Capital Gains Taxes (USA)

[plasma1010]

I don't know if there's a better board for this, but I wanted some advice from anyone experienced in Capital Gains through Bitcoins. I currently have some investments and will make some profits by the end of the year, and I am going to have to file taxes in 2016 for this 2015 year. I'm not exactly sure how I go about filing these taxes, and am also wondering if I register an investment business in one of the states, if that would reduce my taxes.

If anyone who has dealt with Capital Gains on BTC and has experience with how to file with the best tax breaks please comment.

[bgibso01]

IRS considers bitcoin property, so yes you will have capital gains.  If you held them for 1 year + 1day or more they are long-term capital gains and get preferential treatment.  As to your basis in them, under the regs you are suppose to use the amount paid for them, or if mined the value you reported as income at the time they were mined.

Hope that helps.

[plasma1010]

IRS considers bitcoin property, so yes you will have capital gains.  If you held them for 1 year + 1day or more they are long-term capital gains and get preferential treatment.  As to your basis in them, under the regs you are suppose to use the amount paid for them, or if mined the value you reported as income at the time they were mined.

Hope that helps.

I have invested $500 in a Bitcoin share, so I have to report $500 to the IRS ? Is the $500 all I have to report regardless of the gains ? What if there are loses ? Do you know what forms I file ? Any idea if registering an investment business would lower my taxable amount ?

Sorry for so many questions, I guess I'll just contact the local IRS office.

[bgibso01]

IRS considers bitcoin property, so yes you will have capital gains.  If you held them for 1 year + 1day or more they are long-term capital gains and get preferential treatment.  As to your basis in them, under the regs you are suppose to use the amount paid for them, or if mined the value you reported as income at the time they were mined.

Hope that helps.

I have invested $500 in a Bitcoin share, so I have to report $500 to the IRS ? Is the $500 all I have to report regardless of the gains ? What if there are loses ? Do you know what forms I file ? Any idea if registering an investment business would lower my taxable amount ?

Sorry for so many questions, I guess I'll just contact the local IRS office.

The $500 you invested is your basis.  You subtract your basis from what you sell it for.  The remaining amount is either a capital gain or a capital loss.  Depending on the length of time you owned it, would determine if it's a short-term or long-term classification.  You will report it on Schedule D of your individual tax return unless you are set up as a company.

[The00Dustin]

You can read about schedule D and any other relevant forms in the published IRS instructions.  Note that I am not a lawyer or an accountant, but I don't believe you report the $500 until you sell.  IOW, if you purchased in 2012, but still hold, then you don't tell the IRS anything yet even in 2015.  However, you should do some research or talk to a professional (accountant/lawyer), because bitcoin is classified and treated differently by different government agencies, and there could be some scenario where you end up needing to report holdings even if it doesn't affect taxes (for instance, if bitcoin were re-classified as a foreign currency by the IRS).

[plasma1010]

IRS considers bitcoin property, so yes you will have capital gains.  If you held them for 1 year + 1day or more they are long-term capital gains and get preferential treatment.  As to your basis in them, under the regs you are suppose to use the amount paid for them, or if mined the value you reported as income at the time they were mined.

Hope that helps.

I have invested $500 in a Bitcoin share, so I have to report $500 to the IRS ? Is the $500 all I have to report regardless of the gains ? What if there are loses ? Do you know what forms I file ? Any idea if registering an investment business would lower my taxable amount ?

Sorry for so many questions, I guess I'll just contact the local IRS office.

 Depending on the length of time you owned it, would determine if it's a short-term or long-term classification.  You will report it on Schedule D of your individual tax return unless you are set up as a company.

So as I understand, Long-term classification was the Year + 1 day you were talking about, which is a better investment bracket ?

How would registering a business affect my investmented taxable amount compared to individual ? Is it a reduction ?

Something else that confuses me, is simply byuing bitcoins through a wallet like Coinbase or Circle from my bank account, holding until the price rises, then selling and making profit considered a capital gain / loss ?

I'll look into Schedule D.

[bgibso01]

So as I understand, Long-term classification was the Year + 1 day you were talking about, which is a better investment bracket ? Correct. Long-term Captial gains are taxed at a lower rate than normal gain or income.

How would registering a business affect my investmented taxable amount compared to individual ? Is it a reduction ?If you get in the 'business' of buying/selling it would be similar to a broker in which case you are dealing with self-employment income tax and possible other issues (hobby/loss rules, etc.).

Something else that confuses me, is simply byuing bitcoins through a wallet like Coinbase or Circle from my bank account, holding until the price rises, then selling and making profit considered a capital gain / loss ? Yes.  The IRS considers BTC property which therefore would be a capital gain/loss.

I'll look into Schedule D.

[bitcointaxes]

I have invested $500 in a Bitcoin share, so I have to report $500 to the IRS ? Is the $500 all I have to report regardless of the gains ? What if there are loses ? Do you know what forms I file ? Any idea if registering an investment business would lower my taxable amount ?

Sorry for so many questions, I guess I'll just contact the local IRS office.

You don't have to report anything if all you did is buy Bitcoin.

But spending or selling them might incur capital gains. This is the difference between the amount you sold and what you bought.

You should also include any losses, since it is in your best interest, as they can offset any other gains you might have (e.g. stocks) or income taxes.

See here:

https://bitcoin.tax/blog/filing-your-bitcoin-taxes/

[Amph]

if you want to avoid taxes at all, just pay in bitcoin directly, and never exchange them, even if they track you, they can't do shit, because bitcoin it self isn't taxable, is just the gain in fiat that it is

[bgibso01]

if you want to avoid taxes at all, just pay in bitcoin directly, and never exchange them, even if they track you, they can't do shit, because bitcoin it self isn't taxable, is just the gain in fiat that it is

Not technically (legally) correct.  That would fall under the barter rules for tax purposes.  And the IRS has already issued rules for how to value the bitcoin when you receive it if other than purchase.

[Bitware]

if you want to avoid taxes at all, just pay in bitcoin directly, and never exchange them, even if they track you, they can't do shit, because bitcoin it self isn't taxable, is just the gain in fiat that it is

This is very bad advice that can get you in trouble if you follow it.

[Amph]

if you want to avoid taxes at all, just pay in bitcoin directly, and never exchange them, even if they track you, they can't do shit, because bitcoin it self isn't taxable, is just the gain in fiat that it is

Not technically (legally) correct.  That would fall under the barter rules for tax purposes.  And the IRS has already issued rules for how to value the bitcoin when you receive it if other than purchase.

can you point me that rules? because i know that bitcoin itself are not taxable, but only their conversion in fiat, and also it does not make sense

i can use bitcoin to buying used thing or food, and they won't track back something like this it's purely impossible...

if you want to avoid taxes at all, just pay in bitcoin directly, and never exchange them, even if they track you, they can't do shit, because bitcoin it self isn't taxable, is just the gain in fiat that it is

This is very bad advice that can get you in trouble if you follow it.

how so? something like this could only help adoption(as long as everyone will do it, merchants too), because it prevent dumping btc for fiat

[bitcointaxes]

can you point me that rules? because i know that bitcoin itself are not taxable, but only their conversion in fiat

http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance

Bitcoin itself isn't taxable, no, but exchanging for fiat isn't the only taxable event. Bartering is also a tax event, which includes spending or trading altcoins, for example.

i can use bitcoin to buying used thing or food, and they won't track back something like this it's purely impossible...

The US tax system is an honor system. If you generate gains from spending Bitcoins that have increased in value, you are supposed to declare it. Poor recordkeeping is not an excuse if you were audited.

how so? something like this could only help adoption(as long as everyone will do it, merchants too), because it prevent dumping btc for fiat

It's bad advice because it's wrong.

[bgibso01]

can you point me that rules? because i know that bitcoin itself are not taxable, but only their conversion in fiat

http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance

Bitcoin itself isn't taxable, no, but exchanging for fiat isn't the only taxable event. Bartering is also a tax event, which includes spending or trading altcoins, for example.

i can use bitcoin to buying used thing or food, and they won't track back something like this it's purely impossible...

The US tax system is an honor system. If you generate gains from spending Bitcoins that have increased in value, you are supposed to declare it. Poor recordkeeping is not an excuse if you were audited.

how so? something like this could only help adoption(as long as everyone will do it, merchants too), because it prevent dumping btc for fiat

It's bad advice because it's wrong.

This is probably the same link in pdf form : http://www.irs.gov/pub/irs-drop/n-14-21.pdf

But yes, the advice goes against published IRS guidance.

[Bitware]

if you want to avoid taxes at all, just pay in bitcoin directly, and never exchange them, even if they track you, they can't do shit, because bitcoin it self isn't taxable, is just the gain in fiat that it is

This is very bad advice that can get you in trouble if you follow it.

how so? something like this could only help adoption(as long as everyone will do it, merchants too), because it prevent dumping btc for fiat

Because bartering is a taxable event per IRS http://www.irs.gov/taxtopics/tc420.html ... and not paying your taxes for your bartering will get your assets seized and forfeited, with additional penalties, fines, costs and imprisonment for nonpayment of taxes and criminal charges of tax evasion.

[Amph]

if you want to avoid taxes at all, just pay in bitcoin directly, and never exchange them, even if they track you, they can't do shit, because bitcoin it self isn't taxable, is just the gain in fiat that it is

This is very bad advice that can get you in trouble if you follow it.

how so? something like this could only help adoption(as long as everyone will do it, merchants too), because it prevent dumping btc for fiat

Because bartering is a taxable event per IRS http://www.irs.gov/taxtopics/tc420.html ... and not paying your taxes for your bartering will get your assets seized and forfeited, with additional penalties, fines, costs and imprisonment for nonpayment of taxes and criminal charges of tax evasion.

ok, the problem here is not the illegality of the thing, but how they can track me back if , for example i use bitcoin to buy directly second hand stuff...there is no way they can this

i find really hard for them following all those kind of private selling/buying..

also taxing a second hand thing sound not right  at all, because you know...that thing had already been taxed

can you point me that rules? because i know that bitcoin itself are not taxable, but only their conversion in fiat

http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance

Bitcoin itself isn't taxable, no, but exchanging for fiat isn't the only taxable event. Bartering is also a tax event, which includes spending or trading altcoins, for example.

i can use bitcoin to buying used thing or food, and they won't track back something like this it's purely impossible...

The US tax system is an honor system. If you generate gains from spending Bitcoins that have increased in value, you are supposed to declare it. Poor recordkeeping is not an excuse if you were audited.

how so? something like this could only help adoption(as long as everyone will do it, merchants too), because it prevent dumping btc for fiat

It's bad advice because it's wrong.

This is probably the same link in pdf form : http://www.irs.gov/pub/irs-drop/n-14-21.pdf

But yes, the advice goes against published IRS guidance.

if you read carefully my first quote, you notice that there isn't any advice, i just said that you won't be tracked back, not that you should'n declare your income

[bgibso01]

you read carefully my first quote, you notice that there isn't any advice, i just said that you won't be tracked back, not that you should'n declare your income

One of the ways they used to use was called a taxpayer compliance audit.  They would look at everything.  How you lived, what went through the banks. What was reported as income. If your standard of living was higher than what was verified, you had some explaining to do.  A 'properly trained' field agent should ask about wallets and cryto currency.

But since you say it wasn't advice, I'd say you are probably 70% correct at the present time small amounts would not be tracked back as it would not be worth the added expense.

[lucasjkr]

IRS considers bitcoin property, so yes you will have capital gains.  If you held them for 1 year + 1day or more they are long-term capital gains and get preferential treatment.  As to your basis in them, under the regs you are suppose to use the amount paid for them, or if mined the value you reported as income at the time they were mined.

Hope that helps.

I have invested $500 in a Bitcoin share, so I have to report $500 to the IRS ? Is the $500 all I have to report regardless of the gains ? What if there are loses ? Do you know what forms I file ? Any idea if registering an investment business would lower my taxable amount ?

Sorry for so many questions, I guess I'll just contact the local IRS office.

We're past April 15, but you're talking about next years taxes not this years, right?

When did you make your investment?

If it was less than a year before you sell it, it's taxed as a short term gain which is the rate of ordinary income. If it's over a year, then it's long term gain, which is taxed at a much lower rate, depending on your total income.

Forming a business to try to lower the taxes on a $500 purchase doesn't seem worth it; first there's the expense of forming the business itself, and I can't imagine what expenses you'd hope to claim to reduce your gain that you couldn't claim on your own.

(Not a tax professional, don't consider this advice, just my thoughts based on the little you shared)

Oh and the form for reporting gains and losses is schedule D

[plasma1010]

IRS considers bitcoin property, so yes you will have capital gains.  If you held them for 1 year + 1day or more they are long-term capital gains and get preferential treatment.  As to your basis in them, under the regs you are suppose to use the amount paid for them, or if mined the value you reported as income at the time they were mined.

Hope that helps.

I have invested $500 in a Bitcoin share, so I have to report $500 to the IRS ? Is the $500 all I have to report regardless of the gains ? What if there are loses ? Do you know what forms I file ? Any idea if registering an investment business would lower my taxable amount ?

Sorry for so many questions, I guess I'll just contact the local IRS office.

We're past April 15, but you're talking about next years taxes not this years, right?

When did you make your investment?

If it was less than a year before you sell it, it's taxed as a short term gain which is the rate of ordinary income. If it's over a year, then it's long term gain, which is taxed at a much lower rate, depending on your total income.

Forming a business to try to lower the taxes on a $500 purchase doesn't seem worth it; first there's the expense of forming the business itself, and I can't imagine what expenses you'd hope to claim to reduce your gain that you couldn't claim on your own.

(Not a tax professional, don't consider this advice, just my thoughts based on the little you shared)

Oh and the form for reporting gains and losses is schedule D

So what you are saying is I will not get significant tax reductions if I form a business for trading Bitcoins ? I have more then $500 in investments.