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Who needs lawyers, just ask Bitcointalk, you can't lose...
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you are not avoiding taxes. you are paying all the taxes which you are due to pay, which in your scenario will be $0. Congratulations! You are doing it the right way.
See paying little to no taxes isn't that hard. You have a good accountant, you have good records, you have realistic expectations, and you treat taxes as another cost of doing business. You my friend are a great tax client. I wish you were my client. Your accountant should give you a big fat hug for being a good client. Without giving any specific tax advice, your scenario looks to be on point. You can sleep well at night. <<<------this comment was for informational and entertainment purposes only. No tax advice was given.
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.. it would also help to know where the communication was made (to confirm that they could officially provide the input "not a capital asset"). Assuming the communication was made in the appropriate place...
I asked the question here http://www.irs.gov/uac/Help-With-Tax-Questions-2You need to get a covered opinion. |
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I am not an accountant, so please correct me if this is incorrect.
I'm assuming that you are someone who is trying to follow ALL the rules as best as they can (and many of them are unclear right now).
Here is a hypothetical scenario:
- You mine a coin a day for the month of November. Bitcoin is at $1000, so you mine 30 coins worth $30,000.
You would owe income tax on those coins, on that $30,000.
- Now let's say bitcoin crashes to $10 in December. You sell off the 30 coins for $300 and take a $29,700 loss.
You can declare that as a capital loss on your taxes.
Now the problem is the 30 coins you mined aren't a capital gain, they are declared as income. So you can't deduct the $29,700 capital loss from them. You can only deduct up to $3,500 per year off of your income.
So you'll be stuck owing taxes on $26,500 and have no money to pay it as your coins only earned you $300 in fiat!
This seems pretty scary. Am I wrong in this scenario or is this really what would happen?
This is exactly what would happen in your scenario. You owe income tax. You will have a separate capital loss deduction. You must treat your two activities as two separate businesses. One is your mining business, which by consensus, is to treat it as ordinary income. The second is your investing business. It would be the equivalent of working at a programming job that pays you in bitcoins. That's your salary. You need to pay income tax on your salary. Then you decide to hold onto those bitcoins as an investment. Your investment goes sour and you cash out at a loss on your investment. Your investment loss doesn't change the fact that you earned income from your work, and therefore must pay ordinary income tax on that work. |
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Maybe you could tell us what question you asked? I think the 12/9 refers to when they responded to your question, not anything to do with bitcoin itself.
I basically asked: "I recently sold some bitcoins with some profit, though I am not sure which tax applies to them if any. Is there any guidance from IRS regarding bitcoins?" If that is the entire text of your question to the IRS, then the IRS simply determined that your question was incomprehensible and gave you a similarly incomprehensible response. You must describe in full detail your ENTIRE tax situation. The IRS will then return with a written response. This guidance still may or may not answer your question. But at the very least, you must first ask the right questions before you expect the right answers. |
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Moreover, does the IRS care what FinCen thinks?
IRS only cares about how much of your pie they get to eat. |
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anyone interested in art from the Detroit Institute of Arts http://www.dia.org/ Could be a good opportunity. |
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I realize the OP is trolling...
But this post brings up a good topic of conversation. Bitcoins are an asset and a source of wealth and will be divided in divorce. I'm sure bitcoins will come up in someones divorce sooner rather than later. I'd love to read that court case.
To paraphrase "Mo' bitcoins mo' problems"
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you are correct that accountants are not always right. Law, and especially tax law, is a lot more art than science. Interpretation and negotiation are a big part of tax advising. In some areas of tax law, and I believe bitcoin taxation is one of those areas, there are no lines. It's much more impressionist art than realism. Just make sure the tax picture you are painting is not fraudulent art.
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I don't know why anyone would consider reporting the value of something that swings wildly like this, valuation is a momentary occurrence with BTC. Your significant unrealized gain could flip to become a heavy loss in January, only when realized upon exchange do you have a reportable event.
You can't report any value unless you have bitcoins converted to dollars. I mean report the value based on what? MtGOX? Isn't that ridiculous? Completely agree... simple thing people should ask themselves: Would you pay taxes on a baseball card that has gone up in value? How about artwork or a collectible vintage wristwatch? Of course not! Only exception is if it is sold for a cash profit or loss, meaning it must be sold to realize the gain/loss event. I don't know why anyone would even consider opening the Pandora's box of tax reporting without a report-able event. Bitcoins are like Beanie Babies, only difference is there are several exchange platforms. However, until one of those exchange platforms is used there is nothing to report. I see a grey area opportunity in exchange for gift cards. Exchange BTC for WalMart gift cards and buy groceries or staple items there. If you sold a $5,000 baseball card for cash you might have some pressure to report a gain, assuming you are an honest Abe type; but exchange that baseball card for merchant services at a place you would spend money anyways, hmmmm... Until we are told how to treat BTC we should treat it as a collectible good, nothing more nothing less. Food for thought, not giving advice but really unless you convert to cash there is no taxable event to speak of and you would be asking for unwanted attention and paying unnecessary taxes. I like the way you think. Of course as a professional I cannot advise anyone to do anything outside of the law, I will say that the law is very gray in everything that is related to bitcoins and taxation. Of course this causes a lot of questions and unease. But it also creates opportunities as well for those who have the knowledge and are willing to take risk. Taxation is very much like markets, people take risks, sometimes they pay off, sometimes they lose. |
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I confirm everything the above poster wrote.
If you don't want to go through creating and running a charity, which is actually not that hard but does require actively administrating charitable activities and not just simply collecting donations and disbursing funds, then you can act as a bundler. Follow the above steps to be a bundler.
Acting as a bundler is the answer to your follow up question.
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but how does one prove when he purchased his BTC? what if i purchased it say 2 years ago, but in 1 year i want to sell off some coins and want to claim that i bought it 1 year prior.. i'd effectively pay significantly less since the value of BTC today is $1,000 more than last year, and it'd be 15% only.
you prove your purchases and sales by having good records. in an audit situation, the IRS generally will accept your records as long as they meet their standards for good recordkeeping, must have quantity, price, buy/sell dates. if you want to lie about your records, then you go ahead and lie on your taxes and suffer the consequences if you get caught. if you don't get caught, then you don't get caught. how will the IRS know if you are lying? well... |
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Before you file the Form 1023 (the IRS application for 501c3 status) you need to...
1) Incorporate as a non for profit corporation in your state. Go to your state's Department of State and you can file the paperwork. NOTE make sure you include the required IRS language in your incorporation docs so when it's time to file Form 1023, you have it covered. The required language covers purpose, beneficiaries, dissolution.
2)Once the incorporation is done, file Form SS-4. Can be done online at irs.gov.
3) Then file form 1023 to get 501c3 recognition.
4) Also you will have to file a state equivalent for the form 1023, depending on which state you are in.
5) Also a good idea to have by laws written for you during step 1, although by laws are not required in the form 1023 process. by laws for non profits can be found for free online. These boilerplate by laws usually work for 99% of non profits out there.
If you still need advice or service, let me know. I'm not on here too much. I've sent you a PM.
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US / IRS: has the IRS provided any guidance on virtual currencies yet? If I had to file today my stance would be to file gains as an asset-based capital gain that would be calculated very simply as follows: Bill bought 1.0 BTC on 6/1/2013 for $10 Bill sold 1.0 BTC on 11/22/2013 for $890 (you can also deduct trade/wire fees, e.g. coinbase) Bill reports $880 in long terms capital gains (an capital asset held for more than 1 year). But what the real questions becomes, is how does the IRS classify bitcoin? Searching for "bitcoin" at irs.gov yields 0 results. Is it a commodity or a currency or capital asset? Forbes weighs in here http://www.forbes.com/sites/robertwood/2013/05/02/irs-takes-a-bite-out-of-bitcoin/: "In the meantime, the tax rules seem pretty clear. If you provide services or sell goods for Bitcoin, you have income. If you exchange Bitcoins for cash, whether you have gain may depend on whether Bitcoin is really currency or commodity. The latter seems more likely, meaning you have gain to the extent of the appreciation in your Bitcoin." It's strange to start out the comment with "the rules seem pretty clear," because I was thinking just the opposite. And then there's the question to file anything on a schedule D in the first place. You have to name the asset so is this putting yourself on a federal radar by listing "bitcoin" or "digital currency asset" or the like in column A? If you made a few $K or less it might be a wait-and-see approach but if you made more than that and you're lucky enough to get a field audit they are going to want to know what those $10k+ deposits are. One approach may be to just file it under "other income" and pay income rates. This may even be preferable for some folks who have no other income. If you file MFJ you get to almost $90k before rising out of the 15% bracket anyhow. But if you're already in a pretty high bracket there's a big difference between LTCG (20%) or short term gain (28%) and the highest income bracket (39.6%) [note that there's an additional 3.8% tax for obamacare I think that affects some people's investment income, which would be added to the long/short 20/28% investment rates: https://www.fidelity.com/viewpoints/personal-finance/taxpayers-guide) Anyway, let's kick off the discussion for US-based folks. With BTC up 30,000% in 2 years, you can bet your bippy the IRS is watching. What are people's thoughts (especially accountants!!!  ) My thoughts, as an accountant, is for you to go find yourself a good accountant and pay him to think about this for you. TLDR in any event, I'm glad you're thinking about taxes. I will kick off this thread by stating my position for bitcoin taxation as simply as I can, which for an accountant is a hard task. When you file your taxes, claim your bitcoins as capital gains. You will sleep better doing it that way. Don't waste your time thinking of ways to reduce your tax bill. |
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You report all transactions delineated by date of purchase and date of sale.
Your losses will offset your gains. Your tax owed will be calculated on 5K profit.
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If what you are describing is shorting BTC on Jan 1 and then buying back on Dec 31, then you will report capital losses ($3000 max per year with future year carryovers). Go to form 8949, input basis price as the Dec 31 price, sales price as Jan 1 price, and indicate short sale. Let me know if you understand how to do this or require further help. http://www.irs.gov/pub/irs-pdf/i1040sd.pdfpage D-5 |
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I suggest spending 20 bucks on domain and web hosting.
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I'd like to do my part to help out the community by offering tax, accounting and business consulting services.
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in HK atm. I'm looking to trade.
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I also sent some PM's. look forward to hearing back from you all.
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