set of guidance. A lot of it makes sense, but not for the hobby mining crowd working with pools. You mentioned it in your post, but I need to emphasize it, a distinction should be made for "hashers" versus "miners".

People, I done been to two County Fairs and a goat ropin' and I assure you that about half of you are screwed, blued and tattooed; you will be done.

Finis.

Das Endung.

The End.

My $.02.

;)

This, well said.

Combine this with the less than 1 year life on equipment, it cannot be capitalized, hence cannot be depreciated, and anyone mining with ASIC gear (right now) WILL (probably) show a loss, and thus flagged for an audit. Or, anyone that tries to put their gear on a depreciation schedule will be overpaying massive amounts. I have equipment THREE MONTHS OLD that was bought for an average cost over $600 and now have fair value of under $150, 3 months!! How can you show a profit to the IRS with those numbers? I could flip equipment tomorrow, exchange all my BTC for USD and show a huge loss for 2014 like that. Even standing still and not selling gear I can show a loss on paper, all I see is an audit flag coming out of this.

Just about that.

My $.02.

;)

In reply to Peter,
No I am not against the capital gains tax, I am against the double taxing and to paying the inflation tax, and to have different set of rules for bitcoin that do not apply  to the dollar.

For example you purchase a book with dollars you pay sales tax.
For example you purchase a book with bitcoins you pay sales tax and capital gains tax, and are required to do extra bookkeeping which is costly. that is what I am against why different rules than  the dollar.

why should we be expected to pay the inflation tax when bitcoin is not based on debt.

if you run a bitcoin business and make x profit in bitcoins, you should pay the capital gains tax on the x profit based on the bitcoins that were earned, but not on the value gained or lost against the dollar, since it is clearly the dollar it is inferior to bitcoin, the Feds should be responsible for improving the dollar to make it competitive against the bitcoin, not hurt bitcoin to level the playing field against the dollar.

A tax revolt is highly needed, and bitcoin is good for that.

Bitcoin and the Whiskey Rebellion.

right

My $.02.

;)

Maybe we all need to take a deep breath... Slush's pool isn't exactly Morgan Stanley. Not expecting a 1099DIV, just sayin.

Slush is also not in the US (even if you are).

Vendors (of a service) or contractors, not employees (no supervision or control by the pool over the hasher, etc.). In other respects I agree with you.

If we can incorporate in Bermuda like many big corps we could avoid much of this...

If you are in the USA, you will be paid in the USA and Slush is going to have to comply with US laws regarding payment of any kind.

Not my opinion; fact.

My $.02.

;)

Hey, come to think of it... If I receive a 1099div that would make the whole situation a lot easier.

It's funny because Intuit runs Mint.com and turbotax, and Mint.com allows import of Coinbase accounts. Wonder if TurboTax will ask me to import any Bitcoin activity from Coinbase linked on Mint, only purchases and transfers so far, and didn't use it at all in 2013 anyways.

It may redistribute hashing power to non-USA mining pools that won't report to the IRS yearly payments over $600.

So this means car dealers and lemonade stands should register as money service businesses. No, wait, that can't be right. Let's just say that the 2014 attacks on bitcoin can't possibly be coherent with the 2013 attacks!

But then how Hashers write off their equipment expense?

So no, Hashers are not "Employee". Please give this more than 5 mins of thought

Fact, payment is everywhere since the database is decentralized.

According to the US law,  slush would have to generate a report every time a block is found and store the info on a database, and then id all users, and then generate reports, this would be very expensive to do and sluch is not subject to us law, they will not do it it is very costly to do and I am sure the IRS will not give them money to pay for the programmers needed to write the software to comply with US law, and then  some other countries come with some other insane law and then having to comply with over 1000 different laws for different countries, states, cities, it is simply not possible for a business.  

For us it will be very expensive to do also, the IRS is not going to provide the software needed for the compliance to be met.

guess what, it is an unenforceable rule, the IRS might as well search for life on mars and then try to collect tax, good luck with that.

I am sure to require Sluch to id all the users would violate privacy laws of many countries, since it would be against the will of Sluch and its  miners.

The good news is that Slush is not subject to US law since it is not in the US, the dollar is backed by guns and Slush could be forced to comply but that is highly unlikely since there is not sufficient  money  in Slush to apply international pressure, but that is different than saying Slush  has legally to comply.

worst case there is always p2pool which is decentralized and it is everywhere just like bitcoin, no compliance report done by the pool a completely free pool that someday could become an extremely valuable tool.




 

Wow.  Tough crowd!

Perhaps "employee" was a poor choice of word.  Of course they need to write off expenses. (Employees can write off home office and work-related car expenses BTW at least in Canada where I am from.)

Hashers simply supply computing power to a mining pool--they essentially rent their equipment to the pool to earn income.  Hashers join pools because they want low volatility and no responsibility outside their "hashing" duty.  They are very similar to an employee earning income.  

Miners run a full node and represent independent sovereigns in the bitcoin network.  They may innovate with code changes, decide which transactions to include in their blocks, organize defences against network attacks, and establish ethical policy regarding double-spending, blockchain forking, etc.  It is from the behaviour of the many bitcoin nodes and miners that the character and properties of the bitcoin network emerges.  

Hashers hash for the income.  Miners mine for many reasons.

"Hashers" as well as "Miners" derive benefit from the activities, making hem essentially the same for tax purposes.

This is one of those hair-splitting deals that ain't going to work.

My $.02.

;)

Now I feel like I like you, not at first but now you are making more sense. Think of all the businesses out there cheating in traditional ways, no freaking way they will bother chasing down people mining a few BTC in their apartment. Solo-mining corporations, totally under siege, and I understand why because they want to make a business and to do the accounting at the block level seems like a reasonable guideline. I just have a feeling those of us mining with pools pushing a few hundred gh/s aren't the real target for these guidelines. I mean, you can take something like eBay, I can't even imagine how many sellers don't report their sales on there, but the major ones kinda have to; however, taking IRS law in a literal application basically everyone is supposed to.

If they are going to treat it as property, how would mined coins by a company set up as a corporation be treated?  My impression is that per the IRS's position, bitcoins mined would be the same as a the creation of a product you create/produce for sale but does not sell. It becomes on the shelf inventory, and there is no taxable event until it sells. This applies to all companies that make products through a process, hard materials or digital.  If you own a software application, or a script (plugin) you developed, and sell it for $50 per copy, and make 1000 copies on CDROM, you don't owe the IRS taxes on the copies until they sell. It's all 1s and 0s, so what difference is there between using computers to create scripts or plugins or software, or bitcoins? All property right? You just have to view it from a manufacturing standpoint.  And the fact that they have ruled it is property, the manufacturing stance would in my opinion apply. Manufacturing being the creation of something tangible "property" from the use of labor, machines, raw materials, and energy resources.  So you mine the coins, put them on paper wallets as inventory to sell. But hold them... For sale at a later date, which would be taxable.  You'd have to set up an s-corp to do this, or is my thinking way off??

I also think it's odd they don't specify what exchange people should use for valuation. In my neighborhood BTC isn't worth anything, it's $0, and I don't know how to sell (half playing devil's advocate here). So I mean, they aren't worth anything because I asked my wife to buy my Bitcoins, she said "no", and my neighbors said the same. So exactly where do I price them? I heard about a mountain called Gox, do they have the correct pricing?

"Fair market value." You first get to decide what that is. If they don't agree with the method or number you use, you accept their number or you reach a compromise or you go to court.

What happens if you mine 100k in coins and your HDD crashes? You lose your private keys. Coins are gone. What then?

Sure, but would you owe taxes?

Under the recently published rules you probably would. Better keep backups.

EDIT: if you are running a business (including a sole proprietorship aka self employed) then you would deduct that as a casualty loss and probably not pay taxes. As an individual (hobby) there are some limitations on casualty losses so you probably would. 100K of mining is probably a business. In fact the IRS will probably force you to run it as a business because they want self employment tax.

Or if your computer was hacked... Malware...

See above (https://bitcointalk.org/index.php?topic=530299.msg5905408#msg5905408). Answered.

Oh oh oh.  Can I do one? 

What if you lost them in a tragic boating accident?

what stop miners from mining btc to fresh wallet and sold it in black market or oversea?

:D

What stops generating income from any kind of black market business. In general nothing. Some people do get caught (and some miners doing this would get caught), but there is certainly still a large black market economy.

Dear IRS,

I have X coins stored on Mt Gox, and would love to pay my capital gains tax, but can't due to Mt Gox having all my records locked up.

Would you be so kind as to have a federal judge subpoena their records and let me know what I owe?

Bestest,

John Q. Public

I get the feeling that PoS coins will become more popular after this ruling.

You can avoid staking your coins for a while and accumulate coin days, for which you then get credit when you do stake. That is my understanding, which is granted a bit fuzzy on PoS coins (pun intended?).

Yes but you can wait as long as you want before you start "mining" (i.e. deferring the income).

Assuming a rising exchange rate, this would not be an advantage.   You would rather have the regular income taxed at the lowest possible value when you mine it, then pay a lower capital gains rate on the gains as it appreciates.

the good thing about this is you can claim all your miners as expenses. If you don't make ROI u get a tax break.

As Bitcoin users have to track their transactions each time, so would it affect the personal transaction rate or not?

tracking miners? lol

how the fuck they can track a miner, it's impossible

i hope they are speaking about when converting in fiat, otherwise they are talking bullshit, you can't track shit in cryptoword, also btc is aiming for completly anonymity

The bottom line is that they want cryptos to simply go away.  The IRS (U.S. Government) doesn't like cryptos.  The crooks at the banks don't like cryptos.  The politicians that accept political donations from these same banks don't like cryptos.  They are well aware that it will be nearly impossible for miners to keep up with the daily exchange rate of every single coin we mine.  With the threat of fines/penalties/prison time for not keeping up with all this paperwork, they are hoping that people will simply give up.

It's actually a pretty smart plan.  The public sees the government as embracing cryptos.  After all, they are telling us we can have our cryptos so long as the government gets it's fair share.  Seems pretty rational doesn't it?  However, the public has no idea the paperwork that would be required to actually fulfill that obligation.  The IRS is fully aware of this.

We've discussed this here quite a bit, not so sure it's a good thing. Do you want to show a loss to the IRS from Bitcoin activity? Could be a great reason to audit you...

I've pinged a CPA and talked to friend who has a father that is a semi-retired CPA, I'll share any new insights if conversations happen... Looking to get their take on the small mining hobby/reporting a loss thing.

Based on this: http://taxes.about.com/od/taxplanning/a/freelance_5.htm , I think regardless if you report a loss or nothing at all, it's probably best to keep records that are detailed enough to hold up if questioned. This would mean a detailed log of mining payouts, daily value, and all expenses. My position, for my own equipment (YMMV), is that none of it is suitable to be capitalized (I.e., put on a depreciation schedule) because the useful life is less than one year and the salvage value is almost worthless. This outlook is based on my historical experience trying to sell equipment after use of 4 months, in the current market I've got sellers offering $150 for equipment that cost me $600-$1000. Granted, I mined BTC with it over the past 4 months, but the equipment costs wash out any profits my payouts would show. Not to mention if I exchange my BTC for USD right now it would be a loss on most of my payouts as BTC has been in the tank a bit lately. Pretty sure nobody will chase me down this year for not reporting a huge loss, regardless I'll be putting together detailed records (already have most of this done) and I'll be chatting with a few people more knowledgeable about the tax side of this.

While I'm not a tax guy I know enough to be dangerous; over 14 years of trading equities & have done my own taxes for nearly a decade on it, worked in the finance industry for 5 years (series 7, etc), 2nd year MBA student, have worked extensively with CPAs and lawyers taking over and closing out a small corporation (not for a job with a boss telling me what to do, this was me working as president dealing with several other hostile parties and filing tax returns for years where prior president filed extensions. Caught them playing games trying to leave me as a bag-holder to sign off on filings with unpaid capital gains and high audit risk, recognized it and had my CPA file correctly and we paid up), settled out associated lawsuits & paid shareholders, and for whatever it's worth I breezed through my accounting class without studying much, and no it wasn't an easy class but rather due to my existing local knowledge. Not looking to post my resume, just trying to illustrate this isn't my first rodeo.

it is considered computer hardware .. if you buy a video card you do not depreciate this. you write it off as computer hardware. asics are not pc's though, they are like video cards, they are hardware. you write them off the first year as an expense. u do not depreciate a video card ok. if you buy a pc you have a choice. you can depreciate it over several years or write it off in the first year you bought it.  i know this for a fact because i do have an LLC and i write off all computers i have built in the first year. and this advice came straight from more than one CPA that i hired to do my taxes. therefore folks .. write off your mining hardware for the price in usd that you paid for it. and writeoff all the power supplies, heatsinks, electric, internet, and office space you use for mining. go have lunch with your friend and talk about bitcoin and write that off too. bottomline get a business license and form an LLC. it might cost you hundred bucks to form an LLC however u can write those expenses off too. writeoff your tax consultant fees too. bottomline ... keep on mining biatches!!

Here's the problem.  When you exchange your btc for fiat, a USA based exchange is going to report that you sold btc for cash if it exceeds $600 during the year.  If you use a USA based bank to receive incoming wires from a foreign exchange, they are going to know that.

If you don't file a tax return explaining the source of income, they can come after you demanding payment of tax for this income as if you were a cyber drug dealer.

If you are a miner, you would want to show that you mined the coins and you had expenses.  You would pay regular income tax on your net income from mining.  This is based on what the btc was worth when you received it.  If the price of btc goes up while you hold it, you would pay a lower capital gains tax on the profit from the gain.  The capital gains part is what the IRS ruling lets you do.

If you don't want to document your mining, then the IRS will tax your gross income at regular tax rates, as if you deposited all the money in the bank as unexplained cash.  If you wanted to lessen your tax liability, then you would document your mining so you could deduct your expenses and pay a lower tax rate on gains. Under US law, you have always been liable to pay taxes on your income from mining.

If you hypothetically wanted to cheat on your taxes, which I am not suggesting because it is against the law, a tax evader would find a way to convert btc to fiat or goods and services in such a way that it doesn't generate a report to the IRS.  As it is, anyone that takes more than $600 worth of btc from you in a year for cash or goods and services is required to report it to the IRS.

The IRS rules are clear. It is your responsibility to keep records. If you don't, fail to report any taxes, and found out during an audit, you could face fraud or negligence charges with civil penalties.

I suggest you file for an extension and hope MtGox gives access in the next 6 months.

Well said. But do you think it is in our best interest to actually do this for a small operation? I mean, to show a loss like this is pretty much a prime red-flag signal for an audit.

I'm not going to argue that, but a modern mining rig is like a small special purpose PC.  It connects to the network, is administered via a web interface and otherwise is not a peripheral to another PC. 

The useful life is not greater than 1 year, thus no matter how badly you WANT TO you cannot put it on a depreciation schedule. The only person capitalizing ASIC equipment is one that knows nothing about mining, at all. I'm guessing a lot of CPAs are going to mistakingly put ASIC equipment on a depreciation schedule, which is just completely stupid and it's because they know nothing about mining. From my experience the equipment pays for itself and then becomes worthless, this happens in 6 months. Now, if BTC doubles in value, whole different story, but it's far to speculative to predict. For accounting purposes, you use a reasonable conservative assumption when faced with uncertainty, and by that logic the ASIC gear on the market right now will operate at a loss in less than a year.

Again, for a solo operation I can see it being different, but I don't think anyone here is mining solo.

Hmm, on the positive side.

All the BTC I've mined in December/January at that moment was worth $800+. Now it's worth $580 as of today. So using their statement of value at receipt, selling it would be a net loss today..


Also, for the people saying filing a loss is a red flag, yeah it can be, but most smart businesses do this. Just play it smart and know what you can and can't pull off. Then keep enough records to back up your story.

So, you'll have a story and you'll be stickin' to it?

LOL!

My $.02.

;)

So are you planning to report the loss? Sounds like it, just curious because people often say one thing and do another, especially when it comes to finances.

I'm about to file an llc for a small automotive business I run.  I am planning to bring in the btc under it so I can write off expenses and keep it neat and away from my personal finances.

I'm expecting to show losses due to advertising and such with the auto side, so keeping some records for btc may not be much more work.

It still sucks, but we'll see.

A. For all new purchases of computer equipment, you can deduct up to $105,000 of the actual purchase price, under what’s called Section 179 of the IRS code, which has to do with equipment depreciation – as long as all of the equipment is purchased by December 31. This is for any business of any size.

http://www.startupnation.com/articles/small-business-tax-advice-computer-deductions/

u guys have until april 15th to apply for a business license so you can make your tax write offs next year. do it today. it is easy to do. get it done. now i have done my part to help you guys.

Not necessarily. If you mine on slush's pool and have the proceeds sent to an offshore wallet administered by a non-US 3rd party, the IRS has no jurisdiction there.

Depends on where the wallet or bank account is located.

Familiar with what the IRS did to the anonymity of Swiss banking?

My $.02.

;)

If your talking as a means to legally avoid income tax, no.  The USA tax man lays claim to tax all income generated by US citizens, no matter where they live or work. Such a scheme may work by hiding it in same kind of tax avoidance structure that defers income until you pay a lower tax rate during retirement, or if you plan to later renounce citizenship and live somewhere else.

Keep in mind that the US government and the IRS bullied Swiss Banks into breaking their own banking secrecy laws, where it is a felony for a banker to disclose information about customer to a third party.

Since they are looking at capital GAINS to tax...if you sell your BTC as SOON as you mine them....don't you effectively never owe the IRS a dime?

Not on capital gains.  You still owe tax on net earned income (value of BTC reward - mining expenses).

On further thoughts, I think it means it is almost tax free

Because there is no way to properly charge a tax if bitcoin is moved to another country and exchanged there

thought bitcoin wasnt a currency ?? sounds like its a currency to me ?? otherwise why not tax it when it is turned into fiat like any other 'investment' ?? it sounds like they don't like people mining ... and anything the govy doesnt like u to do is a good enough reason to be doing it. they don't like us hoarding gold and silver either. if i find a gold nugget in my backyard do i pay taxes on it when it is still a gold nugget or do i pay taxes on it when i turn it into fiat ?? i dont really know the answer to that question . taxing bitcoin mining sounds like a govy scheme to me.

I found something:  https://www.youtube.com/watch?v=fvqkQvOWgeo

Wow, this is frustrating.  If you want to be legally compliant in paying your taxes, you pay regular income tax on what you make from mining, then pay a lower rate on capital gains made from the price going up.  The IRS ruling did miners that intend to legally pay their taxes a favor.   If you wanted to pay (higher) regular income tax rates on when realize a profit after selling your mined bitcoins within the same tax year, I'm sure the IRS is not going to complain.

If you find gold in your yard, you are legally required to pay a tax.  I just read an article about a guy that found 20 million USD worth of gold coins on his property, and was required to pay regular income tax on the find, after he lost his court case against the IRS.

If you plan to evade paying your taxes, that is between you, your god, and the IRS.

evading paying taxes would be a dumb thing to do. i can think of much better plans than that. i am just questioning this because i am not really a tax guru. i only know about taxes based upon my own experiences thus far. i dont have experience in paying taxes on bitcoins. so everytime we get a bitcoin payout from our pool we need to go look up it's value on bitcoin charts at the that time to figure out its worth. its going to be an accounting nigtemare. we should not do auto payouts now of .01 bitcoins or whatever and instead we should do only manual payouts now based upon when bitcoin takes a dip ?? obviosly they don't know much about bitcoin mining. well anyways soooooo they did us a favor ?? what a relief . i was really worrying over that.

i assume the guy with the gold in his backyard would have to pay taxes on it.. i am just not sure when he pays the tax. if i found a gold nugget in my backyard i wouldnt say anything about it until i went to turn it into fiat.

It is not an "accounting nightmare" it is a simple program, sort of like this one which already exists one day after the IRS ruling.

https://bitcointaxes.info/

No doubt people can and will create more such programs. These are not even hard programs, they would work fine on an 80s vintage PC.

darn i shoulda already known about this how forgetful of me ..

From a little different angle:

What if I was mining an alt-coin before it was on an exchange, so at the time of mining, the value was $0.
Once it reached an exchange, I was no longer mining, but sold my alt-coin for btc.  
As far as I can tell, from this ruling, there has been no taxable event.

Even if I continue to trade btc for other alts as well as alt for alt, or alt for btc via something like cryptsy, there is no taxable or reportable event. I thinks this is what is known as a "like kind exchange." Like kind exchanges do not trigger realization, and therefore are tax-free.

However, when I cash out, my taxable income would be capital gains.  
Long or short term depending on when I first started mining the alt-coin.

Does anyone see any flaws in this reasoning?

I'm still thinking it's going to show a big loss for most people and thus increase chances of an audit. Anyone mining with a pool showing any revenue that's beating electricity costs is mining with semi-new ASIC stuff, and the costs associated with that equipment probably will not exceed the mining revenue, thus a net loss. I dunno, I guess it's more a 2014 issue, I started in November and don't have a heck of a lot of 2013 mining activity, but 2014 might end up looking crazy. I get it, this is what we are supposed to do, but when the equipment cannot be capitalized it operates at a break-even, in fact that's basically how the equipment is priced, and when BTC is trending down the short-term activity results in a loss. Those of us mining are speculating that the price will go up long-term, but to have a running tally each year the operating costs are unlikely to be profitable. I just really have hesitation towards opening Pandora's Box over something small and then getting audited. Nothing to hide, just seems like excessive work to report a loss and increase audit risk.

one more thing, related to my post above...

If I do my spreadsheet and there is a loss or a gain of less than $600 does any of the activity need to be reported? Back when I was freelancing I seem to remember if you have under $600(?) in income that you don't need to report it. It's been a while since I ran into that. In this case I'm thinking net, if net income is under a certain amount aren't you not obligated to report it?

Either way, I'll make all my spreadsheets and will have that for cost-basis at the very least, but my 2013 activity was only pushing 20gh/s for 2 months, not a hell of a lot there...

Edit: If this is the case, then I believe it was under $600 in revenues, I'll need to look into it. Anyways, if that's true then I only need to worry about 2014.

IRS... ;)

What if someone mined direct to exchanges? No way to prove what's been mined.

Probably not, but you probably would need to explain the source of the bitcoins when you cash out your mining revenue through a bank.    Filing a tax return and deducting your mining expenses might be preferable to the IRS making the assumption that you are a cyber drug dealer and having you pay the tax on the entire amount.

The proof will be apparent when and if you cash out, make purchases trackable to you and maybe even do business privately with someone who is an undercover government agent.

My $.02.

;)

+1

It's not bitcoin's fault the IRS decided to tax them.

I do not advocate for tax evasion but I do advocate for tax avoidance as permitted by law.

Watch for my next offering.

My $.02.

;)

These Tax rules suck and are going to kill home / individual hobby mining and will cause individuals to either dump or hide all the coins they have and never use them.

 

Bitcoin gives you the freedom of choice - to pay or not to pay tax.

Assuming you never bought through coinbase or other "trackable" source, you may always declare that every spent bitcoin was bought for cash the same day on satoshi square or localbitcoins :)

Well, it is not bitcoin it is the government who want everything to be controled !

Sign in a Petition:(US citizens only)
AMEND IRS NOTICE 2014-2Taxing virtual currency/bitcoin as property stifles new technology&creates untenable requirements
https://petitions.whitehouse.gov/petition/amend-irs-notice-2014-2taxing-virtual-currencybitcoin-property-stifles-new-technologycreates/z7WtKZGY

and who said i'm going to convert in fiat? i can hold my btc until they can be used directly to buy things that don't generate invoice(like foods), then where is your tax?

How it can give you the freedom and actually right not to pay taxes as it is the government who force you to pay taxes/?

It is based on the rigid philosophy that bitcoin should only be used to break the law, which makes bitcoin a target for criminal investigation.   It would seem to me that law breakers would want public and legitimate adoption of bitcoin to grow, lessening the notion that bitcoin is used only for tax-evading/money laundering/black market activities.

The IRS visit list!

An artist creates a work of art.  The work of art is property.  Does the artist owe income tax on the day the piece of art is complete?  I doubt it.  Creating the accepted block of Bitcoin transactions is a beautiful work of art.

An artist sells a work of art.  The artist owes income tax.  A Bitcoin miner sells/uses the block reward.  The miner owes income tax.

A miner mines a lump of rock out of the mine.  Little does the miner know there's a piece of gold inside the rock.  Does the miner owe income tax right away?  Later the miner breaks open the rock and finds a shiny piece of gold-colored metal.  Does the miner owe income tax yet?  The miner tests the metal and discovers it is gold.  Now does the miner owe income tax?  The miner doesn't have the money to pay and would have to sell the gold in order to have enough money to pay the tax.

This does not work for wallets, it only works for trading.

Since "virtual currency" is considered a property by IRS, wouldn't property tax rules will apply then even when you mine your coins?

Also correct me if I am wrong but different states have different property tax rules and you have to report them to your local county. 

Yeah, that's the way it should work but not the way the IRS set things up.



Does anyone know if I have to form an LLC to claim my mining expenses for equipment and electricity, etc...  Or is there a way to claim them on a normal return using Turbo Tax.  I'm thinking under self employment or a sole proprietorship.  I welcome your thoughts....

As a company, or self-employed, you can deduct all applicable expenses from your net profit, electricity, etc, as well any mining hardware in the year it went into service. But If you set up as self-employed, you'll also be paying the share of self-employment taxes (social security and medicare).

As an individual, hobby expenses can be deducted but only up to the profit you make from your hobby (mining in this case) and no more than 2% of your AGI. You also have to include it as part of your Schedule A and itemize all your deduction, which could come out as less than the standard deduction anyway, in which case not worth it.

In the end it matters how much expenses you have and whether it's worth claiming it through an SE business.

Disjointed pre-coffee statements, none are really connected to the others.

My personal suggestion (which should not be taken as tax advice) is to treat it like hobby income unless you made a significant amount, then unless you want to go the LLC route, sched C as a sole prop. Section 179 your mining equipment if you intend to be mining for a few years. (The idea someone earlier used as depreciation is not what is going on there, it is amortizing the start up costs for a business over a 5 year period. that being said it is "expected" that things written off here would last that amount of time, but hey this will let you write off maybe not so much now, but over the next four years as well.. on top of it. take a loss on mining equipment. Sell it on amazon or ebay when near the end of life, but still where people will buy it. )

Warning: sec 179 is a red flag if you go crazy with it. If you are essentially a whale looking for a way to limit your tax liability, do it another way. This is for the little guys.

This year there will be quite a bit of "leeway" since the IRS is aware they don't really understand it well enough.

Let's see there was something else, besides Self-employment tax suuuuucks. What was it? OH! I'm not sure of the exact "rules" here
but if you have to itemize, and you can't beat the standard deduction, I "think" you can take the standard deduction anyway.
I'm pretty sure that will be how places like turbo tax will do it. So itemizing doesn't have to screw you... anymore than the irs was going to
anyway. :)

The idea of paying taxes on the value of a mined coin at the time it was mined is silly, a wasted of everyone's resources including the IRS's to try to do that. If BTC is property it can't have any "value" as income until it is moved. If I mine $100 worth of BTC I didn't make that yet. if by the time I sell it it is $97 then THAT'S what I made as income. ex: If I build rocking chairs all day long, and pile them up, they are neither a capital gain or loss. They are not income. Once I sell one NOW it's income.  If I trade 4 rocking chairs for a goat, then you get into all that taxable barter stuff, but again it had no value by way of how the IRS does things until it moves. If they want to treat it like currency, then maybe I could see value at time of mining, otherwise it's kinda pointless. Like the people who bought a pile of BTC early on, and held on to them, and perhaps continue to hold on to them, should they pay taxes on what is it? right now about $350 per coin? That's crap. Now if those same people suddenly sell it, hey it's money now. Pay your freakin' taxes.  Until it moves, it's like having a collection of snowglobes. If you are the twisted freak that had your company pay you in snowglobes, and they actually did it, then it's income. pay your taxes.  If you just bought (or made) a thousand snowglobes and you sit all day polishing them and rocking back and forth hugging them, dude it's not income, it's just stuff.

Now I'm off for coffee filled with a vision of a crazy man talking to his friends, the snowglobes. No matter what else happens today, I'm going to chortle all day. While on hold with ups for them having sent my s1 upgrades half way across the country, and talking to the irritating people who can't help me... all the while will be a little guy in my head hugging snowglobes. :)