Hi! Bitcoin trader from Australia here, and although my situation is different from yours, I can answer some of your questions.
I was told b/c im sending bitcoin to a sportsbook and it converts into usd... im actually selling bitcoin. Is this true? Does that mean i have to pay tax on it the moment it convert into usd in my sportsbook acct?
Yes, you are selling bitcoin, and yes, you may have a capital gains tax liability as a result.
Example if i bought 5000 dollars worth of bitcoin and send it to blockchain then to heritage sports, i know it wont shows exactly $5000 in my heritage acct b/c bitcoin prices change a lot. So it might be $4950, might be $5020 etc. Thats true right?
Right, and the difference is taxable income. In your example, if you get $5020, you would owe capital gains tax on the $20 profit. If you get $4950, you have a $50 capital loss which may (I'm not sure how it works in the U.S.) be tax deductible.
So if thats the case and true, then say i have just a small 3 dollar profit.... does that mean i have to pay tax on it? I pay taxes for poker and sportsbetting but the thing is this is just a small conversion and im not even withdrawing it yet... b/c if i withdraw it... assumign its in bitcoin, then the same 5003 dollar when i withdraw it to my bitcoin wallet might be a bit less than that.
There is no tax liability incurred when converting dollars to bitcoins, however you must record the value so you can work out your net capital gain/loss when you later sell/trade them.
I file my taxes for online poker winnings and sportsbetting if any... but are little thigns like this going to be a huge problem though?
Not really. Capital gains tax is not as difficult as some people say it is, provided you keep careful records of each transaction. Your accountant can help you here.
Are bitcoin buying and converting recorded?
Yes. Although exchanges and similar institutions don't report directly to the IRS, the IRS could subpoena their records if you get audited.
Thus the last thign i want is to have my taxes reported with my acct for my poker winnings... then later on i found out i had some 3 dollar profit on bitcoin that i have some minor issue with my taxes that i didnt know about if thats true.
That's not generally a problem. If the IRS discovers a minor issue with your taxes, they'll usually just send you an amended assessment. Only for major inconsistencies or outright fraud do the big penalties come into play.
read that if you don't convert your bitcoin to your bank acct, then you dont' have to report it. Is that true?
No. You're perhaps less likely to be caught if you don't, just as if you get paid in cash instead of directly to your bank account, but you still have to be report it either way.
I read bitcoin deals with capital gains so does that mean unless i withdraw it back to usd, then i dont? The thing here with gambling taxes is it doesn't matter if you withdrew or not. Example say for the year i was up 60k. I only withdrew 25k. On my taxes, i have to report 60k, not 25k even though 25k is all i withdraw.
Be careful with your terms. "Withdrawing" bitcoin means taking bitcoins from one institution and depositing them somewhere else (without converting them to dollars). This is of absolutely no relevance to your tax situation. If, on the other hand, you are converting bitcoins to dollars, you are actually
selling them, and you have a tax liability if you sell them for more than what you bought them for, the same as if you'd sold anything else for profit. You only owe capital gains tax on what you actually sell.
Just curious if someone were to have really small capital gains like even $1, do you have to report it?
There may be reporting exemptions for small transactions, I'm not sure. Ask your accountant.
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