Bitcoin Forum

Isn't this exactly the clarification they needed to make a serious move?

Link?

http://www.bloomberg.com/news/2014-03-25/bitcoin-is-property-not-currency-in-tax-system-irs-says.html (http://www.bloomberg.com/news/2014-03-25/bitcoin-is-property-not-currency-in-tax-system-irs-says.html)

http://cryptojunky.com/blog/wp-content/uploads/2013/11/all_aboard.jpg
https://i.imgur.com/2V6CrkR.png

cant get enough of this one  ;D

Elaborate...

I was under the impression we were waiting on clear regulations to be passed regarding launching exchanges and running businesses, and that a large advancement would likely be made in New York by July in which people could launch exchanges using "bitlicenses". I was not aware that we were waiting on some kind of tax classification.

It it's amusing how bulls think every little event that happens in the world is going to result in a huge price increase and use words like "floodgates". the only thing that increases bitcoin price is more users, more usability, more services, and more exchanges.

The reason I used a question mark is because I didn't know the answer.

I would think that tax classification would be a huge issue to institutional investors. This classifes "what" they would be buying, and what laws they would have to follow to keep out of prison. Given bitcoin's history and public image of being a drug currency, how could federal guidelines on how to deal with the controversial, yet highly lucrative, bitcoin be grouped into "every little event"?

As for "floodgates", I didn't mean there was a flood of money coming(though I think there is eventually). I was referring to large actual gateway being opened so a flood could come. Would institutional investors touch bitcoin without having this in place?

yep it's good enough for the institutional investors. not very good for me and you.

but miners will need to report earnings the the IRD? lol, im sure there are easy ways to get around that, but they are barely breaking even as it is most of them.

It's another piece of legitimacy that Wall Street types look for before investing institutional money. Taxation is always an aspect of due diligence that needs to be studied before they can invest so in that respect I think this is important.

Pretty much.  FinCEN ruling was a stretch to begin with.  They wanted to regulate Bitcoin.  The most appropriate category would be a "dealer in currency" however the law for currency is airtight.  It would states (paraphrased) currency is the physical money of the United States or a foreign government.  A $100 federal reserve note is currency but even $100 of value in your bank account (or on a gift card) is not currency.  To fit Bitcoin there (which IMHO is where it is legally the most consistent) would require Congress amending existing laws and that might have taken years.

So they jumped through a bunch of legal contortions which would break the spine of an olympic gymnast to make the exchange of virtual currency for real currency, "money transmission".   It is important (to grasp the full lunacy) to understand FinCEN is saying the very act of exchange 1 BTC for $600 in value is money transmission.  Even if neither the Bitcoin or dollars are transmitted.  All that is required is the act of exchanging.

Their insane part is this isn't even consistent with their EXISTING rulings.  A business which exchanges dollars for euros is NOT a money transmitter.  FinCEN has even provided administrative ruling indicating so on more than one occasion. 

FinCen is willing to pretend that the following statements are consistent:
If you exchange dollars for euros, you are a currency dealer, NOT a money transmitter.
If you exchange dollars for bitcoins, you are a money transmitter, NOT a currency dealer.

Is it any surprise that every other governmental agency simply ignored FinCEN's "guidance"?

ITT: This is good for Bitcoin because

http://buttcoin.org/wp-content/uploads/2014/02/BitcoinThingBad.jpg

This is good for bitcoin for one huge fundamental reason. I no have no incentive to ever convert it to USD.  Woot!!!!

Doesn't mean you can avoid taxes. Just try. As already noted, the law is whatever The Man says it is, even when he contradicts himself.

Good luck trying to enforce that.


The SEC can not even regulate the scams on the pink sheets. Let alone Bitcoin.

planning on committing tax fraud aren't we?

I think that he means that many Wall Streeters have been involved trading in bitcoin for some time now (perhaps the last 3 years), the attraction being that they have been able to make quick easy trades and enormous profits basically tax-free due to the lack of clear guidance issued from the IRS.  Now that guidance has been issued on taxable bitcoin gains, and being required to hold bitcoin for at least 12 months to avoid income tax, it may scare some WS players away.

I don't think it makes much sense when trying to use it as a currency.  If I buy bitcoin at 3pm to use for a cup of coffee and go to buy coffee at 4pm and my bitcoin appreciated in that hour, I'm not going to make a record of every single buy/sell and determine if it is a gain or loss to report to the IRS.  Stupid.

But maybe it'll encourage the investors to HODL large amounts of bitcoin for at least 12 months.

On the one hand, The Man recognises Bitcoin as a valid asset.

On the other hand The Man undermines the whole fundamental purpose of Bitcoin by implementing a capital gains tax with every purchase made with Bitcoin. Sounds totally unenforceable in practice but just as with internet piracy, there will always be those that are made an example of and totally fucking nailed to the last letter of the law for buying a cheeseburger with a Bitcoin they made 56.6% profit on and failied to declare to tax authority.

Did I say that no! I am making a point that IRS has no clue what to do with Bitcoin and it is reaching for straws. I pay the IRS on time every year and will continue to do so. So dont put words in my mouth.

well from the big picture perspective I'd have to say this is some good news the crypto bulls and such.  Gonna have to co sign the floodgates term on this one. :)

I think if we look at the motion of the ocean, this all points to wall st getting in.

Tax rulings, Fincen guidance and soon The Lawsky Regs all seem to be laying a platform for the big boys to play in the waters.

Second Market is putting in some big dollars, Bruce Fenton has hinted at institutional money entering the space soonish, and the Pantera etc fund is going ahead.

I realise it is in their interests (& @pmarca aswell) to talk their book, but it seems like it is happening.

You don't have to make a record. The blockchain does it for you.

yes, but, the blockchain does not calculate the equivalent value at the time of transaction. For that matter, when does the transaction actually take place? 1 confirmation? 6? 120?

And the part about the miners is ridiculous. Should a miner be calculating the price of that fraction of bitcoin that he/she gets payed from each and every block mined by the pool? Are they supposed to calculate it at the time of withdrawl?

How are you supposed to calculate the gains on a transaction that may be spending hundreds of small inputs mined over several years?

You don't.  There's no taxable event unless you sell.  Costs offset sales. There is no need to do maths on the btc.  You just expense all the usd outflows and accrue all the usd inflows.  The difference is your gain or loss.  This is a very favorable situation for hoarders.

Thanks!

This ruling shouldn't come as a surprise to anyone in the community. Nearly every tax professional that has weighed in before the IRS ruling said that transactions should be treated like barter transactions where gains relative to value in USD are taxed. And there are folks here who have been claiming income on their tax forms. Love it or hate it, that's the US tax law.

The rule unknown is whether or not Bitcoin exchangers/dealers in the US will start reporting transactions to the IRS. That would make it less of a honor system, where everyone is on their own to report income/losses, to a self-defense system where traders will get pinged if they don't accurately report everything.

First In-First Out, like when calculating gains for any other asset (at least in Spain). It's as if you had sold the oldest inputs you had.

At least there is no word on VAT. In Spain there is the consensus among lawyers that BTC are goods,  ???  I fear they might end up influencing the Taxman here.

I still don't think FIFO is going to work.  I can set up a hot wallet and buy/sell bitcoin hourly just to fund my daily micro transactions, keeping the daily balance at or near 0.  But I can also send small amounts of BTC to that wallet from another anonymous wallet (or series of random wallets) that contained BTC that was much older.  No one could ever accurately track/calculate how old that incoming BTC was, and if there was any gain.  And with tumblers it could be made even more obscure.

Seems more like a dam being built than floodgates being opened. Just more hurdles to jump over for people trying to get into BTC.

Not an issue.  You don't account for the specific coins.  If you bought 1 coin a month for a year, then spent 1 coin a month, they would all be 1 year old FIFO coins for IRS purposes.

That doesn't make sense to me. If that were the case, then why would anyone in the U.S. buy BTC at all to use as a daily currency?  No one in the U.S. is going to buy BTC for daily currency use if it continues a trend of 10X gains a year for the next 2-3 years.

Also it encourages U.S. Merchants to dump BTC immediately upon receipt instead of holding, or not touch it at all, so they can avoid having to pay any gains tax yearly, yes?

It all depends on demand.  A merchant won't be able to stay away from bitcoin if all his competitors take it.  They will have to deal with the taxes.   Its not that big of deal.  Its up to us to spend btc and support btc merchants.

Maybe I shouldn't be so surprised to see people applauding this news. It's good clarification to "investors" and speculators, but it's a serious blow to BTC as a currency. How likely is it that businesses are going to want to accept BTC if they have to 1099 every person who pays in BTC? How likely is it that the average Joe will want to use BTC to buy a cup of coffee when he knows that he has to claim it on his taxes?

Maybe 1099s aren't required now, but that's where this is all going.

 Bitcoin acts like a speculative investment I can see why they labeled it property.

I'm not sure why you think that having a gain is a bad thing.  Do you have an income?  Is it taxed?  Would you like it to be larger or smaller?  If it were larger would you pay more taxes on it?  I buy BTC for use as daily currency (actually I only spend BTC about once or twice a week, due to the prevalence of legacy vendors) because (1) my daily currency appreciates in value and purchasing power over the long run, and (2) spending it increases its value, and (3) the fiat I would have to own otherwise depreciates in value over the long run.  I much prefer to spend BTC because it is good for me.  If I want more BTC than I have, and I have fiat available, I simply buy more BTC.  If I don't have fiat, I sell something else, shares or metals, whatever, to get more BTC.  It's very simple really.

As for merchants, if they are wise and can tolerate the volatility, they will keep their BTC, preferrably for a least a year, which would likely result in amazing gains in value, and a much lower tax rate.  If you only spend as much as you had at least 1 year ago, your BTC balance constantly grows, constantly appreciates in value, and is never taxed at the marginal rate.  It's an amazing gift from the IRS.

They don't have to 1099.  That's the bottom line.  You're trying to make good news into bad news.  But it doesn't make sense that way.

Maybe the corner store won't send 1099s, but actors like Coinbase probably will.

other way around. holding 12 months = capital gain, less than 12 months = income.

source: certified CPA

I will say, I think that there could be many more players in terms of accessibility since now bitcoins will be treated more akin to stocks. That kind of clarification I think hurts more of the business side of things as it somewhat stifles transactions and forces a lot of the infrastructure to catch up, but on the speculative side, there is much more clarity.

I think the mining component is crack smoke, batshit crazy.  Bitcoin is software.  When you mine, you are generating software, just as if you wrote code.  There is no taxable event until and unless you sell the software.  Producing is not taxable.  The tax courts will overturn the opinion eventually if it is not revised sooner.  I am not a lawyer.

Definitely, when I saw this I was like "what?"

But it's tricky, because when you get a payout (like from a pool) it akin to receiving stock and I think that's what they were aiming for. To have to calculate on a daily basis is crazy, but when you realize that most people set up payouts on a daily basis, you can kinda see what they're going for. Plus the price of bitcoin fluctuates so much it's no wonder they set up a daily threshold. Personally, I think they should do it on a payout basis at the most.

Although it's hard to justify with going on a different period just because of how quickly the price moves.

I agree. Think about it differently: bitcoin mining machine producing bitcoin is similar to refrigerator producing frozen meat. In both cases you reduce entropy locally (bitcoin, frozen meat), but increase it globally-excess heat is produced to conform to the second law of thermodynamics (entropy of a closed system never decreases). What I am getting at is that nobody thinks of your frozen meat as income because it is for PERSONAL use. Same with bitcoin-you have it in your personal posession-it has no value. Value (taxable) should be assigned to bitcoin in transaction. This is, of course, just my opinion, but it is also my opinion that it is not beneficial for me to be involved in mining under the strict meaning of these rules. Thankfully, I can chose not to mine and just invest in bitcoin or refuse to participate in bitcoin alttogether. However, if most miners decided that it is not worth it, than bitcoin network will be devalued and bitcoin will never achieve what we all hoped it will.

IMHO, personal use exception (no tax before selling or exchanging for other property) should be applied here, but for now it is what it is.

Well not exactly, they are both capital gains.  One is a long term capital gain and one is a short term capital gain.  What your CPA was probably trying to get across is that short term capital gains are taxed at the same rate as "regular income".  Long term capital gains are taxed at a lower rate (potentially 0%).   If you hold an asset for 365 days it is a long term capital gain.  If you hold it for 364 or less days it is a short term capital gain.

Although, if it is taxed at the source, you can put it in a Roth vehicle and then the gains are tax-free.  So it might behoove one to tax it at the source, depending on your timelines and your goals and your business structure.

thanks for that, I had the same gut feeling, but I wasn't sure.

here is how it should be done.

http://politiken.dk/oekonomi/dkoekonomi/ECE2244816/bitcoin-gevinster-kan-stikkes-direkte-i-lommen/

still waiting for a statement of tax treatment in Canada...

So will coinbase be submitting data to the IRS? They may do it like paypal, where they only submit info for accounts over a certain threshold ($20k for paypal). Maybe if you only own a couple bitcoins, you'll be in the clear.

That's a good idea. Not sure how well that could fly though with the IRS. But it would work as a starting structure to hold longer term on bitcoin. That'd be fascinating to have different types of vehicles like that with crypto-currencies like bitcoin.

Can I move there? Like right now? Yeah, I think that'd be awesome. Plus they have kringle and a slew of Michelin starred rated restaurants in Copenhagen. Of course, the trick would be transacting with bitcoin...

Right, but it won't always act like a speculative investment, and if we want it to ever act like a currency, then this could be a problem.

Too soon, wall street will take time. They have so much legal framework to worry about before hopping in.

These made me lol ;)

I am very sceptic about the IRS Impact on bitcoin.
I think/fear it is a great threat.
First time I got doubts about bitcoin going Mainstream.
The huge Problem is the handling of "everyday-selling and everyday buying".

It's the type of decision many expected. And the type of decision that they would be expected to make. It's quite possible it'll change. The UK did it.

Steering it away from being a viable currency into digital gold would suit them very nicely. It would generate a ton of money and largely neuter the threat to the dollar. It fits Wall St's remit neatly. The little guy less so.

aminorex, DeathAndTaxes, anyone else - I've got a question. Any advice will of course be taken in the IANAL context, but any guidance or direction that could be given would be sincerely appreciated.  If this has a clear answer, I just have a lot of data to go back to my records, find, and properly format.
If the answer to this question is unclear, I may need to pull in a tax attorney or something else in addition to the CPA I just grabbed.



What about selling a casascius coin in exchange for electronic BTC?

My interpretation of the IRS guidance (and preliminary interpretation of my still-trying-to-absorb-the-info CPA) is that this qualifies as a taxable event, I need to consider that an exchange, note the value of the BTC at the time of exchange, and pay tax on the appreciated value of the BTC from the time of acquisition.
I would love to be wrong on this.

For example, let's say I bought a 1 BTC casascius coin directly from Mike when they were worth $5.
If I were to exchange that 1 BTC coin for 3 BTC, and the current spot price is $500, then at the time of the trade:

value of goods received = 3*500=$1500.
cost = $5.

Profit = $1495, taxes due on this amount.
Cost basis for the newly acquired 3 BTC = $500.

Or this example (No-one would ever do this, but it makes a point):
I buy a 1 BTC casascius coin, acquisition cost: $5.
I exchange that 1 BTC coin for 0.25 BTC, and the current spot price is $500.

Profit = value of goods received - cost, so ($500*.25)=$125, subtract acquisition cost of $5, taxes due on $120.
Cost basis for the newly acquired 0.25 BTC = $125

Does this seem correct?
The exchange of the goods is a taxable event?

I thought that CRA announced back in November basically the same rules the IRS just released.  Bitcoin is a commodity under Canadian tax law.  Purchases are barter transactions.

http://www.cra-arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng.html (http://www.cra-arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng.html)
http://www.coindesk.com/canada-revenue-agency-tax-rules-apply-bitcoin/ (http://www.coindesk.com/canada-revenue-agency-tax-rules-apply-bitcoin/)

quoted from your second link.

"Unfortunately the guidelines as published do not address the issues surrounding the taxation of bitcoin mining, and whether bitcoin will be treated as a currency for mining purposes or like gold or silver."

This is what I am waiting for.

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