Title: In-person cash to btc purchases tax document requirements? Post by: smoothie on February 13, 2015, 11:35:46 PM Please give me your take on the following scenario...
(This is assuming everything in red below is true for person A as well as: person A sends bitcoins to -> licensed bitcoin exchange person A has an exchange account in person A's name and sells for USD and sends USD to a bank account in their name as well.) DIAGRAM for simplicity: CASH PERSON A gives ---------> Person B in person BTC PERSON B sends --------> Person A's BTC address (personal wallet or exchange address) BTC PERSON A converts ---------> at a profit or loss to USD on licensed exchange USD PERSON A sends ----------> to PERSON A's bank account Question: What documentation would person A be required to have for tax purposes for capital gains losses aside from exchange transactions for person A's account with said exchange and bank statements showing incoming ACH/wire transactions? Moreso...Are there any MSB registering requirements for the Person A? Here is something FINCEN posted in Jan 2014. LINK: http://www.fincen.gov/news_room/nr/html/20140130.html Quote The second states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter. The rulings further interpret FinCEN’s March 18, 2013 Guidance to address these business models. Any input? Title: Re: In-person cash to btc purchases tax document requirements? Post by: Bitcoin CPA on February 14, 2015, 04:23:16 PM Ok let's say you paid Mr. Jones $1,000 in cash. Are you using localbitcoins.com?
* if you are being super-conservative, you would get a cash receipt from Mr. Jones for $1,000. But I would recommend keeping a record of the date, person's name (in this case, Mr. Jones), and an accounting entry debiting "Bitcoin Receivable" and crediting "Cash" for $1,000. This is where good bookkeeping comes in which is another service that I offer :) Mr. Jones sends 4 BTC to your wallet. So your cost basis for each BTC is $250, what you paid. scenario (A) accounting entries would be a debit to "Bitcoins" and a credit to "Bitcoin Recievable" for $1,000 scenario (B) as you and I both know, BTC prices change fast ... so if by the time you receive the 4 Bitcoin and the price dropped to $225 then you debit "loss on Bitcoin trades" for $100 and "Bitcoins" for $900 ... then a credit to "Bitcoin Receivable" for $1,000 Smoothie converts the BTC to cash on BTCe at $275 a BTC for a total of $1,100 (A) you would debit "Cash" for $1,100 and credit "gain on Bitcoin trades" for $100 and "Bitcoins" for $1,000 (B) you would debit "Cash" for $1,100 and credit "gain on Bitcoin trades" for $200 and "Bitcoins" for $900 Smoothie sends $1,100 cash to his/her bank account. in both scenarios, debit to your "bank account" for $1,100 and credit to "cash on BTCe" for $1,100 The documentation that I would recommend is your accounting or bookkeeping entries (if audited explain that obtaining a cash receipt from Mr. Jones was impractical), hard-copies of the transactions on your exchange showing the prices of the BTC when received and converted, and a copy of the deposit to your bank account .... where most people screw up is they only have documentation of the bank deposit and count the entire $1,100 as a gain which is incorrect. You have to keep track of the cost basis of your Bitcoins. In both scenarios above, you only had a $100 gain, not $1,100. I would strongly argue that "No" you are not a Bitcoin Exchange. Bitcoin Exchanges do thousands of transactions a day. Also, if challenged by IRS, you could argue that you are a Bitcoin investor. The tax and legal rules on Bitcoin are very gray. Lastly, I would advise that you discontinue person-to-person transactions. They are too risky and you might be dealing with an undercover law enforcement agent. Sell and buy on-line using Western Union on LocalBitcoins.com Hope that this helps. If you have more questions, call me at 410-209-9365. |