Bitcoin startup taxation

[subwoofer12]

I'm going to be launching a bitcoin startup as a LLC later this year, it is a service that we provide that our customers pay for with bitcoin.

The IRS considers bitcoin to be property so I've been reading this page for clarification.
So, I need to report to the IRS each quarter the fair market value of the bitcoins the LLC makes as a profit, am I correct?

My other question is what tax form do I use for this and where exactly on the form do I put the FMV of the bitcoins?
I believe I need to use 1065 for the LLC, and the usual 1040 for myself because the LLC itself isn't taxed (pass-through entity)

[ayesha201006]

It is not just bitcoins, but all crypto from my understanding that you have to worry about.  From what I have read on the subject I think that it is best to consult a tax professional just to be sure.  There are also local regulations to contend with in some areas, and it would be really easy to make a mistake.

You need to report any time a bitcoin is exchanged, not just when it makes a profit.  Kind of like stocks.  So if you buy something with bitcoins you need to translate to the cost of dollars, and compare that to the price when you bought bitcoins.  AFAIK the irs wants us to use FIFO for bitcoin accounting.  This makes tracking purchases and sales needlessly complicated, and I would seriously consider getting some software to track the stuff for your business.  At least this is my understanding, but the irs has been pretty vague on the issue leading me to believe that there will be plenty of court cases to come.

Best of luck!

[subwoofer12]

So if you buy something with bitcoins you need to translate to the cost of dollars, and compare that to the price when you bought bitcoins.

What I find confusing in this is, how exactly does the IRS want us to calculate the fair market value?

For example let's say I make 1000 BTC in one month as profit

Right now 1 BTC is going for 235 on Coinbase Exchange but on Bitstamp they're at 232 USD

235 * 1000 = $235,000
232 * 1000 = $232,000

That's a $3,000 difference, which am I supposed to use? 

[Amph]

It is not just bitcoins, but all crypto from my understanding that you have to worry about.  From what I have read on the subject I think that it is best to consult a tax professional just to be sure.  There are also local regulations to contend with in some areas, and it would be really easy to make a mistake.

You need to report any time a bitcoin is exchanged, not just when it makes a profit.  Kind of like stocks.  So if you buy something with bitcoins you need to translate to the cost of dollars, and compare that to the price when you bought bitcoins.  AFAIK the irs wants us to use FIFO for bitcoin accounting.  This makes tracking purchases and sales needlessly complicated, and I would seriously consider getting some software to track the stuff for your business.  At least this is my understanding, but the irs has been pretty vague on the issue leading me to believe that there will be plenty of court cases to come.

Best of luck!

how they can track back something like monero? not to mention any others random coin that can emerge every day, it's impossible to follow that shit, plus the coin that you see in the altsection are not all the possible existing coins

there can be some dark forum, that is creating additional ones

[subwoofer12]

how they can track back something like monero? not to mention any others random coin that can emerge every day, it's impossible to follow that shit, plus the coin that you see in the altsection are not all the possible existing coins

They can't track Monero, Dash, or even Bitcoin (if you wash the coins). But you must report every capital gain and loss with the current laws, and I don't want to be charged with money laundering/tax evasion. 

Although I do want to pay the minimum amount of taxes possible, I was hoping I could use my Bitcoin earnings to purchase investment properties and avoid the capital gain taxation (1031 loophole) but this isn't currently possible. Even though both are considered property unfortunately they aren't 'like-kind'

https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

[neurotypical]

how they can track back something like monero? not to mention any others random coin that can emerge every day, it's impossible to follow that shit, plus the coin that you see in the altsection are not all the possible existing coins

They can't track Monero, Dash, or even Bitcoin (if you wash the coins). But you must report every capital gain and loss with the current laws, and I don't want to be charged with money laundering/tax evasion. 

Although I do want to pay the minimum amount of taxes possible, I was hoping I could use my Bitcoin earnings to purchase investment properties and avoid the capital gain taxation (1031 loophole) but this isn't currently possible. Even though both are considered property unfortunately they aren't 'like-kind'

https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

But i'll ask this again: How do you report gains if you keep track of it? who in their sane mind has keep track of eeevery single transaction ever? specially as a daytrader, and specially when tons of them happened in defunct exchanges where the databases are lost forever... how then?

[Amph]

how they can track back something like monero? not to mention any others random coin that can emerge every day, it's impossible to follow that shit, plus the coin that you see in the altsection are not all the possible existing coins

They can't track Monero, Dash, or even Bitcoin (if you wash the coins). But you must report every capital gain and loss with the current laws, and I don't want to be charged with money laundering/tax evasion. 

Although I do want to pay the minimum amount of taxes possible, I was hoping I could use my Bitcoin earnings to purchase investment properties and avoid the capital gain taxation (1031 loophole) but this isn't currently possible. Even though both are considered property unfortunately they aren't 'like-kind'

https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

But i'll ask this again: How do you report gains if you keep track of it? who in their sane mind has keep track of eeevery single transaction ever? specially as a daytrader, and specially when tons of them happened in defunct exchanges where the databases are lost forever... how then?

usually the exchange on which you trade, will report everything, there is a trade history, withdrawal history and deposit history, you only need a screen of this and you're done i think

the same can be done if you operate on multiple exchange or you are a miner, signature campign that run bot also keep track of your income(well this is easy you just have your TX coming in your wallet)

[bgibso01]

I actually keep everything in Quickbooks.  My day trading is just an investment account.  I know how much I started with and the diff at end of year will be gain/loss.  My other bitcoin activities are coded as inventory so purchases add to my average costs and sales deduct from it.  As much as I transact, all of mine will be short-term captial gains/losses.  As to the bitcoins value for purchases, the IRS would treat it like barter exchanges.

Good luck on figuring out mining values since they are always accumulating btc.  While not technically correct, the easiest way is to figure the coins you have mined have no basis.  As long as they are short-term sales, there really would be no tax difference.  I'm pretty sure the IRS doesn't have a good handle on this yet either.

[subwoofer12]

who in their sane mind has keep track of eeevery single transaction ever?

I don't think anyone does this in practice, its simply not possible and extremely unreasonable. Like ayesha said:

the irs has been pretty vague on the issue leading me to believe that there will be plenty of court cases to come.

Probably for my scenario I'll just get a custom script written up that pulls the btceusd_avg price once daily, and then multiples by the number of bitcoins made as profit. Hopefully the IRS finds this acceptable 

[djon]

https://rdpmain.com/registration/3610

[ShetKid]

How does the government track all those taxes or earnings if they are all in bitcoin ? Seems it would be hard for them to do that, and I don't expect them to chase someone down if they are earning in bitcoins.

[Amph]

How does the government track all those taxes or earnings if they are all in bitcoin ? Seems it would be hard for them to do that, and I don't expect them to chase someone down if they are earning in bitcoins.

they simply cannot, and it is the primarely reason why they don't like it, and why many countries are trying to stop it, with ridiculous ban and things like that

i guess their only chance is to build bitcoin bank, and encourage average bitcoin users to use them, so they can control at least the bitcoin regulation

[bitcoinsolicitor]

We are often asked this question due to the uncertainty in the worldwide market generally as to where is the best place to start a company for digital currency businesses.  Whilst it is impossible to second guess what will happen worldwide, the UK is certainly an attractive option.  This is because a company can be set up very quickly and the British Government is wanting to become the hub of digital currency businesses. 

It is a massive opportunity for any Government to bring all of the investment and business into their economy and the British Government have identified this and are setting out new regulations which will apply to digital currency businesses.  In doing so, they are setting out the framework required for the industry to not only thrive, but to be trusted and regulated.  Lack of regulation is seen as one of the major hurdles to wider adoption of digital currency which has resulted in many exchanges simply disappearing with currency held on behalf of clients. 

In respect of Tax, again, this is unknown.  At this stage, it appears you will be taxed only on profits made in your business.  This is the most logical way to proceed as any further taxed (that do not currently apply to non digital currency businesses) would be deemed unfair and restrictive of growth.

richard(at)selachii.co.uk

[Danilotot]

I think the day will come when bitcoin will be taxed in all countries, because the goverment will see it come in and out of the big amount of money. so you know the goverment as long as someone sees that through them they will be taxed.

[Jr.]

This is one of the critical issues of us Bitcoin users when we start receiving Altcoin as payment, the best way to know is to consult a legal attorney for their advice and visit the Tax regulating team in your country to ask them... Just to be sure