how to report bitcoin earnings

[Millionero]

Since 2013, I've been buying and selling bitcoin, reporting capital gains and losses on a FIFO basis.  Which by IRS rules means I have to keep using FIFO.
Consider this scenario:
my client owes me, say $8000 and sends me one bitcoin worth $8000.  So far so good, right?
But I have a bag of coins I bought at cheap prices.
And if I want to cash out the 1 BTC that the client sent, by the rules of FIFO, I can't. I have to sell the oldest coin in my bag.
See the problem?

[Millionero]

I just found the IRS "guidance" on how to determine the basis of crypto earnings, and it's good news.

Q-3: Must a taxpayer who receives virtual currency as payment for goods or
services include in computing gross income the fair market value of the virtual
currency?
A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services
must, in computing gross income, include the fair market value of the virtual currency,
measured in U.S. dollars, as of the date that the virtual currency was received. See
Publication 525, Taxable and Nontaxable Income, for more information on
miscellaneous income from exchanges involving property or services.
Q-4: What is the basis of virtual currency received as payment for goods or
services in Q&A-3?
A-4: The basis of virtual currency that a taxpayer receives as payment for goods or
services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the
date of receipt. See Publication 551, Basis of Assets, for more information on the
computation of basis when property is received for goods or services.

Q-10: Does virtual currency received by an independent contractor for
performing services constitute self-employment income?
A-10: Yes. Generally, self-employment income includes all gross income derived by
an individual from any trade or business carried on by the individual as other than an
employee. Consequently, the fair market value of virtual currency received for services
performed as an independent contractor, measured in U.S. dollars as of the date of
receipt, constitutes self-employment income and is subject to the self-employment tax.

https://www.irs.gov/pub/irs-drop/n-14-21.pdf

[squatter]

Since 2013, I've been buying and selling bitcoin, reporting capital gains and losses on a FIFO basis.  Which by IRS rules means I have to keep using FIFO.
Consider this scenario:
my client owes me, say $8000 and sends me one bitcoin worth $8000.  So far so good, right?
But I have a bag of coins I bought at cheap prices.
And if I want to cash out the 1 BTC that the client sent, by the rules of FIFO, I can't. I have to sell the oldest coin in my bag.
See the problem?

Maybe you should incorporate a company for this. It's fairly easy and cheap. That way, you should be able to separate your personal Bitcoin investments from your company's since receivables from your client become company assets, not your personal assets.

The tax treatments discussed earlier would obviously change, but it sounds like it might be worth it for you.

[Naida_BR]

I'd like to hear from people who have been paid in bitcoin and how they reported it on their taxes.
Before we go any further, please don't waste bandwidth by *advising* me not to report my income.

The situation:

Doing remote work for an overseas client.  This client pays me in bitcoin.  I don't get a 1099 from this person.

As I understand, my income is the amount the bitcoin was worth when the client sent it -- regardless of whether I sell the bitcoin immediately or hold it (hodl).
This will be reported  as self-employment income (since I don't have a corporation) on Schedule C.
If I hold the coins and sell them later, there may be capital gain or loss to be reported separately on Schedule D.

Is there something I'm missing?

You should state your country as well in your post.
Taxation laws are different in each and every country so taking advise from people in here will not help at all. In my opinion, I would suggest you to pay a visit to your accountant and ask him on how this income should be reported.

[Millionero]

Since 2013, I've been buying and selling bitcoin, reporting capital gains and losses on a FIFO basis.  Which by IRS rules means I have to keep using FIFO.
Consider this scenario:
my client owes me, say $8000 and sends me one bitcoin worth $8000.  So far so good, right?
But I have a bag of coins I bought at cheap prices.
And if I want to cash out the 1 BTC that the client sent, by the rules of FIFO, I can't. I have to sell the oldest coin in my bag.
See the problem?

Maybe you should incorporate a company for this. It's fairly easy and cheap. That way, you should be able to separate your personal Bitcoin investments from your company's since receivables from your client become company assets, not your personal assets.

The tax treatments discussed earlier would obviously change, but it sounds like it might be worth it for you.

Yes, someone who receives bitcoin payments has two choices.
One choice is to operate as a sole proprietor, using a single exchange account and keeping track of which bitcoins sold in the tax year came from personal capital assets versus which bitcoins sold in the tax year were those received as payments.  If using tax software that automatically imports transactions from your exchange account, then it would be necessary to manually add transactions to the log, because the exchange has no record of the buy price (basis) for the bitcoins you received from the clients.
The other choice is to establish a separate exchange account in the name of an LLC or corporation to handle payments, thus keeping business income segregated from the personal trading of "capital assets," in IRS lingo.
A sole proprietor isn't required to establish separate personal and business accounts, but in this case it might be worth it to avoid bookkeeping hassles.  And if god forbid one gets audited, to avoid having to face a skeptical and ill-informed auditor to explain why the transactions that you reported on your tax return don't match the records in your exchange account.
~sigh