Question about US tax Law

[Enjorlas]

The law states you only owe taxes on 'sold' assets. But say during a tax year, I buy Bitcoin, then trade that Bitcoin for Ethereum, and then trade that Ethereum back into Bitcoin. Do I now have to pay on the gain from that trade even though I haven't sold back into dollars?

[Red-Apple]

take a look here: https://bitcointalk.org/index.php?board=74.0 but you will not get the answer to your question here and even if you get any answer you shouldn't really act based on the answer you get here because mostly it is wrong suggestions and some possible trolling.

instead go consult a lawyer and someone that it is his job to know these things completely.

[Enjorlas]

Still looking for answers.

[Tmdz]

They may be considered as Like-kind and you won't owe taxes at tax time.

The irs has no firm laws in place on how to handle these transactions but most people would write up the trade of theses assets as a like-kind trade.  That is the trade won't requires taxes to be paid until you sell them back into usd.

The real question is what proof does the the irs have that you made this exchange, the current system is mostly based on the honor system so probably none.  Also if you trade bitcoins through an exchange that doesn't have your ID, or through a service like shapeshift they will have no idea you made the trade (unless they decide to investigate those accounts).  The less they know the better 

[Enjorlas]

They may be considered as Like-kind and you won't owe taxes at tax time.

The irs has no firm laws in place on how to handle these transactions but most people would write up the trade of theses assets as a like-kind trade.  That is the trade won't requires taxes to be paid until you sell them back into usd.

The real question is what proof does the the irs have that you made this exchange, the current system is mostly based on the honor system so probably none.  Also if you trade bitcoins through an exchange that doesn't have your ID, or through a service like shapeshift they will have no idea you made the trade (unless they decide to investigate those accounts).  The less they know the better 

Thank you, I didn't know there was such a thing as like kind trades. I will be looking into this. You may have saved me thousands of dollars this year! Also, there is no point hiding from the IRS. If I was ever audited I would be forced to provide documentation for all my transactions anyway. But yes, if I New last year what I know now about tax law and ID on exchanges I would have done things differently.

[Tmdz]

They may be considered as Like-kind and you won't owe taxes at tax time.

The irs has no firm laws in place on how to handle these transactions but most people would write up the trade of theses assets as a like-kind trade.  That is the trade won't requires taxes to be paid until you sell them back into usd.

The real question is what proof does the the irs have that you made this exchange, the current system is mostly based on the honor system so probably none.  Also if you trade bitcoins through an exchange that doesn't have your ID, or through a service like shapeshift they will have no idea you made the trade (unless they decide to investigate those accounts).  The less they know the better 

Thank you, I didn't know there was such a thing as like kind trades. I will be looking into this. You may have saved me thousands of dollars this year! Also, there is no point hiding from the IRS. If I was ever audited I would be forced to provide documentation for all my transactions anyway. But yes, if I New last year what I know now about tax law and ID on exchanges I would have done things differently.

Its a pretty decent amount you have been buying then, definitely a good idea to document everything.

Tax guys are pretty comfortable with calling them like-kind and I think the irs has been accepting that.  If the irs were to take a hard stance against that in the future then it would potentially kill the alt-coin market being the tax burden that would bring.

[veleten]

The law states you only owe taxes on 'sold' assets. But say during a tax year, I buy Bitcoin, then trade that Bitcoin for Ethereum, and then trade that Ethereum back into Bitcoin. Do I now have to pay on the gain from that trade even though I haven't sold back into dollars?

it depends if you bought with traceable fiat money i.e. through an exchange with your credit/debit card,Paypal through Coinbase or similar service
but if you mined the coins  then deposited them to an exchange,there is no way IRS will ever be able to trace it unless you declare it yourself
even then there is no clear law on how to treat bitcoin earnings and what tax has to be paid and in what cases
if you want to be a law obiding citizen you can ask a lawyer in your state,but I doubt you would get a definitive answer