Bitcoin Forum

http://www.theatlantic.com/technology/archive/2014/03/why-bitcoin-can-no-longer-work-as-a-virtual-currency-in-1-paragraph/359648/

I hate to admit it, but this story makes a lot of sense.

We can't legally trade BTC for BTC, we taxes at every level because its property not currency.....

Can someone please provide another, hopefully more positive, way to look at this?

Step 1) Go to Germany.

It's not illegal. That's good news.

Remember, the IRS only taxes Americans. There are 248 nations.

Having bitcoin classified as property rather than currency is the best possible scenario.  The capital gains tax rate is 0% for most people.  0%... hard to beat that.

But the USA is the richest nation on the planet...by quite some way. This will have a negative effect on Bitcoin.

Bitcoin is tanking and that is totally understandable. If they can't track and tax it, they might ban it

A ban would be a bad mistake.

That is my rate this year. I was a little surprised and a lot happy. I pay dearly for the money I earn from working, but nothing this year for bitcoin. Thanks IRS, my 0% tax rate makes me 100% satisfied.

Here's the problem with that analysis:  It assumes an extreme range of price of bitcoin.

Essentially, the IRS wants to capture the capital gains of speculators that buy early and cash out at much higher prices than they paid for it, as they would with any other speculative investment.

So there is a difference in fungibility if you have coins that you bought at $10, or $100 and trade at $600 or some future higher price.  That's a burden on speculators, and may slow down speculative investment.

However, if bitcoin is used as a currency -- that is, you hold amounts for a short time so you can trade, you won't see much in capital gains from the time you buy bitcoin at coinbase from your USD bank account to the time you spend it buying coffee.

We have the technology to add capital gains tracking to a wallet.   Computers are great at that kind of stuff.  At tax time, it would be as simple as printing out a 1099DIV-like form showing the capital gains/losses for the year based on all bitcoin transactions in the wallet and historical exchange data.  I suspect for most people using bitcoin as a currency rather than an investment are going to show not very significant gains, and it's lumped into that section on the tax return along with the small amount of dividends you might get from a money market account.

LOL, which planet????

In fact now that people and businesses know how to treat cryptocurrencies they will finally take the step to move in on it.
Many potential buyers have been waiting on the sideline for more regulation and guidance. Offer them a bargain and it will all be bought up, trigger a new bullmarket.

Show them you bought bitcoin at $1200 from some exchange, and now it's only worth $500 at coinbase. It's also worth $0 at Mt. Gox, the world's biggest exchange. The news talks about Mt. Gox as if it's the only exchange.

So I'm negative on capital gains. Will the IRS reimburse me?

They used a wrong name for the class of money where bitcoin is included. It is cryptomoney for chrissake. Nothing virtual here. Article can therefore not be evaluated. Move along.

Can you elaborate on this? How is it 0%?

See if you can get that in Germany.

Yea the IRS decision is pretty terrible for bitcoin

Seriously...did anyone actually believe somehow that if there were profits to be made from the investing in Bitcoin that they would not eventually be taxed?

That's a ridiculous notion to hold onto in my mind.

It was always eventually to be taxed as either a currency exchange or as as asset. Both introduce challenges in terms of record keeping...but actually treating it as a currency would likely be more complicated for most people and in many cases not nearly as advantageous financially when time comes to pay the tax.

This is after all an electronic "smart currency"...it seems to me that there will be electronic solutions to this problem which will make the necessary record keeping required for most Bitcoin users rather invisible.

Oh yes. The same Silicon Valley companies who were overjoyed to sell their customers' privacy down the river will be rushing to solve this problem too.

no the usa is not the richest country .. unle4ss u consider trillions in debt as rich .. or maybe u consider a dollar that is backed by debt is really money ?? or maybe you think that printing 80 billion a month for over a year makes the usa the richest country in the world ??

the only real money in this world is gold and silver. who has the gold and silver has the money. the dollar is now on it's deathbed. the fed started to taper not because our economy is better, but instead because the fed has 4 trillion of junk they bought from the big banks on their books with the free money they printed. the fed is now insolvent and cannot continue to print free money and buy another 4 trillion in junk. if they do keep printing then the usa citizens will be left holding a valueless currency.

the usa will need a replacement currency because the days of the dollar reserve currency is coming to an end. maybe bitcoin is in the works instead of a gold backed currency because maybe the usa does not have any gold left to back a currency ?? we don't know the answer to this question yet. to restore confidence in money a gold back currency will be required.. unless they can come up with something else. russia and china both banned bitcoin because they have been buying gold in massive quantities along with all the other SCO countries. they are preparing for a gold backed reserve currency .

regarding this IRS ruling one must wonder why they announced it three weeks before april 15th tax deadline ??? the reason is to limit the time for miners to apply and obtain a business license. you have until april 15th to obtain a business license to be able to writeoff your mining hardware, electric, office space, internet, etc, that you use to mine. therefore maximizing the IRS's money grab for at least another year. if you are going to mine bitcoin then apply for your business license today .

In my mind this article is a much more accurate assessment of the implications of the IRS ruling:

http://www.nasdaq.com/article/3-reasons-the-irs-bitcoin-ruling-is-good-for-bitcoin-cm339333

This is actually great news for Bitcoin in a sense. For those who expected Bitcoin to continue to rally in price, and be a magic non-taxable currency you were crazy. This gives Bitcoin legitimacy that it didn't have prior. Yes, as a result the price will go down a bit, and mining will be lest cost effective. It's not the haven that most of you wanted it to be, but this also means that this has the potential to be a 'real' currency and 'mainstream' form of payment. What this means is that it can go from obscure to norm. Which means Bitcoin will experience legitimacy and continued growth. But most importantly this Bitcoin will most likely not die.

This reminds me of the housing market boom. Everyone really thought homes would continue to increase 20% a year exponentially? By now our homes would be millions of dollars. This is the type of correction that paves the road to sustainability.  

It seems this professor has no idea how bitcoin works...
The effects he talks about are what 'just doesn't work', not bitcoin.

That being said, feel free to continue panicking, my buy orders are slowly being filled. Tnx :)

I feel like the IRS sat down with their bankster buddies and came out with a smart way to severely limit bitcoin's potential.

This is the end of bitcoin being used as a currency in America. I don't see how you guys are turning this into "good news". Bitcoin has been recognized and legitimized since the senate committee hearing in Nov 2013. This news just cripples bitcoin if anything.


I'm not going to sell because I don't think it's over per-say... but don't expect to see any kind of rally in 2014. This year has been shit for bitcoin, 2013 was amazing and you can't expect 2 in a row.

Recognizing its existence doesn't make something legit.

Sorry. For those of us living in the United States, taxable = legitimate.

Just ask Capone...

This is good for the Bitcoin as a whole LONG TERM, probably not good for most of you on here who have mostly speculated in the Bitcoin.

OP you got it wrong.

Tax cant be avoided. So one way or the other, you're gonna have to pay tax on profits/income

In fact this new ruling is great for bitcoin because it would filter out day traders as day trading will no longer be desirable as before. Most investors will want to have a long term capital gain. So whoever is buying btc today, its more incentive for them to hold over a year. Tax on short term capital gain is up to 43% opposed to 23% for long term capital gain.


Overall the market will be calm and stable.

I don't mind taxes.

If you hold coins for 2+ years they get taxed under the capital gains tax rates.  The rate you pay is based on your income plus your capital gains, 0% up to a certain amount, 15% after that, and 20% if you are rich.  Ok let me try to explain.

For a married couple the 0% capital gains rate goes up to $72k, less if you are single.  So let's say that your income is $50k.  You pay your income taxes based on that.  Now let's say that you sell some bitcoins for $40k that you bought for $10k.  So that means that you have a $30k capital gains (40 - 10).

So we start piling your capital gains on top of your income.  You take 22 of that 30 to go from $50k to $72k.  You pay 0% on those capital gains.  The remaining $8k is taxed at 15%.

Let's say that you have no income, just huge numbers of bitcoins.  Every year you spend/sell enough to make $72k and live on that.  0% tax rate.

I don't understand how taxes on foreign currencies work, but it seems like it is 23% if you keep good records and 35% if you don't.  Much worse than capital gains.

When you die all capital gains are zeroed out.  So let's say that I buy a bitcoin for $600 and die, leaving it to my son.  Now the bitcoin is worth $100000.  No capital gains on that.  If my son holds it for two years and then sells the coin at $101000 he has a capital gain of $1000, which is going to be taxed at 0%.

So basically capital gains taxes are 0% if you hold your coins long enough and if you don't make too much at your day job.  I think that this describes most people who hold coins now.  If not, there are legal ways to avoid taxes that become feasible when you start talking about big money.

The IRS has issued its ruling. Now let it try to enforce it. :)

Seriously, as the cryptocurrency ecosystem continues to grow, there is no longer going to be a need to cash out BTC for fiat currency, in which case how are they ever going to know what kind of profits or holdings in bitcoin you have? Unless they go all police-state on us and make every bitcoin service under the sun obtain identity data on every account they have (such as when you buy a Gyft card), this is not going to do much to harm bitcoin.

Even if they did try to put such burdens on US businesses, they could just move overseas, and the overseas ones would fill the void. The internet knows no boundaries, so it's not like we'll care if Gyft shifts to the Barbados, for example, instead of wherever they are registered now. The IRS ruling will become a 99% ignored laughingstock because they won't be able to enforce it.

Yup because i believe most bitcoin speculators are for short term.

that's totally false. I don't understand, help me understand.... I read on another story that the tax rate will be like 20 percent or something...

This is accurate. The anonymous/untraceable nature of any cryptocurrency makes it easy to hide. But not everyone wants to break the law and risk going to jail. Anyone doing business in the #s that will make this taxable would mean that you are doing 100s of thousands of $USD in bitcoin. Which means you probably have more to lose (such as your money). Tax isn't THAT bad people.

If you want to break the law to make money there are also other options.

I pretty much agree with this.

As others are saying, it is kind of bad for speculators but good for bitcoin as a whole and thus good for speculators in the end.

It'll end up being better for speculators even if you pay the onerous taxes as the eventual price will be much higher.

Of course, if you're an American libertarian anti-government type planning to stick it to the man with your magical internet money financed solar powered ranch, that will be small consolation.

As the speculators go away and those looking for quick profits go away Bitcoin will experience more flat growth. Maybe use it to actually buy something rather than exchange for dollar. The point of a currency is to buy stuff with it, not to hold it hoping it will increase in value. Bitcoin is somewhat hybrid because there is a limited amount of them there isn't likely to be inflation as there is with paper currency (the us MINT's printers are on full tilt), so it's a good currency in general for long term.

Nobody wants to hold bitcoin long term because they don't have confidence that the price won't wildly fluctuate. This will help prevent that.

taxing bitcoin investments is justified.
forcing someone who buys a cup of coffee with bitcoin to check if the coins he used were obtained when the exchange rate was lower than today and then reporting it to the IRS IS NOT justified.
this will move people away from using bitcoin as money.

Today's sell off is due to China not the IRS
OP is (probably) very wrong.

I don't mind paying taxes, either. That wasn't the point of my post. I saw somewhere the following analogy:

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

Today’s IRS guidance will provide certainty for Bitcoin investors, along with income-tax liability that wasn’t specified before. Purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of gross income for the coffee shop.

I am against paying unrealistic taxes.

Yes, I definitely hope that you are right and I am wrong. I'm simply following the argument here, I prefer your truth.

A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale.

+1 best responses, yet.

Source of problem: You are interested in Bitcoin's daily fiat exchange rate instead of interested in Bitcoin's incredible utility as a superior technology, a better "way of doing money".

Ignore the exchange rate. Speculators don't matter. Judge it objectively, as a scientist would, and you will see cryptocurrency is the future, and fiat is the past.

There's no way around it.

Just as you would expect, it is an overly complicated calculation based on your income and tax rate. But just filling out the forms and following the rules that was the result. It would have come out differently depending on how much I spent. In the future I may hire a tax pro to help me discover how much I can spend each year and keep my tax burden bottomed out.

This is basically so they can get a slice of the pie from the Bitcoin millionaires. So rich folks can't dodge taxes by throwing all their money into Bitcoin.

Long term, it makes very little difference for this technology.

Dark wallet anyone?

And that is not happening unless hoarders liquidate their holdings. Till then bitcoin will only be an expensive speculative collectors item

Feels like bitcoin is doomed every other week.

I don't believe its quite so simple as blatant theft. At least some of the tax money maintains roads and schools. That's why I don't mind paying "SOME" taxes, but I certainly agree that we pay WAY too much tax, and the government has gotten WAY too large and they are WAY too inefficient.

If you truly didn't mind it, you wouldn't need to be taxed :P

what if i want to buy a cellphone with bitcoins.
o but wait... i can't... i first need to check what the freakin exchange rate was when i got my bitcoins compare it to today's and then write down to report my capital gains to the IRS...
guess ill just use my credit card then...

Wow. Way to make such a simple task sound complex!

/start report/

500 - 629.99 = 129.99

/end report/


This will not even be a factor for normal purchases. Now if you are a distributor and are buying 32,000 phones, then the math is important. But wait, you are a business parson, you shouldn't be afraid of taxes and math if that's the case. So complexity of doing this really isn't a factor.

see this is the way i see it if its property subject to capital gains... then its subject to capital loss as well isnt it ?

bought at 1200 sold at 500 .. thats a capital loss and should be able to be written off..  up to 3k


http://www.irs.gov/taxtopics/tc409.html

Writing it down because your bitcoin wallet is broken?  Keeping a record because it's impossible to consult the blockchain later?

If you're smart enough to transact bitcoins, I really don't get how you could be too stupid to run your wallet through a TurboTax-Bitcoin app at tax time.

or i can pay with fiat and not have to consult with anything.

Yes that is correct.

Ya, but you gotta have enough BTC to pay your living expenses so that you stay in the lower two tax brackets....and wish to part with them.

I've not done my taxes yet, but I'm anticipating paying a noticeable amount of tax for 2013 because I had the mis-fortune of earning money (hard to avoid.)  In 2014 I do intent to fall into the lower brackets for earned income and enjoy a fairly healthy influx of capital for fun stuff.  At least if the price does another spike...else I'll HODL and live with what I've pulled already this year.

(Std disclaimer:  Seek qualified tax advice and not this posting on a forum.)

---

As an aside, I feel that the U.S. has basically saved Bitcoin with this ruling.  I've long relied on the world's governments to 'save' Bitcoin by making it illegal, but this is even better.  Bitcoin would change to something quite different if it had to support the load of a large exchange economy.  If it remains a vehicle for speculation (which happens off-chain) and moving relatively large blocks of value around, it could remain similar to it's original implementation in terms of being peer-2-peer.

From your interest-bearing bank account?   If you feel more comfortable with the banker preparing and giving you your 1099DIV for your tax return.

Seems to me one of the memes behind bitcoin is "be your own bank".   Part of that responsibility generating your own reports for your "interest bearing" bitcoin wallet, so you can pay your tax obligation legally.  It seems to me that a bitcoin user has the technology and can find the software to do this himherself.  

I love how internet tough guys who's net worth amounts to a beater Honda Civic spout off about how they plan to stick it to the man...and somehow feel that everyone else should do so as well if they were not 'cowardly' or 'stupid'.

Ya, we seem to be approaching agreement on a fair number of points after all of these years.  Probably we never were that far off in the first place in spite of having different centers of mass.  I'm sure we both agree that it's been good to be a Bitcoin enthusiast, and one with some analytical bent, over the last few years.

Only for long term capital gains.  Short term capital gains (asset held 364 or less days) is taxed at your regular income rate.

Which I suspect will lead to less "short term" speculation in Bitcoin...which is perhaps likely to tend towards being better for Bitcoin in the "long term"?

Yes... i'm sick of the parasites.

the only reason bitcoin is a store of value is because people anticipate it will be useable for daily purchases.

A rather poor way to 'fight the man' would be to give him an opportunity to throw me in jail and confiscate all my property.  If anything that would make the problem with 'waste and abuse' (which IS a genuine problem BTW) even worse.  There are more effective ways, but they involve a chain of planning which consists of more than one link.

Well most entities don't report transactions at the transaction level to the IRS.  If that were the case then nobody would ever cheat on their taxes when it comes to cash transactions. ;)  It would also mean that 99.999999999999999999999% (yes I know that is too many nines) of people wouldn't pretend they have no use tax due in states which "require" it.

Generally speaking only when an entity pays YOU do they report that to the IRS (most commonly in the form of W-2, or 1099).  There are a few examples but they tend to be things which act as deductions for the reportee (student loan interest, property taxes paid, etc).  For example if you buy a TV at best buy, there is nothing best buy reports to the IRS.

The reality is almost nobody is 100% compliant with the tax code either through wilful non-compliance (use tax is pretty common), errors due to the complexity, or ommissions the accuracy rate is essentially 0%.  That being said I am not advocating people assume they can always cheat and not get caught but lets use some common sense.  If you buy for a $20 domain name on namecheap with bitcoins and fail to record that as a capital gain there isn't much chance you are going to get "caught" (caught implies IRS would even be looking for that and they won't).  By the letter of the tax law you should report it but if you don't it is very likely nothing will happen and if somehow you did get caught you could always argue good faith effort and simply pay the taxes due.  Now on the other hand if you buy a bunch of Bitcoins at $0.01 each and now they are worth $40M and you plan to buy a yacht to "avoid taxes" well you probably should consult a CPA and there is a very high chance you will get caught and when you do you will be hit with fines and penalties.

I think the property classification is dubious, currency isn't property for tax purposes, neither are bearer instruments, stored value (gift cards), or even casino chips. On the other hand the idea that the IRS is going to demand records on all transactions (even ones where there is no legal requirement to keep records) in order to catch all the $1.38 in missing taxes on capital gains from spending bitcoins for a video game is kinda silly.

Well, you are simply flat out wrong in at the very least one case that I am intimately familiar with (namely my own.)

Using a globally distributed and persistent blockchain entry to by a pack of Skittles is about the most brain-dead use of resources that I've ever heard of.  This is the proverbial use of a sledgehammer to kill a fly.  And again, it would change the nature of the solution dramatically were it to become the norm (much to the delight of the Googles of the landscape.)

For someone who is dubious about not completely complying with the law, it's not going to be that big of a deal to run your wallet through a program that issues a statement of your short term and long term capital gains, which you can put along with the reports from your fiat interest-bearing accounts.

No way.  I can't use gold for daily purchases.  That doesn't stop it from being worth a rather huge amount per ounce.  Bitcoin, even if accepted by no merchants, can achieve a price in the tens of thousands of dollars per coin.

I agree with that to a point...however, it is worth using it to make a micropayment of say 2 cents to instantly read some content on the internet (something not currently possible with existing payment systems because of unreasonable high minimum fees).

Which means tracking capital gains or losses "could" be a stumbling point for this "best use" of the technology. But I still believe that a bit of code can solve this problem to provide the necessary tracking and documentation.

Gold is also used for jwellery and ornaments, very good conductor, heat insulator

That's kind of silly, since there would be no value in using bitcoin.  It makes it a ponzi scheme, where the smart sell to the stupid and cash out before it collapses.  Speculators provide a service to bitcoin, by giving it value.  When it has value, it can be used as a means to trade for goods and services.

Gold has industrial value, so its value will remain until viable alternatives compete with those industrial applications.  Fiat and part of BTC value is created by the perception of people like you and me. A piece of paper has no intrinsic value or utility, however BTC goes beyond this and actually does have a very valuable function which is the blockchain.

http://www.forbes.com/sites/kashmirhill/2014/03/26/warren-buffett-says-bitcoin-is-a-mirage-why-marc-andreessen-thinks-hes-wrong/

“A value of a BTC is not arbitrary, in fact it’s the opposite of arbitrary,” he says. “It equals the value of a single slot in a finite sized public cryptographic ledger through which value can move. The total Bitcoin ledger has value corresponding to the volume and velocity of transactions that will run through it in the future; by extension, each slot in the ledger has fractional value determined by the total number of slots (which, in Bitcoin’s case, are limited to 11 million today and 21 million ever).”


“So saying what Warren is saying is like saying ‘a car is great technology but it’ll never actually get anyone from point A to point B,” he continued. “Bitcoin is great technology BECAUSE it lets people get value from point A to point B through the public ledger; that functional use creates the value of the ledger, and a single BTC has a corresponding fractional value of the ledger.”

Tvbcof and Holliday:  I agree that bitcoin presently has better use cases than day-to-day spending like you both point out.  If the block limit size is increased and blocks are communicated by tx-hash to reduce the orphan cost, do you believe bitcoin will remain less useful for day-to-day purchases?

On the IRS guidance: Am I wrong in understanding the IRS guidance as their interpretation of existing laws?  No laws were actually changed, correct?  To me it seems the guidance was fair: presently bitcoin is more like property than like currency; if you disagree I believe the courts would have the final say.  

But the bigger point I want to make is that as bitcoin grows, it may naturally evolve to become more like currency than like property, and at this point would not the IRS guidance less accurately reflect the existing law (no change in law required, just a change in the interpretation of what a bitcoin is to more accurately reflect…ahem…what it is at that point in time)?  

The same theme applies to the guidance on mining. From my discussions with various community members, I think the general feeling is that hashers are paid for the services they provide to a mining pool whereas miners create bitcoins based on their own initiatives and the acceptance of their efforts by their peers.  I think if the IRS had a deeper understanding of bitcoin, they would have used the word "hashers" rather than "miners" in their guidance.  Based on existing laws, I believe miners (but not hashers) are free to recognize gains on any coins they create when a gain is realized, and a court challenge would rule in their favour.  

This is just my opinion and should not be construed as legal advice.  IANAL.

I can't believe you think that. That article is utter nonsense made up by an idle-minded journalist looking to create a bit of bluster for the sake of it.

Monetary media don't draw their properties - "fungibility" - or otherwise from the whims of tax regulators. You might as well say that dollars are not fungible in the Euro economy because they attract capital gains tax.

The article is basically a scam. Read this http://en.wikipedia.org/wiki/Fungibility.

Specifically this part:


Do you really think that the fact that one day gold is valued at $1200 and another day at $1500 destroys the fungibility of gold ? Thats what this idiot would have you believe.

I agree with the first, both posters actually. But do not forget that the basis of the domination system is the fact that the subjects are those who give the masters power and resources, that is from where they get their dominance. Since the tracking of all transactions for tax purposes is so weird, costly, impractical and intrusive, people should and probably will just say no. Certainly, that's what I will do. Report my bitcoin holdings every year? No. Report all transactions? No. Report the net fiat value of coins sold for fiat? Possibly, but not buy in value, where I got them from, how much I have left. No. Not enough people will say yes to this, so the law will go to sleep. The masters have no say in this. They think they have, but they have no say.

It should be good for the price of Bitcoin because it encourages people to hold on to their coins.

Large BTC holders aka whales in the USA will think twice about selling large amounts of their coins. Spending them slowly over time is much smarter.

There is also the issue of being a money transmitter that goes away, which is also good.

Lets see how long it takes for this to sink in.

Thanks for the thoughtful post Erdogan.  Indeed, the power always rests with the people.  

I disagree with one point: you said "they think they have a say in this," but I believe the IRS simply issued guidance reflecting their interpretation of the current laws.  

Who are "they" anyways?  And how are they different than us?

I think by "they" he's referring the elite political class which continues to retain power in this country despite consistent corruption year and year after motherfucking year through political means, corruption, bribery, etc. At least, thats what I mean when I say "they".

How may groups get to give themselves a raise every year, laughing all the way to the bank as they threaten to shut the government down (again). The federal government has gotten WAY too large. And well know government is the most inefficient way to get things done.

So, why on EARTH do the same people who are running this country into the ground with miles of new legislation which expands the size of government, their reach and power, every year still run the country?

+1

Correct, it is an opinion, but which mean a lot these unlawful days.

They? The government and their associates, banks, big firms, government owned businesses, half official organizations. They are a set of people. The difference from us, is that they think they are the masters, that they own us, that their power comes from god or the law, or whatever. They think they have the right to every value that is produced, change hands, move or is fixed within a certain geographical area. They leave a little for the producers for their sustenance. The rest is used on themselves and most of it is doled out to different people as payment for support. That is who they are. The rest of us basically wants to be left to peacefully do what we want.

2tights. I don't think thats necessarily true. Gold's industrial value is peanuts compared to its monetary value.

No monetary media needs to have an industrial value. In fact, it's an important property of any monetary medium that it works as well as possible as a token of exchange and as badly as possible for anything else (other wise it has a tendency to go out of circulation as gold jewellery, circuitry and teeth have done). The monetary medium derives its value from it's "role" in the economy, not from any sense of "intrinsic value" (which is a misnomer anyway - it's easily demonstrate-able that nothing has intrinsic value).

Gold was the "bitcoin" of the old physical world markets. It had certain characteristics of fungibility, resistance to counterfeiting, ilmited supply etc which made it function as a token of value. It was the fact that it was widely adopted in a monetary role that have it it's value - not the other way around.

Here's an example to illustrate. If you go to a kids funpark and buy a few of those plastic tokens for the rides, they'll cost you about 5 Eu / Dollars whatever each. On the other hand, if you buy them in a hardware shop, they'll cost about 1 cent each. So you're paying a markup of many thousands of percent for exactly the same plastic token that is in the monetary role. Nothing to do with "intrinsic value" of plastic tokens.

Gold is exactly the same - it doesn't not have any intrinsic value. It's just that people make a deeply rooted association with gold and value historically, so the word 'intrinsic' gets used to reflect that.

We now live in an electronic trading environment, however and you can't "hold" gold electronically so a new monetary medium is required, hence the emergence of cryptocurrencies.

When you look at it analytically in this way, they actually have more justification for a high valuation than gold does.

Bitcoin makes taxes more... consentual. Are they going to freeze your BTC if you don't pay? They may imprison you, but they still won't get your precious cyber coins!

I think that depends on where you store your bitcoins.   I'm still scratching my head wondering why Silk Road mastermind Ross Ulbricht would keep his personal wallet of $80 million USD worth of btc on the same same laptop on which he used to administer silk road, only a password dictionary attack away from seizure.

For some reason I don't think satoshi had "regulation" and "taxation" in mind.  Bitcoin was about undermining government monopolies over the world's currency.  We have failed miserably thus far.  

I'm not happy with this ruling as it seems to be doing alot of confusing for newer users and those looking to get into bitcoin...  But I think in other ways it's a good thing it's just a matter of how you look at the big picture IMO.

Correct.   However,  the courts will only have a say if you treat it as something else, AND it causes you to figure a lower tax,  AND the  IRS rejects your treatment.  Treatment as 'property'  is generally going to be more favorable for the taxpayer than treatment as currency.

This guidance is in greater disparity with people who were/are holding that their Bitcoins are NEITHER their Property,  NOR currency.

In other words: Folks who pose that  Bitcoins are the same as game currency (Such as World of Warcraft Gold), that,   there is therefore no taxable value from obtaining bitcoins  through mining,  playing video games, or whatever,  since this digital association of hypothetical future value to be spendable  by a private key  (Something you know, not something you have),  according to consensus of the Bitcoin network is not a "Thing".

That is... the person who mines a Bitcoin doesn't become an "owner" of anything, or obtain any 'lawful exclusive right'  to anything of value.

Thus no taxable value for bitcoins obtained in trade.


Such treatment would  result in taxable income  only when Bitcoins are "exchanged" for property assets with real value,  or services/goods are obtained.

Much in the same way that earning Warcraft gold while playing World of Warcraft is not taxable,  but any sale of Gold for cash is taxable.



If you want to be safe,  you should probably   use the least tax-preferential treatment,  as it is the Revenue Code that you need to follow.   The IRS is just providing a service  to assist taxpayers by providing guidance  on their intended interpretation of the law.

The IRS have the right to change their mind,  at any time with regards to their guidance,  if they see it maximizes tax revenue, they may do so  by updating guidance  or  rejecting the standard guidance on a case-by-case basis.


Also, following the IRS guidance doesn't absolve you for underpayment --- if it turns out their guidance was wrong,  and   some less-tax-preferential treatment was correct:   the taxpayer may be subject to paying more including underpayment penalties.


No...  with A mining pool it is still their own initiative.

Mining pools are essentially informal revenue-sharing arrangements;  where people conducting mining combine their computational power,  so they collectively have a better chance of finding a block -----  when one of the miners in the pool does find a valid block,   the reward revenue is redistributed  among the active miners' peers  based on a formula they agreed upon,   which included each miner providing numerous  "intermediary"  hashes  that met a slightly lower difficulty bar,   in order to prove that they were actively mining.


If this is income,  and potential self-employment income, then... of course... the same is true of solo-mining.

"The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent. "

Except not every bitcoin needs to be obtained through an exchange or with dollars.

It never ceases to amaze me that a currency, whose primary strength is its independence from government and central banks, is used by so many people who live and die by what the governments and central banks say about it.

I think his point is that people won't bother, they'll just put a hand in their pocket as they always have and buy the coffee with cash.
Anything that complicates a bitcoin transaction in any way reduces the likelihood of normal people or businesses adopting it.

Why would that cafe even bother with bitcoin and add something else to their paperwork when everyone already has a simple and trusted way to pay them?

Not everyone is into crypto, the majority have no idea what the fuck it is yet, they just want something to buy that coffee with and anything new needs to be an improvement on what they know. They don't give a shit about economics or governments or the future...they elected the morons who run our countries.

I'm wondering who's going to be splashing out on thousands in mining gear when the returns aren't there anymore. Most rigs won't break even at the rate we have now. People with 10k rigs on order must be gutted.

I can be corrected on this one, in case I misunderstood something, but the entire discussion in here seems to miss one point:

The IRS decision (guidance?) applies to capital *gains*, i.e. the difference in value per unit at time of buying said unit vs. selling it. Correct so far?

If, at some point in the future, BTC/USD more or less stabilizes, the problem disappears (or at least become negligible, except for very large amounts traded).


tl;dr This decision might hurt current speculative value, but it doesn't really harm BTC functionality assuming a more stable exchange rate in the future.

Everybody please relax.

BTC has been subject to capital gains in the UK from the beginning. It hasn't had the slightest effect on BTC adoption here.

I also hate him very much USA government does not recognize the BTC the money even if the IRS or receiving but its property tax

Of course, IRS never changes its mind.

Relax, and just prepare to pay the capital gains tax if you need to. Consult a professional and find ways to minimize it and gain deductions.

For Fuck's Sake, don't flip your shit everytime 'THE MAN' makes an announcement. Adapt. Adjust. Improve.

Actually I think this is very positive, since it defined digital property first time in human history. Bitcoin is the first non-duplicatable digital property, and since it is half anonymous and can move oversea in seconds, the taxation need a whole new set of rules, or simply becomes impractical

America is the greatest country in the history of the world.. not :P
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita

I nearly spat out my coffee!

There's an analogy about a half-watertight submarine in there somewhere.

unfortunately this what you said is all wrong .. people do hold electronic and paper gold all the time.. if you go to say monex and you tell them you want to buy gold at their exchange and have them store that gold for you in their vault then they will supposedly buy gold for u and store it in their vault for you .. whether they actually ever buy the gold is dabatable but they will issue you a certificate saying that they bought the gold and that you own it .. problem is if you do not hold the physical metal in your hand then you don't really own any gold even if your certificate says you do .. paper or electronic digits is not gold. if monex were to go belly up well you will never see that gold your certificate says you own . now lets go look at the GLD markets. that is all paper gold being traded. the price of gold is manipulated by people who trade in paper gold. the central banks mostly manipulate the price of gold using this paper system where one ounce of physical gold can control like 100000 ounces of paper gold. that is all fakelands and is not real gold.

You can measure it however you want. Yes, Im sure in Luxemburg, Frosted Flakes are covered in 90% Bolivian cocaine and the roads are paved with the evaporated tears of the proletariat.

Im quite sure its wonderful there. But when having these discussions, its also important to acknowledge reality. And the reality is, we have most of the "money." (lol)

In fact, our "money" is how other countries denominate and measure their own currencies, products and services... because:

While we dont make anything, we sure as hell like to buy stuff. And as long as we are the biggest buyers, our skin in this game is worth the most.

"You will now be returned to your normal program of FUD and Loathing in Las Taxvegas"

http://www.kelloggs.com/content/dam/newton_en_us/Brand_Franchise_Heros/BF_FrostedFlakes.png

Also, if you made 3,000 bitcoin purchases over the course of the year, and each one had exactly zero capital gain or loss, from my preliminary research it appears that you are required to not report this.  (However, you should keep private records.)  

If you do report 3,000 day-to-day transactions where each one has exactly zero gain, then it could be interpreted as a "frivolous filing" and you would be fined $5,000 by the IRS as per the Frivolous Filing Fine.  

Check out the ZGL wallet here: https://bitcointalk.org/index.php?topic=531135.0

This is not legal advice.  IANAL.  

Here in Canada we have what are known as Tax-Free Savings Accounts (TFSA).  Money and investments placed in a TFSA can grow tax free (interest, dividends capital gains).  You are free to pull money out of your TFSA at any point in time, but you can't put it back in until the next tax year.  Each year we get $5,500 more room in our TFSA.

If you have $25,000 of room in your TFSA and place $25,000 of stock in it, and if this stock reaches $250,000, then you can sell the stock and use the money tax free (i.e., you do NOT have to pay capital gains tax).  The interesting thing is that from this point on, the room in your TFSA remains at $250,000.  The TFSA will slowly phase-out capital gains tax on financial products in Canada for many people.

With the recent tax clarification, I expect to see innovative companies offer registered bitcoin investments for TFSAs and RRSPs (Canada) and 401Ks and Roth IRAs (USA).  

I think this would be quite helpful.  

If bitcoin fails to get those "morons" on board bitcoin will not be used or accepted by almost anyone and thus become valueless and useless.

i can't think of anything bitcoin does better than fiat besides buying drugs on silkroad.
anything else i can do more easily with a credit card.

I feel bad for the miners but for anyone else you could sell your bitcoin for cash, they cant tax cash exchange.

domain names aren't digital property?

Yes, it is... I think you're saying they can't enforce it, right?

word.

also to those saying they are "happy to pay tax":

I have just introduced a global taxation myself, the taxation scheme is set up so that I can fund my efforts to make the world a better place, as such: all Bitcoin holders MUST send me 1% of their total holdings to this address, payments MUST be made annually.

1JQb5ds6VAY8LcQiBPwBuUjSrawW9k98nA

Pay the tax and be happy. Oh what's that you say "why the fuck should I pay you?"... yeah, now you're getting it.

I have nothing against paying toward utilities I use, refuse collection, road mantainence etc. but to be taxed on your wealth seems a little shit, especially when you realise those with all the gold pay virtually zero tax, they didn't get rich paying taxes, believe me!

its a bunch of binary data replicated worldwide.
bitcoin is not an asset if no one uses it as a currency.

The U.S. Government was not going to embrace bitcoin as a currency.  Given that there were only two options.  1.  Figure out how to tax it.   2. Make it illegal.    They are taxing bitcoins like gold.  If you mine gold and keep it under your cabin floor in sacks (or mine bitcoin and keep it in your wallet) when you cash it in, you have to pay income tax (not capital gains) on the amount you cashed in.   If you trade and make a profit, you need to keep track of your losses and gains and pay capital gains tax on any net profit for the year, just as if you were trading in gold, wheat or any other commodity.   Sales tax for internet sales should be the same as it is today.   Most internet purchases don't impose sales tax, it will be the same for those taking bitcoin.   

Overall, given the option to ban it by the U.S. or tax it, I prefer the latter.

Yeah "doomed". Shut up and piss off.

The 'replicated worldwide' is exactly what give BTC it's value to me.

If the data is replicated only among organizations which can be pressured by the government and/or mis-use the intelligence data coming off the system (e.g., Google, Facebook, etc) or used in significant quantities by organizations who can be pressured to damage fungibility (e.g., Overstock, TigerDirect, etc) then I consider this a viable attack surface and a legitimate threat to the value I see in Bitcoin.

This is no idle conjecture or threat in my case.  It has been a very real factor in my decision making processes in deciding how to draw down my hoard.  (There are other factors also, to be fair.  Among them, I obtained my hoard in the first place intending to re-distribute it when there was less of an excess BTC liquidity problem.  At a profit, of course, but also as a legitimate contribution to the ecosystem.)

Step 2) buy bitcoins and profit :P

Trend and price before 1 month:
http://www.dodaj.rs/f/V/JM/4H6veSvX/yyy.jpg

Trend and price today:
http://www.dodaj.rs/f/27/9e/4vr0gXBR/yyy.jpg

See you again within a month with trend lines and current price.

If the IRS wants to make taxing Bitcoin a pain, then they are going the wrong way, a lot of Americans will still be using Bitcoin and the IRS will just make it harder on themselves to collect any sort of taxes. Trust me, Bitcoin isn't doomed, but the quicker the governments get on the train and accept Bitcoin for what it is, the quicker they will have any chance for it to be more regulated to a point they would prefer.

other assets have value because they are useful.
gold is useful as jewelry and in electronics.
houses are useful because you can live in them.
bitcoin is only useful if its used as currency - no adoption - no value.

Doomed..

Pretty sure if BTC some how crashed to $1... this forum would buy all BTC out there.  BTC is just stopping for fuel.

just out of curiosity, how is bitcoin useful to you (or anyone else for that matter) if you can't buy anything with it.

I'm pretty sure I just bought something…

Hey, you can now pay for hotels all over the world with bitcoin!!  Check out http://www.gyft.com/merchants/global-hotel-card/ (http://www.gyft.com/merchants/global-hotel-card/).  Vinnie is doing good things at Gyft. 

Good job using only the latest two months out of 3 years of sustained growth to make your horrendously short-sighted, mathematically-flawed argument.

Which government or Wall Street Pump n Dump firm do you work for?

I don't really care if the United States government embrace Bitcion as a currency.  I far more interested in what the American people embrace it as  and yes the rest of the global population if that was already obvious.

The IRS just legitimized bitcoin.  How could they embrace it any warmer without writing laws that favour bitcoin over other asset classes?  Did people really think the IRS would say "capital gains tax applies to all assets except bitcoin because it is special"?  The guidance simply says that if you realize a capital gain on bitcoin, that you should voluntarily report that gain and pay the appropriate taxes.  But this was the law before the guidance was issued too.  

Check out the post on ZGL wallets to see how voluntarily complying with US tax law could become a breeze. 

I don't think it's doomed, but the Subject sure invoked some strong emotional reactions. LoL.

I think you're right, they are just creating a really difficult situation for themselves to enforce.

For me, a store of wealth and a currency are two different things.

As a currency it may seem less liquid than a dollar at the moment. But remember the confirmation time for a credit card is like 80 days, and chargebacks seem to be getting more common. from a vendors perspective credit cards are getting worse by the day. Bitcoin is already sweet if you're selling goods.

As a wealth store I see BTC as being far more liquid than precious metals.

And of course nobody would store wealth in fiat fractional reseve bank as the math shows that system as untenable. Nobody wants to be the dumb empty bag holder when the game finishes.

BTC is a game also, but the rules are clearly stated, provided the rules remain unchanged then (to me) the game looks far less risky than fiat and fractional reserve. Of course one should factor in the risks and diversify accordingly, for example; future national firewalls and EMP attacks, you'd be better of with a few silver rounds in that case.

Having said all this; In the future I can imagine a fractional reserve layer built on top of Bitcoin, and then the citizens can have instant gratification and full liquidity (at a cost). In fact I'm sure this will happen as many people will like it this way.

Well stated.

I might add that what I would call 'second tier' (rather than 'fractional reserve layers' which they may or may not be) would themselves have the tools to inspire confidence if built on top of (or 'backed') by something which is simple, solid, and transparent such as current Bitcoin.

This in contrast to the variety of dubious derivative ridden re-hypothicated asset types upon which most of our 'modern mainstream' systems rest.  Let's not forget 2008 and how fragile these things have already proven to be.  It's more than some sort of whacked theory that there are some stability problems and poorly understood mechanics which underpin our 'official' economic systems.

Thanks, and good statement from yourself.

Yes I would prefer a future where the "purity" of Bitcoin remains intact.

I just haven't heard of any plans to ensure future purity for all users.

Speaking of users, I fear the "bulk" users might be happy to allow the corruption, confused as they are, it's easy for large players to instill fear with one hand and remove fear (and wealth) with the other.

I'm thinking: Isn't it possible for anyone to create a new layer on top of Bitcoin tomorrow? It may not even need to be directly coupled to it codewise, think a Bretton Woods system using BTC instead of gold.

A darker fear of mine is that prior to new layers the existing blockchain might be abandoned if some entity has pockets deep enough to bribe miners to a new chain.

Highly speculative stuff I know :D, but I'll be happy to have my fears dispelled.

How would go about doing that?

0% for most people?
What is needed to go above 0%?
Sorry I have no idea.

Has anyone questioned the idea of a country in the first place? This idea of people being treated differently whether you live on one side of a geological border or the other side is actually kind of obsurd and antiquated. People are people and we all have the intrinsic right to pursue happiness and freedom.

With that rant off my chest, since it seems we (the majority of people as a collective) are going to recognize geographic bound governments and their authority to collect money to pay for stuff we want (again - the majority), then let's do a few comparisons for fun.

How does the same "Bitcoin is property" idea apply to loyalty points (points.com), cell phone minutes, Internet megabytes, basketball game tickets, and food? Every one of these can go up and down in value. If there is an increase, presumably we must pay a tax. If they go down, presumably we get a credit (but never a refund). And why is currency not treated as property?

Just a few questions for which I have no answers.

In my non-professional understanding, one simply has to stay in the lower two tax brackets for earned income.  That could mean that one is basically forced to quit one's job.

It's also worth note that this is federal tax.  State tax is a different matter.  Looks like I'll be paying 9% in state taxes for instance.

Ok, read most of the thread. This may have been answered.


What about people in the States that only mine BTC and do not spend USD on it? I've sold about $250 worth of BTC on coinbase. How do I fall into this new law? Also I'm under $14k a year thanks to hour cuts. =/

Am I right in saying that there's no taxation taking place in Denmark?

+1.

This was bound to happen. It's not good news.

+2
I really don't want to see this happen.

its good news.. because u pay wad u gain.. the good news is.. u can volunteer to pay when u do it in bitcoin =)

so its GOOD news get it?

Im going to repeat, but only because of how annoying it is when my fellow Americans think they are the center of the universe, and the only country in the world.

Ban Bitcoin in america, and it wont amount to a hill of beans for Bitcoin's ability to continue elsewhere.

The USA is not the only country in the world, and outside our borders, few countries give a shit what the IRS says.

Think Globally folks. 

-B-

perhaps bitcoin will prosper in the real free countries of the world, Hong Kong, Singapore, Australia, Switzerland, New Zealand.
its obvious the debt ridden USA has deteriorated into financial tyranny.

The legal requirement to pay taxes is really nothing new since 1924 in the USA.  Al Capone's conviction and prison sentence was evidence of that.

What is the most onerous is the provisions from the Patriot Act, which brought in the KYC/AML laws, probably the strongest in the world.   Now the rest of the world is beginning to discriminate against Americans, since they don't want the long arm of the IRS violating their sovereignty.  i.e. Switzerland.

 

For a good look at the currency of the future take a look at Mintcoin It's a new energy efficient Eco friendly coin with a growing number of Merchants and services

The Good = At least it is legal and (in the eyes of much of the public) no longer a shady underground business for drugs and gambling

The Bad = Bitcoin has some value when treated as a stock.  It is a way to diversify a portfolio.  And I think in theory it can still be used for certain services like large transfers of money overseas cheaply, but that is not where the biggest promise of Bitcoin laid.  Bitcoins biggest inherent value was as a universal currency that could be used anywhere for transactions.  The IRS has made that much more difficult in the US now.  More of a pain to accept as a payment system.  Just use cash.

The Result = Bitcoin has been legitimized, but only in some ways and not the ways that we should have preferred. 

The Winners = People with vast holds of bitcoins that bought a long time ago and squatted.  They can now sell off, pay their taxes and be rich for the rest of their life.

The Losers = Anybody who wanted to use it as a fast, efficient, and quick way to buy things. 

Is this about right?

It's especially punishing for small-time miners working with a pool and buying ASIC equipment with BTC. Daily small payouts, frequent purchases of equipment with BTC, expenses, equipment sales in USD, declining BTC value showing more losses on exchange/transactions, reporting loss and risking audit or being categorized as a hobby if losses are more than 3 of 5 years. Lots of record keeping required for this.

When I read through threads like this, I realize the buying opportunity.

Yes, it looks like it is a bad hit for small miners existing entirely in the bitcoin ecosystem.  To that extent, I think it is bad for anybody trying to exist entirely in a bitcoin ecosystem.  Had it been taxed like a currency, then the proposition of existing in an ecosystem would have been much easier I think.  (though I am not an economics graduate so I can't say for sure)

I still think it was a huge win for old school miners from 2011 that were sitting on a ton of bitcoin for relatively little investment at the time.  (true it was a very risky gamble at that time though) 

It doesn't make any difference at all for small miners.

Enough income (or hold less than 365 days)

If you hold the asset less than 365 days it is a short term gain and taxed at your marginal tax rate (10% to 39.6%).

If you hold the asset for 365+ days and your marginal tax rate is in the 10% or 15% bracket then your long capital gains rate is 0%
If you hold the asset for 365+ days and your marginal tax rate is in a higher bracket then your long capital gains rate is 15%

The cutoff is for the 15% bracket is an adjusted gross income of $36,250 if single or married filing separately and $72,500 if married filing jointly.

I am quite surprised at the sense of worry I detect on this forum regarding the IRS guidance.  The IRS simply expressed their opinion on how the existing laws apply to bitcoin.  For the most part, I agreed that the guidance was accurate.  You are still free to continue making the same decisions you were making before this guidance was issued, as the same laws still apply.    

Capital gains in the US are subject to tax, so this obviously applies whether you realize a capital gain in bitcoin or in Berkshire stock.  To eliminate capital gains or income tax would have required an act of Congress.      

I am also surprised people think that this is some sort of attack on bitcoin.  In my opinion, the IRS just did their job.  They know it will be difficult to enforce collection of capital gains taxes on small purchases and trades, and they probably don't really care.  But when the Winkevoss ETF comes out, the capital gains investors may realize using these registered products will be a nice revenue stream.  And if you personally do really well in bitcoin and buy a nice house and car in the US, then I hope you've voluntarily claimed a reasonable amount of income or capital gains on your taxes.  

The bogeymen are in your mind.  Bitcoin is growing as it should.  

I don't care shit about IRS Im not an American. USA is not the whole world.

What IRS does affect a big capital market for crypto. It DOES matter. By your logic, you should give no shit about china either.


About this IRS tax topic - it's been announced and hinted at since last year. Why all the panic now? Some people want to increase their BTC holdings?

I don't think it is good news.

If you are a miner, EVERY single time you are credited for any crypto coin, has to be tracked at present value to USD. So, I get like 50 transactions a day, every single day. Hrmmm, yeah, that's fun.

Also, all your mining, is counted as income, with taxes due on the value it was mined at. You don't get to say I mined it on Feb 2, and now it is worth half so I'll report that lower amount as income, that would be a capital gains loss, not an ordinary income loss. So, if you are mining and holding, even if you do not sell 1 coin this year, you owe taxes on it, and you owe FICA tax on it as well.

Big Mining operations, almost have to sell as they mine, as in if you mine a bitcoin or whatever coin and it was worth 500 dollars at the time of mining, you owe taxes on 500 bucks, doesn't matter if that bitcoin is worth 0.00 at the end of the year, you still owe that. So, let's say your 500 dollar bitcoin drops to 250. Tough you owe on 500 in ordinary income taxes. . Anyway, if coin prices keep falling there is a very real chance miners that mine and hold could owe more in taxes than the value of the coin at the end of the year.



Bitcoin or litecoin or whatever coin, the same thing applies.

Yes, except for "They can now sell off" - bad language, should be "They can now buy into dollar". Thet will winn even more if they do not dollar out now, they can just start spending and keep the rest in bitcoin.

On the other hand, ALL of your expenses (and then some) are deductible. Plus you can use your common sense or experienced knowledge to sell some (or all) of your mined bitcoins when the price rebounds and buy back when the price drops, thus becoming not just a miner but an investor and speculator with a range of options largely depending on how you are doing, for instance, if after the first three months you have been able to sell at higher prices than current, you may choose not to sell what you are currently mining and wait for a rebound in price. You can also buy at this lower price with the proceeds of previous sales. You DO have a lot of options and a lot of deductions as well as many opportunities through the year not only to obtain profits but to minimize possible temporary losses.

But complaining is, obviously, neither taxable nor deductible, so complain at will.

There wasn't complaining in my post. You are just hyper sensitive.

tax can be minimized to near zero ask apple

nonsense article. point blank:

Reason #1 - gold, coffee, silver, wheat, palladium, corn, etc are all examples of property, and still they all are fungible

Reason #2 - no government rule will prevent bitcoin to be bitcoin

True, but it's got a hell of a habit of fucking the rest of us up. :)

When the value of what you mine halves, it makes a difference. Obviously.

^TRUTH.

Especially when you are filing "business" activity and show a loss, after too many times of doing that the IRS will force you to prove your business is not a "hobby". If they determine it to be a hobby then you need to pay taxes on all the income but can only claim expenses if you itemize and exceed a certain amount of gross income. If you have a day job that pays pretty well it basically means you eat it when filing hobby income.

This says it all for miners, not a single rig breaks even on the list at current rates. https://tradeblock.com/mining/ Bear in mind that some big rigs aren't on that list as they don't yet exist and are pre-order and that is the only way to get a competitive rig...so many people are locked in now and difficulty will rise even if not as fast as their estimates.

Resale of rigs won't be great, who will want one ?

The current situation is pretty much a dark hole for miners, losing out on just about everything, coins mined slashed in value, rigs worth less, future hardly worth the juice. In the U.S. ..some tax paperwork to sort out to possibly recover losses, elsewhere just losses. Even if we don't sail down past 400 like we did past the 500 everyone was bleating we'd bounce back from.

If you pre-ordered with bitcoin the chances are you won't see a refund, Paypal you have a shot...that's ironic.

Who's left that can afford to mine? The big boys. Producing rigs at cost, or buying them ..and with access to dirt cheap power.
That was never the idea was it, to create a few large entities controlling most of the coin production? :(

Just showed a few people my miners, the usual bitcoin is the thing that drug dealers use, they think it is crazy, but then I mentioned how the irs is taxing it, and that is when they took interest and realized it is legitimate.  Especially with the tax laws, you can basically blow up to 3 grand on bad purchasing, alot more if you have investments and other shit I guess (i'm not an accountant so that could be complete bullshit)
Then they asked if i'm making money, I said once upon a time, lmao how embarrassing .... :'(   
 

I've got cubes listed on Ebay, thinking of yanking my auction. I know I can turn around and buy an Antminer, sell low buy low, but it seems crazy that cubes are selling so cheap. I mean it makes sense, it's where the market it at, but I'll be damned I was turning down offers on cubes last week for $200- should have just sold them all at that price. I'm just looking to have fast turnaround and get another Antminer hooked up, but don't want to run these cubes in the summer and don't have any power outlets left in my apartment.

No..... but it is more than half of the bitcoin market.  yes.... seriously, it is. So, when something happens in America, attention needs to be paid.

I don't think Bitcoin can be doomed  due to being tax classified as 'property'. I think this is a positive development as a huge tax lacuna has been removed and Bitcoin has received a perfectly LEGAL status.

In medium to long term this classification should be quite beneficial to the Bitcoin price as considerable number of property investors will likely turn to Bitcoin in order to diversify their portfolios (same tax rate as property - finite supply - far better capital gains ).

On the other hand, when Bitcoin is used to buy everyday merchandise (e.g. grocery) by public, there should not be a problem with capital gains calculations on each small or large transaction because simple and free Bitcoin accounting Apps can take care of it automatically and seamlessly - without the user needing to record transactions. This is as good as it gets.

Just chill out gosh! lol  ;D

if you happen to make a lot on trading or mining you pretty much have to leave the states now.

I also don't consider this to be anything spectacular and in no way detrimental to Bitcoin. It is just this time because price is down and people panicking which makes the conversation tense.

China will crash you

OP = clueless frightened speculating poorper, who was praying for a get-rich-quick scheme, and is now panicking because it's taking longer than they thought.

If Bitcoin dies, America is fucked. FUBAR. Bankrupt. Dead country walking.

https://www.youtube.com/watch?v=dQdmsL147j0

Cryptocurrency is literally the only hope for Americans today.

I don't get why everyone is incensed by this tax? Of all the unfair taxes you pay, all the unholy rules to keep you (the little man) out of markets, why are you complaining about capitol gains? Those are rich guy taxes. You pay more on the money you earn from hard work than capitol gains. Now if your problem is with how the tax money is spent, then I understand your grief. But this is about the best ruling we could hope for.

+1

I read a few pages of this thread, and it is obvious most of you have no idea what this actually means.

To give a simple example, it's basically equivalents to require a business (walmart, amazon or mom&pop) OR an individual to file and report EVERY SINGLE bitcoin transaction - what you earned and spent, on schedule D etc.. for capital gain consideration. So if got my paycheck that is 10BTC, spend 0.05BTC on milk, 1BTC on xbox, etc.. i must file each line item detailing the cost basis (usd/btc when i obtained the 10 bitcoin paycheck) and gain/loss (usd/btc) when i spent the said 0.05BTC for milk, xbox etc..

Obviously that can never function.

It effectively in 1 fell swoop destroyed bitcoin as a unit of currency(that can be used for goods/services) in the USA, AND ensures the dollar will never be replaced or lowered in the foodchain.

I guaranteed you companies like overstock and tigerdirect are now having a facepalm moment, consulting their tax attorneys on how to report this mess on their taxes.

It is bad, it removes the main function of bitcoin - as a currency.  Now bitcoin can only be used as a store of value like precious metals, but that only work if people still perceive it has value.  

If you are nervous, you should be. How this all unfolds in the next 12 month will have a material impact on bitcoin and crypto currency as a whole.




no it's not the best possible scenario, what have you been smoking exactly?

Check out the concept of ZGL wallets and coins here: https://bitcointalk.org/index.php?topic=531135.0

This guidance was a positive as it gives clarity to larger players interested in entering the bitcoin space.

One thing that tells you this article is point blank retarded...

They talk about taxing each bitcoin you have differently based on how much it was when you bought it etc. There is no way of tracking this and this is not how the taxes work. If you trade BTC for BTC you don't get taxed. If you spend BTC for services and goods there is NO TAX.

If you cash out 1 million dollars worth of BTC to USD you better believe you need to pay taxes and if you think you did not have to do this before the IRS announcement you don't make shit in the first place so don't worry about it.

while the concept behind is well intentioned and similar to what your stock broker does.  what we are discussing here is bitcoin as a CURRENCY (not a commodity that trades on the exchanges).

What that means is using it to buy milk down the street, and retails accepting it and give you milk. That was the goal of bitcoin ultimately and what all those payment processors like bitpay is build for.  

This IRS ruling essentially kill it in usa. It's the same as reporting every single penny you earned and spent as capital gains on your form. No business nor individual will accept that, that's why you dont see gold/silver coins/bars accepted as payment in walmart/target.  

There is unfortunately no way around this, unless IRS changes the ruling.

you buy 10 shares of apple stock $700, then bought 10 more shares at $400.  You sell 15 shares of apple stock at $600, then bought 15 shares again at $500 later. Guess what?  they are tracked EXACTLY like that.  You need to figure out your cost basis individually even if it's the same stock.

This is what the IRS ruling does to bitcoins, you need a better understanding before calling the article retarded.

No way around what?  Did you read the thread?  ZGL wallets (once available) would be an effortless way to ensure compliance with US tax laws should you choose to report to the IRS.  What are you suggesting is the problem with the concept?  The guidance that bitcoin is property seems actually helpful.  

there are trolls from both sides.. I remember there were screams like "if it drops to $750, I will be buying if there is no tomorrow"..
..sorry, no offense.. just to make sure newcomers are not overwhelmed by reading "btc will hit 5K+ by the end of 2014 - that's for sure"..

it's just an automated way of reporting your gain/loss and best effort algorithm to match cost basis = sale price. that's been used for decades in the financial market as a way to simplify tax reportings.

Again we are talking about bitcoin as a currency, it doesnt change the fact every single transaction - buy coffer, buy milk, buy toilet paper will need to be reported to irs.  Then you look from the business side what they have to report.

It's just not feasible nor practical. For a currency to work, 1 unit of value needs to always equal 1 unit of value, you cannot apply gain/loss to it - fungibility is destroyed by irs hence the function as a currency is destroyed.

Yes.  It makes it very easy to comply with US tax law regardless of how many transactions you make.

We still have not received clarity on which transactions should voluntarily be reported.  There is a strong argument that transactions that result in a loss (or at least no gain) do not need to be reported.  Otherwise, we'd be required to report to the IRS every second-hand item we sell on Craigslist.  

ZGL works regardless of the reporting requirements, although you have better privacy if you only report the swaps where you realized a gain.

At first your tone threw me off, but yes, agree completely that Bitcoin is basically a huge pain in the ass to mine and spend. All this reporting adds costs to my CPA's billable hours too, nevermind the work I had to put in on spreadsheets. Feels like the fun got sucked right out of BTC.

Average Joes are not going to have to track all there btc spending.  IRS has no way of tying you to a anonymous bitcoin address.  Nor do they want to waste time on it.  Pull your head out of your ass.

lol...glad to see some signs of intelligence on here.

This is actually my personal feeling as well, unfortunately all the paranoia spread and I'm going to make an attempt to be legit. I already regret my decision fwiw. Time and money on CPA to work on this, my own time building spreadsheets, really a crap deal.

Shhhh. :-X

I prefer it if others offer themselves as sacrifices, it sates the beasts hunger and so lessens the chance of it hunting me.

I am thinking it might be best to report at least some if not all. I mean, if you are using Coinbase I'd say it's probably a good idea to report, but maybe you have more than one wallet...

this makes me feel better. i was worried that if i spend 50,000$ in a year they might make me pay taxes on it witch i dont think is right

Unfortunately I'm now tax exempt, I did have a few coins, but my dog chewed up the cold wallet paper. :-[

WOW,
15th april 2014, Game over for China !!!

http://www.theaustralian.com.au/business/latest/china-clamps-down-on-bitcoin/story-e6frg90f-1226871648275

Don't worry, you will pay tax anyway in the form of purchase tax. hmmm tax!

LOL @ my dog ate my bitcoins

maybe this was mentioned earlier but what if my bitcoins were stolen? Does this IRS ruling mean the police will investigate the theft of my property?

If you were hacked across state lines, I don't see why you couldn't ask the FBI's computer crime division to get involved.

Furthermore, if I have this taxable property shouldn't I get it insured? Yea, like that will go over.

They will.  They might not care about bitcoin, but they are dead serious about being big players in cryptocurrencies and the IRS regulation applies to all cryptos.

"My coins were stolen and the thief keeps sending me computers and appliances to my home, I don't know how to stop him"

I'm pretty sure the IRS would like a list of all those computers and appliances and would think they deserve a piece of it.

I think your right for right now. But this is a dangerous path to take. A few years from now the IRS may have resources that make it very easy to associate you with your bitcoins. They may audit you and if they discover in previous years that you have not paid gains then you will owe the principal + interest + fines. It is even possible that you are jailed for tax evasion. Such penalties could be far higher than your profits and you may end up loosing a lot money.

Anyone who wants to try tax evasion should be aware of this and understand the financial risk you are taking by hiding profits from the IRS.

You are soo helpful pointing this out. I am sure there is a nice couch in heaven reserved for you.

Seriously, instead of sniping at people that wish to comply with IRS laws and stay out of jail, why don't you make a guide called "the tax evader's guide to using bitcoin and not getting caught" which would actually be useful for some people.   Then keep the philosophical arguments about paying/not paying taxes in the Politics & Society subforum.

Nah - it's classified.

Ya but thats all american citizens even ones not living in america but living abroad too. Even american citizens that are residents of other countries who are not even living in america anymore still have to pay taxes for being an american citizen and being born in america. Its such a burden and penalty to be an american citizen your taxed everywhere even outside of america.

Well then they can renounce their citizenship if they can find another country that will take them and quit bitching about it.  Until then it's my tax dollars that bail their asses out when they go running to the American consulate or whatever.

yeah usa tax day .. what a coincidence .

Bitcoin is not doomed,maybe taxing bitcoin is not as bad as it seams at the first sight.Once it get taxed people will be aware that is legal ,they will trust it more,buy it,make its value grow.

Correct, taxation is validation.  

More importantly, market players finally have a clear indication of what kind of beast they are dealing with.  As such, it is only a matter of time now before you see integration of Bitcoin payment protocol into their business models.   Clearly work must be done to iron out internal company tax compliance issues, but that is a far easier thing to stomach than paying hundreds of millions in fees a year to the current payment processing entities like mastercard, visa, amex etc.    Silicon Valley angel vc's are already investing millions into start-ups that provide solutions for all manners of Bitcoin protocol issues / applications.

With China out, out goes most of the speculation that has lead to nearly all the volatility of the price in the recent months.  The price straightens out...gets pegged at 750-825 where it should be at, people starting gaining confidence in the stability and then boom - people start buying stuff with bitcoins again.

Trust me, tax compliance services are well on their way to the market.

Thanks IRS!!! You Ass hats!
What is the highest tax rate on my Ass hat collection?  ::)
I need to make my taxes easier.

Are there any IRS requirements for Coinbase or our local banks to report to the IRS when we move funds in/out of Coinbase (or similar services)? I'm wondering how on earth the IRS is going to know you sold a bitcoin in the first place? Or how will they know that a bitcoin you've sold was bought at XXX price, or was it one of the coins you mined?

Moreover, if we mined it shouldn't we be able to deduct the cost of electricity and the cost of mining hardware? Like many altcoin miners I've spent a good deal more on my mining hardware than I'll ever get in mining revenue, so I don't see the justice in the IRS taxing my mining revenue as if it had a cost basis of 0.

Let's say I instead use my BTC to by a Gyft card and spend it at Walmart - is there any way the IRS can possibly learn about the Gyft card purchase and use currently? Because that's the route I'm thinking of taking for any BTC I do cash out. I still think the IRS is in for an accounting nightmare if they want to try to wade through all my penny-altcoin trades at a half dozen exchanges, etc.

Coinbase is registered with FINCEN, and FINCEN can send information to the IRS.

You can write off just about every single facet of your operation.

I am going to tabulate all of my hardware costs, electrical usage each month, my internet bill, my rent.. just about everything associated with mining.  I am certain that i am obligated for 0 tax burden.

Don't forget about computer maintenance costs (hint: make it expensive)!

ya should get a business license before april 15th us tax day and china bans bitcoin ..

Already did an LLC registered in Texas about a month ago: www.steeltidellc.com  ;)

Guys, bone up on the hobby/business laws. If you don't show a PROFIT for 3/5 years the IRS will categorize your business as a HOBBY. At that point you cannot write off expenses unless you are itemizing and there are restrictions on how much. Basically, once your business gets categorized as a hobby you get boxed in, and in either case you still need to account for the income. Right now it's almost impossible to not be projecting a loss for 2014, and those that started late in 2013 will have startup expenses that exceed mining revenue. So go ahead and tally all that stuff up, but when you show a loss it (a) increases your chances of being audited greatly and (b) puts you one step closer to having a hobby categorization.

In my opinion the IRS should not tax anything in a barter system, meaning if my mining and reinvestment into equipment is handled with all BTC it should have nothing to do with the IRS. With this the only things reportable would be taxable events, or the exchange of BTC for USD. Fantasy land, but I would have been much happier without having to account for capital gain/loss every time I buy a miner. It's really such bullshit because Bitcoin went from being convenient and fun, almost like a money simulation game, to the current state of accounting nightmare of spreadsheet madness. If I mine a Bitcoin and spend a Bitcoin the IRS wants me to pay them twice, but if I have a garden I only pay taxes when I sell the veggies, not when they grow. Bullshit, they really did ruin it, doing all my spreadsheets and meeting with an accountant confirmed this. Also, add up the hours doing all the math, and if you need to hire an accountant keep in mind they need to spend time on it and they get paid in dollars, not BTC.

Hum, maybe i'll just pay the tax and not even bother.

maybe you should stop mining ?? maybe that is what the us govy wants to accomplish is stop you and other americans from mining. if the us govy is taxing capital gains then they must think that bitcoin value will increase ?? or are they attempting to kill bitcoin ?? not sure if killing bitcoin is in their interest or not really since the us reserve dollar currency is on it's deathbed. i think what we have is a complex thing involving currency wars. in any case you still have two or three years to mine even if you don't make a profit ?? u could just give up the ghost and stiop mining ??

 :o

That is a rather..interesting... take on things. lol

Well, trading bitcoin for land @ http://galtsgulchchile.com/ ...moving there and renouncing citizenship... might not be a bad idea! 

Other countries have already integrated exchanges with few, if any, complaints from users. As a US citizen, I must jump through all sorts of loops just to purchase bitcoin. I do understand that we want to close fraudulent pathways for criminals, but those exist in fiat as well.

Any USD bought with bitcoin should be reported in tax information. But I feel that bitcoin allows for an international community and working for BTC would be a different situation.

Exactly, the US is bankrupt.

Well, now, that all depends on how you go about it.

My $.02.

;)

well you can always try to not associate your wallet with your identity.
No identity = they don't know who own the wallet = they don't know who to tax

For now you can profit from exchanging in other countries that doesn't tax it, but if bitcoin liquidity is higher you wouldn't need to exchange them which makes life easier too.

Still have to pay taxes on "barter income", which is what that would be called.

How would something like this effect cloud mining.

Would Cex.io be the ones who automatically pull from the payout of what was mined on your behalf since they are the ones who technically own that miner? Or does it fall on us since we are the ones who "rent/own" the speed that solved that block. Now I read another reply that stated about claiming everything associated with that, I can see this as an advantage for companies like Cex.io to tax the miner (the owner of the Hash power) and then claim all the cost for a lower capital gains.

Is considered legal for a company to tax you and to not pass that tax to the IRS, since that tax is indeed not for profit of the company and if this would conflict with a claim by Cex.io for lower capital gains due to operational costs and in turn profiting from the tax they took from you.

Now considering the tax falls on us to pay, this would be an advantage since, you did pay into that speed which could be a deduction depending on how long it takes you to profit from your investment.

(This question applies to the purchase of Hash power aswell)

If there was a better kind of tax system in the US, that should-would include the IRS being replaced with a much better and fairly run Federal taxing agency. The IRS should Stop harassing the American people because of their use of Bitcoin !

If the USD crashes before BTC rises to the mooncoin, I'm probably going to hit up a sweet Canadian and see if he'll marry me so I can go live there instead. I should probably do that anyway - not marry a Canadian but look into expatriating. Or across the pond. America as a land is amazing but the majority of people in it are an embarrassment and embrace ignorance and educational fail.

Plan A though is an experiment...as soon as I make the next BTC purchase (the one that counts, not the dollar test one), I'm launching a website dedicated to my move to attempt to live off grid and entirely from BTC...just to see how it plays out. I'm also planning on investing in an RV to travel awhile and to see if I can negotiate a transaction strictly in bitcoin for it.

It's not my means of work but I'm learning creative ways to make my work accommodate bitcoin.


If I only live off BTC and most of those purchases would be less than $600, and I DIY everything, then the IRS is SOL.  ;D

LOL dude if they are the richest why they boomed the twin tower?

lol.

But anyway, really the people that honestly think---and can't be convinced otherwise---that IRS taxing bitcoin gains will kill bitcoin are usually the hardcore libertarian types that help to hold back bitcoin. Regulation is inevitable and is actually a good thing, it basically means a major branch of the federal gov is saying that they think bitcoin is going to be around and widespread enough to warrant issuing guidelines; this and other agency involvement makes larger traditional finance players (banks, hedge funds, prop firms) take it more seriously as well as other countries then following suit and creating similar regulations and then, even more importantly, businesses will know how to handle it and feel more comfortable accepting it knowing that there are less unknowns about its future.
As for the actual tax implications/recent IRS memo, none of it is really that bad. Depending on your current income bracket, what kind of tax credits you get, and how much income you made from selling bitcoin, your liability could be close to zero.  But if you made like $50,000+ last year just on cashing in bitcoin and aren't paying then fuck you cheapskate, pay your taxes.
As for the mining part, the IRS ruling was pretty silly, they should have just said that anything mined is unrealized gains until its sold, then once miners convert to USD they could be taxed. Sure miners could use btc to buy things instead and you'd get some tax avoidance but I can't see this amount being relevant as far as federal revenue goes.

I will be starting a thread challenging the IRS to declare what I owe them in bitcoin capital gains. I want to prove to everyone that they don't have a clue.

How about China? Not bankrupt, nor straggling on the fiscal cliff.

The Chinese economy depends quite a lot on the US. If the US becomes bankrupt, then China also will follow.

Really? I think anyone that's familiar with including gains/losses on their tax return would find it pretty easy; and for anyone thats never done capital gains/losses would find it about the same difficulty as manually entering your 1099-D. I had to enter values from a 1-K from an LLC this year, now that was rough.
If you haven't kept records or have 1000's of trades and never looked at how much you've gained/lost then it might be cumbersome.

I haven't looked over the specifics of mining and how that applies though.
Have you asked anyone for help?

Please, please seriously do this - not a thread but a dedicated website!! And be sure to send me the link. This is much needed - start challenging the gov to show its hand to the public, force its transparency. That would also do wonders for the mainstream public who, individually, will nearly always agree they have 0 faith in the government, but in a group it all goes out the window. On a semi related note, the sentiment can be summed up like this:

We want the government to stay the hell out of OUR business, and just focus on governing those OTHER people  ;D

I am talking about tax evasion here.
So you are totally not paying tax because the wallet owns by nobody/they think is a foreign user in the eyes of the gov't if you avoid making transactions with services with your identity.

I registered IRSCoin.com.

Creative ideas on what to do with it?

There is hope, a new bill is being passed by Steve Stockman that declares the Bitcoin crypto currency a  currency, and I think that is very good news.

Here is the link:
http://newsbtc.com/2014/04/08/congressman-stockman-seeks-introduce-bill-congress-declaring-bitcoin-currency-property/

I have never heard of Steve Stockman before, but at least the bill he is trying to pass is a very good thing for Bitcoin since it levels the playing field with the dollar ( same set of rules/laws), and makes bitcoin easy to be used as a currency.

There is a very good video  that explains this in very simply terms.
http://www.youtube.com/watch?v=44s-SAkDCic

Basically no more capital gains tax, and make bitcoin easy  to use like it always was.

Normally I am against regulation, but this bill at least the way it is stated on the video it is very good.

If this bill passes bitcoin will gain adoption, and its price will recover from the IRS ruling.

Also it will make paying taxes cheaper since you could easily swap the word bitcoin with the word dollar since the rules would be identical, no more complicated taxes, no extra bookkeeping, I hope this bill passes.

If you look at the bill it looks well written and very precise, unlike the IRS ruling.

So it looks like bitcoin is going to be currency again in the USA and not property.

I'm not a tax expert, but I don't think this bill does what you think it does.   Currency that is not legal tender of the United States is still subject to tax made from capital gains, except at regular income rates.   To be compliant with tax law, you would still need to keep track of your trades.  The IRS ruling is an advantage for the special tax rates on long-term capital gains, as well as offsetting capital losses.  

I dare say that this bill was written out of ignorance.  The only way not to subject a commodity or property to capital gains is to declare it legal tender or explicitly exempt it from tax on its capital gains in the tax code.

Before attacking me, please read this part of the US Tax code: http://www.law.cornell.edu/uscode/text/26/988 (http://www.law.cornell.edu/uscode/text/26/988)

The IRS should be trying to help the American people, by helping the value and price of Bitcoin to go up and stabilize, or they should just stay out of it !

Maybe they are? Think about it. If you own a large business and are considering accepting bitcoin as payment wouldn't you want to know how regulators are going to treat it, to have assurances that the government isn't going to "ban" it or add fees that make it more expensive than cash/credit/et al? This policy issuance serves that purpose and gives other nations' federal agencies a guideline and gives them notice that if they create an environment less hospitable than the U.S. then they are losing that source of new economic activity and growth. There may be short-term negative effects from hardcore libertarians ceasing certain uses along with those who find paying 10% or 15% on short-term profits---hard to say how many people this is since if you buy $100 of bitcoin, then sell it for $200 a month later, does $10 in tax make that $90 not worth it anymore? not to mention that the IRS' resources are stretched so thin that they can do very little in terms of enforcement.
I know that it's hard not to interpret anything a federal agency (especially the IRS) involves itself in as bad and harmful since that it is so ingrained into the public's minds with so many negative associations, but try to step back and look at this impartially as possible. I'm not saying only my thoughts are wrong but to think of what actual, individual effects this and similar rule issues have.

I'm going to expatriate when they tax my coins.

They already have but don't panic!

I have at least a partial solution!

My $.02.

;)

Eh. I still say anybody worth their salt should just relocate their gigantic farms to one of the many islands that do not care about (designed for) tax evasion.

The IRS is probably going to find the bitcoin core developers and somehow make the transaction fee 10x more than the amount sent, then that transaction fee doesn't go to miners, it will go to the greedy idiots at the IRS.

Well now that one may get you The Tinfoil Hat nomination!

My $.02.

;)

https://www.youtube.com/watch?v=yWTQgmCuiCw

I'll eat my tinfoil hat if im wrong, you have my word

Good one!

I'll hodl you to that one!

My $.02.

;)

I think there are a ton of unanswered question with this ruling. For example, what if I buy one BTC at Coinbase this month for $500, move the coins to a wallet next month when they are worth $600, and finally move them back coinbase next year to sell them, when would I pay tax on them? To follow the blockchain as some people suggest, I'd be paying the tax every time I moved them. But that is crazy. If I buy a $5,000 Soyer painting, and I find out it's now worth 10k, I don't pay a tax on that gain because I moved it to a more secure room.

To me, it would make more sense to classify bitcoin as a commodity.

It was always eventually to be taxed as either a currency exchange or as as asset. Both introduce challenges in terms of record keeping...but actually treating it as a currency would likely be more complicated for most people and in many cases not nearly as advantageous financially when time comes to pay the tax.

This is after all an electronic "smart currency"...it seems to me that there will be electronic solutions to this problem which will make the necessary record keeping required for most Bitcoin users rather invisible.

The problem is, the Feds love love love to do social engineering via the tax code. Give the masses and incentive to do this, and a disincentive to do that. We all know they are going to tax it, just as we know they are going to regulate it (it there anything they just let be? no) I think the worst thing that can happen is we let them pass tax policies that work against it, say for example moving it around from wallet to wallet as I said in my example above.   

IRS did bitcoin a great favor by mitigating regulatory uncertainty.  Now let this thread die please.

As promised:

https://bitcointalk.org/index.php?topic=572437 (https://bitcointalk.org/index.php?topic=572437)

It doesn't really matter until the coins are converted back into cash.
In the scenario you describe I'm assuming you purchased them 1/1/2014 for $500, then a year later sell them for (lets say) $900. If you are: single and not head of household and earn <$36k, single head of household and earn <$48k, married and earn <$72k then your liability in each case is zero. Now if your over those but under $400k your liability on that $400 profit would be $40. It really doesn't matter how much its worth when its moved around or just sits in a wallet, for tax purposes those are unrealized gains and have no liability. It's once you sell it for USD that matters. So you'd pay the tax on your 2015 tax return, if you are rich enough (and hey maybe you are mr. $5000-paintings-in-secure-rooms ;P)


All that aside, in most cases not reporting bitcoin profits doesn't really matter since the IRS doesn't have alot of resources you really only have to worry about claiming bitcoin earnings if you are making serious money off it, any good accountant will tell you the same thing.

I agree - by the time the irs figures out bitcoin's actual potential, the rest of the world will have also figured it out and adopted it in whole or in part, and the government really doesn't have the resources to enforce it. I'm not going to worry about it and probably won't have to for awhile anyway because right now, I'm only a hundredaire.  ;D


It was kind of cool seeing my $400 turn into $500+ without doing any manual labor short of figuring out where the bitcoinwisdom site was again.