Capital gains and Bitcoin

[realnowhereman]

Let's say you are a tax paying citizen, and have no wish to hide your earnings.  Let's also say that Bitcoins are not threatened by government, but are allowed to peacefully coexist.

Dealing with Bitcoins for tax purposes means that any profits you make from them are liable for capital gains tax.  However, that tax is only due at the moment you convert them back into your native currency.

I have two questions for those who know more about tax than I do:

• If I convert BTC to USD on Monday, then that same USD to BTC on Tuesday, is capital gains tax still due?  If it is, then would it be better to wrap all one's BTC transactions in a holding company, so that profit becomes the element that is taxed?
• If the answer to the first question is "no", then what stops me converting all my gross income to Bitcoins and declaring no net income?  I can then drip my Bitcoins back to native currency (if I even have to) as I need to and in this way use Bitcoins to smooth my tax bill over the lean years and fat years.
  

These are hypothetical, and probably based on a flawed understanding of taxation.  I have only the familiarity with taxation that your average non-investing citizen would (i.e. I've never paid capital gains tax because I've never made a capital gain).

[1714845858]

1714845858

[benjamindees]

This assumes Bitcoins represent capital.

[ColdHardMetal]

Just because something follows the letter of the law doesn't mean it's always allowed.  'Tax avoidance' is allowed 'abusive tax avoidance' isn't, look it up.

Tax evasion is the term you're looking for. Avoidance is fine as you said.

[realnowhereman]

Jeez.  Yes you're all so clever.  It's damned near impossible to get a straight answer in this forum for all the people falling over their egos.

It's a hypothetical.  Yes it assumes Bitcoin is capital (since that's what HMRC has said they would treat it as), yes tax evasion is illegal, what has any of that to do with my questions?

Tell you what, cross out the word "bitcoin" in my question and replace it with "gold".

[AntiVigilante]

Jeez.  Yes you're all so clever.  It's damned near impossible to get a straight answer in this forum for all the people falling over their egos.

It's a hypothetical.  Yes it assumes Bitcoin is capital (since that's what HMRC has said they would treat it as), yes tax evasion is illegal, what has any of that to do with my questions?

Tell you what, cross out the word "bitcoin" in my question and replace it with "gold".

No it's not sarcastic. Bitcoin has the potential to become some kind of 3 axis complex number thingie with a value of r^2 = x^2+y^2+z^2. Then what kind of capital is it?

[benjamindees]

Then yes in that case your plan is perfectly legit.  It's not at all "abusive" or whatever others said.  In fact, it's exactly the way taxes are designed to work in a rape-and-pillage-based Anglo-Saxon economy.  During the looting years, you are expected to grab as much as possible.  And then in-between lootings, you live off of your booty.  This makes the job of your monarch easier since she doesn't have to find new targets and perpetrate false-flag-ops and whatnot quite as often.

[AntiVigilante]

This makes the job of your monarch easier since she doesn't have to find new targets and perpetrate false-flag-ops and whatnot quite as often.

I love it. Just another sign of how much ground they've lost.

[Grant]

Jeez.  Yes you're all so clever.  It's damned near impossible to get a straight answer in this forum for all the people falling over their egos.

It's a hypothetical.  Yes it assumes Bitcoin is capital (since that's what HMRC has said they would treat it as), yes tax evasion is illegal, what has any of that to do with my questions?

Tell you what, cross out the word "bitcoin" in my question and replace it with "gold".

Ignore the trolls, they just love to make fool of themself

Answer is yes you can substract if you deposit later or before same year from the "capital gain" you report.

So ie:

Withdraw 1000 $ on monday
Deposit 900 $ on tuesday

You report then only 100 $ as income

[realnowhereman]

Then yes in that case your plan is perfectly legit.  It's not at all "abusive" or whatever others said.  In fact, it's exactly the way taxes are designed to work in a rape-and-pillage-based Anglo-Saxon economy.  During the looting years, you are expected to grab as much as possible.  And then in-between lootings, you live off of your booty.  This makes the job of your monarch easier since she doesn't have to find new targets and perpetrate false-flag-ops and whatnot quite as often.

What on Earth of you talking about?

I'm asking how the tax system works, not how to scam the tax system.  I did say that as the very first sentence.  It's a question not "a plan".  I am asking it of others who know more than I.

I'll ask another way: if I make profit on a capital gain, then that tax is only due when the gain is realised (this I know); what I'm asking is that if one realised a gain and then waited a day and fed that gain back into the same asset you had liquidated, is their still tax due?  Essentially: does "unrealising" a gain negate "realising" a gain?

If so then, if one were a regular trader, would it be better to reorganise ones affairs so that a shell company does all the trading, and then only when a final annual profit is realised aggregated over all trades is there tax to pay.  i.e. you aren't accumulating a tax liability every time you happen to think today is a good day to sell, knowing full well that tomorrow you will buy back again.

This sort of thing is done every day by millions of people.  Organising your affairs to minimise your tax bill is not illegal, and it certainly isn't "abusive" is nothing to do with the monarch and is nothing like "rape and pillage".  But congratulations on your in depth knowledge of tax codes.

[realnowhereman]

Ignore the trolls, they just love to make fool of themself

Answer is yes you can substract if you deposit later or before same year from the "capital gain" you report.

So ie:

Withdraw 1000 $ on monday
Deposit 900 $ on tuesday

You report then only 100 $ as income

Ah... a breath of fresh air.

Thank you very much.

[Anonymous]

Its sad that you need a university degree to work out your tax.

[da2ce7]

Its sad that you need a university degree to work out your tax.

It is sad that you get put in a cage if you don't pay your tax... but that is life.

[TECSHARE]

As far as I understand it the rule is you owe capital gains the moment you receive federal reserve notes (or other national fiat reserve notes in some cases) . What was previously stated by Grant seems to be my understanding. At the end of the tax year you tally up all the notes spent and notes earned and the result is the actual gain that is taxed. In order for the IRS to collect taxes the need to be able to assign a market value for the capital in question.

If some one was looking to reduce their tax liability even further you could use Bitcoins in exchange for other capital, or goods you use every day which are usually purchased with federal reserve notes. By doing so this further complicates the tax liability issue for the IRS because the burden of proof is now on them to assign a market value to 2 goods instead of just 1. Another pitfall to avoid is assigning a dollar value to any item ever. Legal tender means you are required to accept it for debts, but no where does it say that that you must convert to FRNs or use them as a index of value.

A quick search on "linden tax revolt" will show a plethora of stories related to the subject we are discussing here. There are very clear differences between Bitcoins and Linden Dollars (second life currency), but these precedents could pave the way for future taxation issues with Bitcoin. A similar taxation question is raised in regard to the silver and gold bullion that is constitutionally required to be issued by the federal government of the US. It may for example have a face value of $1, but contain metal bullion that is worth $35 to $50 in metal value alone. Since this coin is legal tender, you can legally accept it as payment at face value, and again the capital gains tax liability issue comes up at the moment of conversion back to FRNs.

"No Federal Court of Appeals has ever ruled that the gold coins in question must be reported to the IRS based on FRN market value."

http://www.rapidtrends.com/robert-kahre-vs-the-irs-and-doj/

This is an example of this tax strategy taken to the extreme. In this case the individual won. Others were not so educated. Again and again he downfall seems to be declaring the Federal Reserve Note value of any of the capital in question. Without willingly doing so yourself you leave the burden of proof on the IRS to establish market value. This is not an easy thing to do with a volatile economy like precious metals or even Bitcoins. As with any individual challenging the status quo (lawfully or otherwise), the path is bound to be filled with pitfalls. It is a question of how far you as an individual choose to go in freeing yourself economically or otherwise.

Corporate society is structured in such a way to make sure that the tax liability is pinned onto the end user, and not the corporation. They can mandate the use of federal reserve notes because they are a private entity. You can choose not to deal with them, but this is simply not an option, or too difficult in some industries. Because they assign an FRN value to the goods and services, you thru completing this transaction in FRNs contractually agree to the FRN market value of the capital. Don't use federal reserve notes. Don't assign a federal reserve note market value to any capital. The only winning strategy is not to play.

Again back to the strategy of never declaring Federal Reserve note value to any capital, you have precious metals investors long aware of this situation to some degree. Now enter Bitcoin, a system that not only separates the metal value from the FRN system, it also creates a possibility for near complete anonymity (if you make the effort), as well as a decentralized payment processing structure that has no reporting obligations to the IRS. I predict this is going to create a HUGE inductive effect to metals investors.

 This is already happening to some degree on the forum, especially with silver prices stagnating lately and BTC going thru the roof. Precious metals and Bitcoin are a marriage made in heaven, and they will produce many offspring.

[AntiVigilante]

"No Federal Court of Appeals has ever ruled that the gold coins in question must be reported to the IRS based on FRN market value."

http://www.rapidtrends.com/robert-kahre-vs-the-irs-and-doj/

This is an example of this tax strategy taken to the extreme. In this case the individual won. Others were not so educated. Again and again he downfall seems to be declaring the Federal Reserve Note value of any of the capital in question. Without willingly doing so yourself you leave the burden of proof on the IRS to establish market value. Don't assign a federal reserve note market value to any capital. The only winning strategy is not to play.

Again back to the strategy of never declaring Federal Reserve note value to any capital, you have precious metals investors long aware of this situation to some degree. Now enter Bitcoin, a system that not only separates the metal value from the FRN system, it also creates a possibility for near complete anonymity (if you make the effort), as well as a decentralized payment processing structure that has no reporting obligations to the IRS. I predict this is going to create a HUGE inductive effect to metals investors.

This is already happening to some degree on the forum, especially with silver prices stagnating lately and BTC going thru the roof. Precious metals and Bitcoin are a marriage made in heaven, and they will produce many offspring.
[/quote]

I'm giving out loans in BTC for BTC fees. What now? No FRNs involved.

[realnowhereman]

I'm more lost now. :-)

I don't know what tax day is in the US, but in the UK it's April 6th.

Let's say I am self employed.

Let's say I earned profit, from my normal self-employed work, of £25,000, from April 6th 2010.  On April 5th 2011 I take my gross income of £25,000 and buy Bitcoins with it.  I now have zero cash, and an unrealised capital gain.  Net income = zero, so no tax due.  Unrealised capital gain = not taxed until liquidated.

April 6th 2011 I cash out my Bitcoins.
April 5th 2012 I buy Bitcoins.  Net income = zero, unrealised capital gain = not taxed until liquidated.
April 6th 2013 I cash out my Bitcoins.

When the tax man comes knocking, what is my argument?  There must be a tax law that prevents this because it doesn't require Bitcoins to make it work, it's just easier to do.

The only thing I can think of is that the tax man relies on the fact that in reality you have to cash out and stay out in order that you can buy the things you want in the year.  If you don't though, isn't the above a way of avoiding tax on large sums that you receive but don't use?

[AntiVigilante]

April 6th 2011 I cash out my Bitcoins.
April 5th 2012 I buy Bitcoins.  Net income = zero, unrealised capital gain = not taxed until liquidated.
April 6th 2013 I cash out my Bitcoins.

Buy food at bitmunchies.com

When the tax man comes knocking, what is my argument?  There must be a tax law that prevents this because it doesn't require Bitcoins to make it work, it's just easier to do.

There isn't. Reality doesn't have to comply with government, economic, or political models and neither do laws. The risk is that you will be targeted. But you can win. Eat on a bitcoin budget. Forget the rest.

The only thing I can think of is that the tax man relies on the fact that in reality you have to cash out and stay out in order that you can buy the things you want in the year.  If you don't though, isn't the above a way of avoiding tax on large sums that you receive but don't use?
[/quote]

It's not avoidance if you don't deal in it. Again I'm offering BTC based loans with fees not interest. And I have a solution to the time value problem.

[Cluster2k]

You'll have to pay tax on your bitcoin income, one way or another. 

Created some bitcoins and converted them to cash?  That counts as income.

Traded some bitcoins for profit on mtGox?  That counts as capital gain.  It's very much like trading shares.

The money has to hit a real bank account sooner or later, and not declaring the income/gain runs the risk of the tax office noticing.   Maybe if casinos would take bitcoins there would be an easy way of hiding the income... :-)

[tymothy]

I think the questions you're asking about bitcoin are about the same as if it were gold or the Euro. I'm not a tax professional, but I'm pretty sure that if you make USD from currency speculation, you still owe tax. If you convert a company's revenue to Bitcoins and record this as an expense, the IRS may have you evaluate the USD value of your holdings at the end of the fiscal year when you go to pay taxes. I'm not completely sure, but the issues you're discussing are not novel to Bitcoins and the IRS has probably come up with a boatload of rules regarding currency speculation and non-dollar assets.

[realnowhereman]

I'm certain that tax is due.  As I said I wasn't trying to evade it.

My question was primarily whether buying back into a security cancels out a sale.  Or is it like (personal) income tax, where it doesn't matter how much I spend, I can't deduct that from my income (I know that expenditure as part of your work can be deducted in the US, but that's a different point).

So far, the consensus seems to be that buying back in reduces the capital gain again; and that it is only capital that you keep as cash that is taxed.

[eturnerx]

I think this varies from jurisdiction to jurisdiction and I'm about to ask my accountant a similar question to yours.
I have wrapped/am wrapping my bitcoin activities in a seperate tax entity. The reason for this is so that I can claim legitimate expenses against income.

I could use the "no value until liquidated" rule which would be fine if mining was all I did. But since I made some btc via speculation (on GLBSE) I suspect I'm probably liable for capital gains as a trader. I'll probably need to value all my accounts associated with bitcoin in my native currency then treat that as income. If I do things this way then I'll have to pay capital gains every tax year but I also get the benefit of a taxation loss if the value of bitcoin falls.

I'll see what my accountant says. I suspect that I can treat mining activity like "inventory" but all other sources of bitcoin income would need to be converted to a value in my native currency, either on the day of the transaction or on tax day.

[royalecraig]

If Western Economies coined their own money instead  of Borrowing it from offshore loan sharks like the PRIVATE Bank of England and the Not so Federal Reserve, there woulf be no public borrowing, no public Debt, hence absolutely no need to pay taxes at all.
Which is why, Bit coin will be seen as a threat, the best case scenario is they legitimise i but then screw us all for taxes on any gains.
At the end of the day, are we prepared to fight for our personaly liberty, or will we just allow ourselves and our children to be fleeced forever more.


The Money Scam
http://harveyalexander.weebly.com/themoneyscam.html

[AntiVigilante]

If Western Economies coined their own money instead  of Borrowing it from offshore loan sharks like the PRIVATE Bank of England and the Not so Federal Reserve, there woulf be no public borrowing, no public Debt, hence absolutely no need to pay taxes at all.
Which is why, Bit coin will be seen as a threat, the best case scenario is they legitimise i but then screw us all for taxes on any gains.
At the end of the day, are we prepared to fight for our personaly liberty, or will we just allow ourselves and our children to be fleeced forever more.

The Money Scam
http://harveyalexander.weebly.com/themoneyscam.html

1 internet is worth 1000 internets.

Bitcoin will give birth to the second renaissance. With davout's free software pool, towncoins will rise bringing BTC to the point where it could be rebuilt many times over.

We've already won. The cost of recreating the network is 6.6% of the value of the whole economy. It's over. Keep the ammo for drug dealers. This war is going to be waged with sweat and code.

[twobitcoins]

I haven't found this forum to be a good source of legitimate tax advice.  You're probably better off finding a forum dedicated to that.

I can't speak for the UK, but in the US if you sell something at a gain and then buy it back later, you still owe taxes on the gain.  On the other hand, if you sell something at a loss and buy it back within 30 days before or after the sale, it's called a "wash sale" and you are not allowed to use the loss to reduce your taxes.  The asymmetrical rules seem unfair, but it's an attempt to prevent people who have losses on paper from selling and rebuying for no purpose other than tax reduction.  The wash sale rules speak of "stock or securities" though, so there may be a question of whether bitcoins fall under those rules.

In the US there are also some special rules that apply if you meet the definition of a "trader in securities" but I haven't looked into the details.  The UK will be different anyway.

[jaimedimon]

Let's say you are a tax paying citizen, and have no wish to hide your earnings.  Let's also say that Bitcoins are not threatened by government, but are allowed to peacefully coexist.

Dealing with Bitcoins for tax purposes means that any profits you make from them are liable for capital gains tax.  However, that tax is only due at the moment you convert them back into your native currency.

I have two questions for those who know more about tax than I do:

• If I convert BTC to USD on Monday, then that same USD to BTC on Tuesday, is capital gains tax still due?  If it is, then would it be better to wrap all one's BTC transactions in a holding company, so that profit becomes the element that is taxed?
• If the answer to the first question is "no", then what stops me converting all my gross income to Bitcoins and declaring no net income?  I can then drip my Bitcoins back to native currency (if I even have to) as I need to and in this way use Bitcoins to smooth my tax bill over the lean years and fat years.
  

These are hypothetical, and probably based on a flawed understanding of taxation.  I have only the familiarity with taxation that your average non-investing citizen would (i.e. I've never paid capital gains tax because I've never made a capital gain).

1.  If I convert BTC to USD on Monday, then that same USD to BTC on Tuesday, is capital gains tax still due?  If it is, then would it be better to wrap all one's BTC transactions in a holding company, so that profit becomes the element that is taxed?

If you sell BTC and buy USD, then you have a capital gain.  If you use those same USD to buy bitcoin the next day, it doesn't change the amount of capital gain for the previous transaction.  The only thing that could decrease that gain would be a capital loss on another similar transaction.  It does not matter if you have a holding company or not.  At the end of the year, you sum your capital gains and losses, and only pay the tax on the net. (or take a deduction if you have a net loss)


2. If the answer to the first question is "no", then what stops me converting all my gross income to Bitcoins and declaring no net income?  I can then drip my Bitcoins back to native currency (if I even have to) as I need to and in this way use Bitcoins to smooth my tax bill over the lean years and fat years.

You are misunderstanding capital gains and net income.  Whenever you get paid, whether it is in USD, bitcoins, chickens, or gold; you have income.  Regardless of whether you transfer that income to another form of money or spend it on hookers and blow.  For example, if you earn $1000 at work, then come home and buy $1000 worth of bitcoins, you still have $1000 income.  This is just the same as if you came home and spent the $1000 on stock shares or investment grade beeny-babies.

Now, assuming that you convert 100% of your income into bitcoins, there would be no capital gains until you sell the bitcoins, either for USD or another currency.  However, you would still have net income.

I am an accountant in the US, but the principles are the same in the UK.

[Justsomeforumuser]

If I am mining and have to declare BTC as income, what kind are they?

Cap gains tax is different from income tax, both in allowances as well as %.

What about the costs incurred specifically to mine the coins?
Electricity, mostly, in this case? (I'm not one of those people poisoning the difficulty pool by buying 9000 new pcs solely for mining)

Currently I suspect I will end up guessing what and where to put the mining "income" next year..and I don't think the tax office has any idea about BTC, either.

[interfect]

If Western Economies coined their own money instead  of Borrowing it from offshore loan sharks like the PRIVATE Bank of England and the Not so Federal Reserve, there woulf be no public borrowing, no public Debt, hence absolutely no need to pay taxes at all.
Which is why, Bit coin will be seen as a threat, the best case scenario is they legitimise i but then screw us all for taxes on any gains.
At the end of the day, are we prepared to fight for our personaly liberty, or will we just allow ourselves and our children to be fleeced forever more.


The Money Scam
http://harveyalexander.weebly.com/themoneyscam.html

That is not at all what taxes are for. In the US, most tax money goes to things like Defense and Social Security, not interest on the debt.

If we keep borrowing at the rate that we are, that will change.

[jaimedimon]

It's actually somewhat of a difficult question, because digital currencies in the past were purchased outright with regular currency, not mined in the way that BTC are.

Any gain from sale of BTC that was purchased, not mined, is going to be a capital gain.  

Any gain from sale of BTC that were mined, is going to be essentially uncharted territory.  I think you can make the argument that since it is 'earned', in the sense that people purchase equipment, configure it to run certain software, pay for electricity, etc.  In this case, it would simply be treated as business income.  You could then deduct your expenses and arrive at net taxable income.  Some expenses would have to be depreciated over time, such as computers which would last longer than one tax year.

It is possible, however, that the IRS might take the position that since bitcoins are 'awarded' in a somewhat random fashion, that they might be considered 'gambling winnings'.  If this is the case, you wouldn't be able to deduct any of your expenses used to generate them.

Really it would be great if the IRS would issue a statement on this to give clear guidance, but bitcoins specifically are probably not even on their radar.

[Lupus_Yonderboy]

Hmm perhaps we should put it on their radar. Maybe I will write the IRS and ask for guidance, specifically linking them to the wiki, this thread and perhaps threads such as this one. I am quite sure that the IRS would be more than happy to help U.S. Citizens meet their tax obligations.

[TECSHARE]

You much be the designated provocateur for the evening. Welcome.

Hmm perhaps we should put it on their radar. Maybe I will write the IRS and ask for guidance, specifically linking them to the wiki, this thread and perhaps threads such as this one. I am quite sure that the IRS would be more than happy to help U.S. Citizens meet their tax obligations.

Afterwords don't forget to bathe in chum and go swimming in the ocean.

[nrd525]

Fact check: Robert Kahre was sentenced to 15 years in jail

http://www.lasvegassun.com/news/2009/nov/17/businessman-robert-kahre-sentenced-tax-fraud-schem/

[TECSHARE]

"Rather, jurors delivered zero guilty verdicts. Three defendants, all workers, were acquitted as well as Kahre’s mother, who worked as a runner for her son’s businesses. Two other defendants were partly acquitted — the jury hung on one count each. The jury also hung on all counts faced by Kahre, Loglia and Kahre’s sister, resulting in mistrials."

http://www.rapidtrends.com/robert-kahre-vs-the-irs-and-doj/

Fact recheck - he was not convicted that case from 2003. At that point he became part of the IRS shitlist.
The link you posted: http://www.lasvegassun.com/news/2009/nov/17/businessman-robert-kahre-sentenced-tax-fraud-schem/
is from 2009.

This time he was convicted - mind you, because he declared the capitol he owned in federal reserve notes in order to leverage them for loan applications. He claimed the face value of the coin to the IRS and the federal reserve note market value of the coin on his loan application. He made two primary mistakes which I specifically mentioned earlier.

1) He converted his coins into federal reserve notes (by receiving FRNs from the bank based on that as collateral)

2) He consented to declaring a federal reserve note value of the capitol by simply filling out the application and signing it.

The federal reserve system is VOLUNTARY. If you do not use the system you are not liable for taxes paid into it. The moment you use federal reserve notes you give your consent to being bound by this contractual agreement. Most people don't understand that your income taxes don't go to build roads and schools, 100% of it goes directly to the PRIVATE bank known as the federal reserve. All the services that help maintain our communities are paid for with your property and sales taxes within the state. This system is a giant black hole imploding our economy, as well as the worlds. For the love of god stop feeding it!

[The Script]

If Western Economies coined their own money instead  of Borrowing it from offshore loan sharks like the PRIVATE Bank of England and the Not so Federal Reserve, there woulf be no public borrowing, no public Debt, hence absolutely no need to pay taxes at all.
Which is why, Bit coin will be seen as a threat, the best case scenario is they legitimise i but then screw us all for taxes on any gains.
At the end of the day, are we prepared to fight for our personaly liberty, or will we just allow ourselves and our children to be fleeced forever more.


The Money Scam
http://harveyalexander.weebly.com/themoneyscam.html

That is not at all what taxes are for. In the US, most tax money goes to things like Defense and Social Security, not interest on the debt.

If we keep borrowing at the rate that we are, that will change.

Actually I did the math for 2008 using government statistics and it worked out to be ~30% of the US income tax revenues went to paying interest on the debt.

[Goldenmaw]

Hmm perhaps we should put it on their radar. Maybe I will write the IRS and ask for guidance, specifically linking them to the wiki, this thread and perhaps threads such as this one. I am quite sure that the IRS would be more than happy to help U.S. Citizens meet their tax obligations.

That is an excellent idea.  This kind of willing cooperation would go a long way towards improving Bitcoin's image in the public eye.  Would you keep us appraised of any responses, if you choose to do so?

[eturnerx]

It's actually somewhat of a difficult question, because digital currencies in the past were purchased outright with regular currency, not mined in the way that BTC are.

Any gain from sale of BTC that was purchased, not mined, is going to be a capital gain.  

Any gain from sale of BTC that were mined, is going to be essentially uncharted territory.  I think you can make the argument that since it is 'earned', in the sense that people purchase equipment, configure it to run certain software, pay for electricity, etc.  In this case, it would simply be treated as business income.  You could then deduct your expenses and arrive at net taxable income.  Some expenses would have to be depreciated over time, such as computers which would last longer than one tax year.

It is possible, however, that the IRS might take the position that since bitcoins are 'awarded' in a somewhat random fashion, that they might be considered 'gambling winnings'.  If this is the case, you wouldn't be able to deduct any of your expenses used to generate them.

Really it would be great if the IRS would issue a statement on this to give clear guidance, but bitcoins specifically are probably not even on their radar.

I doubt you could count bitcoin mining as gambling. The returns are just too consistent. Perhaps you could treat it like a commodity like a mineral mined from the ground.
I've been book keeping on the assumption that mined bitcoins are like inventory being created at a factory. That is it incurs expenses, but has no taxable value until it is converted into local legal tender. Of course I'll change if I receive different advice on how to go.

[benjamindees]

You all have really drank the Kool-Aid if you believe that a bunch of computers wasting electricity making long strings of numbers constitutes capital gain.

[realnowhereman]

You all have really drank the Kool-Aid if you believe that a bunch of computers wasting electricity making long strings of numbers constitutes capital gain.

It would be lovely if that were true, as I would not have to pay tax on the earnings.

You should also go and tell all the guys down at the NYSE that printing bits of paper that say "google 1 share" are worthless.  Ha.. Bits of paper.

[benjamindees]

When you purchase a Bitcoin, are you under the impression that it represents a share of some physical assets?

[realnowhereman]

No.  I am aware that it represents some proportion of the total wealth represented by all bitcoins.  In fact, it represents a proportion of the money used to buy them in the first place.

Are you under the impression that when you buy a piece of paper issued as a share that all you own is that piece of paper?  Why don't you try wandering into the offices of your latest share purchase and try claiming your 0.0001% of the company assets.

The fact that bitcoins are represented as a long number is no less meaningless than a proportion of an economy represented by a bit of green paper; or a proportion of a company represented by a certificate.

I understand that the both of those last two have real value.  If they are real though, so is a Bitcoin.

[benjamindees]

Okay your second paragraph is self-contradictory.

Regardless, I can see how the value of a Bitcoin might be proportional to the value of all the resources that went into producing it.  But do you really think that it represents a share of them?  You seem to be saying that money is capital, and Bitcoins are purchased with money, therefore Bitcoins represent capital.  Is that a fair assessment?

[jaimedimon]

"Rather, jurors delivered zero guilty verdicts. Three defendants, all workers, were acquitted as well as Kahre’s mother, who worked as a runner for her son’s businesses. Two other defendants were partly acquitted — the jury hung on one count each. The jury also hung on all counts faced by Kahre, Loglia and Kahre’s sister, resulting in mistrials."

http://www.rapidtrends.com/robert-kahre-vs-the-irs-and-doj/

Fact recheck - he was not convicted that case from 2003. At that point he became part of the IRS shitlist.
The link you posted: http://www.lasvegassun.com/news/2009/nov/17/businessman-robert-kahre-sentenced-tax-fraud-schem/
is from 2009.

This time he was convicted - mind you, because he declared the capitol he owned in federal reserve notes in order to leverage them for loan applications. He claimed the face value of the coin to the IRS and the federal reserve note market value of the coin on his loan application. He made two primary mistakes which I specifically mentioned earlier.

1) He converted his coins into federal reserve notes (by receiving FRNs from the bank based on that as collateral)

2) He consented to declaring a federal reserve note value of the capitol by simply filling out the application and signing it.

The federal reserve system is VOLUNTARY. If you do not use the system you are not liable for taxes paid into it. The moment you use federal reserve notes you give your consent to being bound by this contractual agreement. Most people don't understand that your income taxes don't go to build roads and schools, 100% of it goes directly to the PRIVATE bank known as the federal reserve. All the services that help maintain our communities are paid for with your property and sales taxes within the state. This system is a giant black hole imploding our economy, as well as the worlds. For the love of god stop feeding it!

The thing that's gonna kill bitcoin faster than anything, is having idiots posting ridiculous conspiracy theories about taxes being voluntary, that the IRS has specifically pointed out as being bullshit.

http://www.irs.gov/taxpros/article/0,,id=159932,00.html#_Toc284193999

Go read that site.  The government office that is responsible for enforcing the tax code says that anyone following your advice is committing income tax evasion.  When law enforcement people read posts like yours, they certainly document them to use in future cases against bitcoin and various affiliated groups like mt gox, bitlaundry, etc.

[jaimedimon]

It's actually somewhat of a difficult question, because digital currencies in the past were purchased outright with regular currency, not mined in the way that BTC are.

Any gain from sale of BTC that was purchased, not mined, is going to be a capital gain.  

Any gain from sale of BTC that were mined, is going to be essentially uncharted territory.  I think you can make the argument that since it is 'earned', in the sense that people purchase equipment, configure it to run certain software, pay for electricity, etc.  In this case, it would simply be treated as business income.  You could then deduct your expenses and arrive at net taxable income.  Some expenses would have to be depreciated over time, such as computers which would last longer than one tax year.

It is possible, however, that the IRS might take the position that since bitcoins are 'awarded' in a somewhat random fashion, that they might be considered 'gambling winnings'.  If this is the case, you wouldn't be able to deduct any of your expenses used to generate them.

Really it would be great if the IRS would issue a statement on this to give clear guidance, but bitcoins specifically are probably not even on their radar.

I doubt you could count bitcoin mining as gambling. The returns are just too consistent. Perhaps you could treat it like a commodity like a mineral mined from the ground.
I've been book keeping on the assumption that mined bitcoins are like inventory being created at a factory. That is it incurs expenses, but has no taxable value until it is converted into local legal tender. Of course I'll change if I receive different advice on how to go.

That's certainly an ambitious argument, personally I don't think the IRS will go for it, but you can give it a shot.  I can see them claiming that if bitcoins are used as a currency, when you receive them, it's the same as receiving currency. 

They definitely are not going to go for the idea they are mined as a mineral, unless bitcoin users are willing to spend big bucks lobbying them into those tax breaks, like the actual mining companies have.

I have a feeling we will find out soon whether it even matters, as bitcoin values either seem headed towards the stratosphere or back down to being worth pennies.

[poisonfrog]

From Free Talk Live conversation : If a robber puts a gun to your head and says "Give me all your money", and you give him $100 from your wallet, and don't give him the $100 in your sock - have you cheated the robber?

Alternatively, you could keep your wealth in Bitcoins, and never realize a gain, and have no income.

Side note, I am TIRED of the US Govt inflating my dollars, making my assets' nominal value go up,
and calling it income.

[TECSHARE]

"Rather, jurors delivered zero guilty verdicts. Three defendants, all workers, were acquitted as well as Kahre’s mother, who worked as a runner for her son’s businesses. Two other defendants were partly acquitted — the jury hung on one count each. The jury also hung on all counts faced by Kahre, Loglia and Kahre’s sister, resulting in mistrials."

http://www.rapidtrends.com/robert-kahre-vs-the-irs-and-doj/

Fact recheck - he was not convicted that case from 2003. At that point he became part of the IRS shitlist.
The link you posted: http://www.lasvegassun.com/news/2009/nov/17/businessman-robert-kahre-sentenced-tax-fraud-schem/
is from 2009.

This time he was convicted - mind you, because he declared the capitol he owned in federal reserve notes in order to leverage them for loan applications. He claimed the face value of the coin to the IRS and the federal reserve note market value of the coin on his loan application. He made two primary mistakes which I specifically mentioned earlier.

1) He converted his coins into federal reserve notes (by receiving FRNs from the bank based on that as collateral)

2) He consented to declaring a federal reserve note value of the capitol by simply filling out the application and signing it.

The federal reserve system is VOLUNTARY. If you do not use the system you are not liable for taxes paid into it. The moment you use federal reserve notes you give your consent to being bound by this contractual agreement. Most people don't understand that your income taxes don't go to build roads and schools, 100% of it goes directly to the PRIVATE bank known as the federal reserve. All the services that help maintain our communities are paid for with your property and sales taxes within the state. This system is a giant black hole imploding our economy, as well as the worlds. For the love of god stop feeding it!

The thing that's gonna kill bitcoin faster than anything, is having idiots posting ridiculous conspiracy theories about taxes being voluntary, that the IRS has specifically pointed out as being bullshit.

http://www.irs.gov/taxpros/article/0,,id=159932,00.html#_Toc284193999

Go read that site.  The government office that is responsible for enforcing the tax code says that anyone following your advice is committing income tax evasion.  When law enforcement people read posts like yours, they certainly document them to use in future cases against bitcoin and various affiliated groups like mt gox, bitlaundry, etc.

What you have done:
1) Called me a Idiot

2) Called me a "conspiracy theorist"

3) Referenced the very same private for profit company that benefits from the populace remaining ignorant about their financial rights.

What you haven't done:
Address a single one of my points. Personal attacks are consistently the tool of choice for the ignorant. Additionally I never claimed to be offering tax advice. Anyone who files their taxes in accordance to advice from random people on the internet without any research on their own would eventually get themselves into trouble WITHOUT my so called advice.

[jaimedimon]

"Rather, jurors delivered zero guilty verdicts. Three defendants, all workers, were acquitted as well as Kahre’s mother, who worked as a runner for her son’s businesses. Two other defendants were partly acquitted — the jury hung on one count each. The jury also hung on all counts faced by Kahre, Loglia and Kahre’s sister, resulting in mistrials."

http://www.rapidtrends.com/robert-kahre-vs-the-irs-and-doj/

Fact recheck - he was not convicted that case from 2003. At that point he became part of the IRS shitlist.
The link you posted: http://www.lasvegassun.com/news/2009/nov/17/businessman-robert-kahre-sentenced-tax-fraud-schem/
is from 2009.

This time he was convicted - mind you, because he declared the capitol he owned in federal reserve notes in order to leverage them for loan applications. He claimed the face value of the coin to the IRS and the federal reserve note market value of the coin on his loan application. He made two primary mistakes which I specifically mentioned earlier.

1) He converted his coins into federal reserve notes (by receiving FRNs from the bank based on that as collateral)

2) He consented to declaring a federal reserve note value of the capitol by simply filling out the application and signing it.

The federal reserve system is VOLUNTARY. If you do not use the system you are not liable for taxes paid into it. The moment you use federal reserve notes you give your consent to being bound by this contractual agreement. Most people don't understand that your income taxes don't go to build roads and schools, 100% of it goes directly to the PRIVATE bank known as the federal reserve. All the services that help maintain our communities are paid for with your property and sales taxes within the state. This system is a giant black hole imploding our economy, as well as the worlds. For the love of god stop feeding it!

The thing that's gonna kill bitcoin faster than anything, is having idiots posting ridiculous conspiracy theories about taxes being voluntary, that the IRS has specifically pointed out as being bullshit.

http://www.irs.gov/taxpros/article/0,,id=159932,00.html#_Toc284193999

Go read that site.  The government office that is responsible for enforcing the tax code says that anyone following your advice is committing income tax evasion.  When law enforcement people read posts like yours, they certainly document them to use in future cases against bitcoin and various affiliated groups like mt gox, bitlaundry, etc.

What you have done:
1) Called me a Idiot

2) Called me a "conspiracy theorist"

3) Referenced the very same private for profit company that benefits from the populace remaining ignorant about their financial rights.

What you haven't done:
Address a single one of my points. Personal attacks are consistently the tool of choice for the ignorant. Additionally I never claimed to be offering tax advice. Anyone who files their taxes in accordance to advice from random people on the internet without any research on their own would eventually get themselves into trouble WITHOUT my so called advice.

No, what I have done is stated facts.  You can live in your little fantasy world where taxes are voluntary, because the IRS cannot possibly catch every single tax evader.

You haven't made any salient points.  You are simply making an argument that is already discredited by the government agency that regulates that particular aspect of society.

That means that anyone following your 'advice'  is setting themselves up for a long visit to pound me in the ass federal prison.  Especially if that person happens to have a decent amount of money that the IRS can seize.

You can go ahead and believe that you are correct, and the US government, the IRS, the entire US legal system, and the entire US law enforcement system is wrong.  However, spreading that nonsense here just makes it easier for governments to attack bitcoins as an illegal attempt to evade taxes.  What mainstream company or retailer is going to want to be associated with that type of nonsense?

Every single person who owns a bitcoin, should condemn your nonsense, as it is a huge threat to the idea of bitcoin itself.

[TECSHARE]

Again, less with the personal attacks and glittering generalizations - more with the discussion of the issue.
Not sure how many times I have to repeat myself before you understand, but I AM NOT OFFERING TAX ADVISE. This is a thread for discussion of taxation issues, and that is what I am doing. Try to see past the blinding misdirected rage for long enough to have a discussion, if you can manage.

[eturnerx]

I doubt you could count bitcoin mining as gambling. The returns are just too consistent. Perhaps you could treat it like a commodity like a mineral mined from the ground.
I've been book keeping on the assumption that mined bitcoins are like inventory being created at a factory. That is it incurs expenses, but has no taxable value until it is converted into local legal tender. Of course I'll change if I receive different advice on how to go.

That's certainly an ambitious argument, personally I don't think the IRS will go for it, but you can give it a shot.  I can see them claiming that if bitcoins are used as a currency, when you receive them, it's the same as receiving currency. 

They definitely are not going to go for the idea they are mined as a mineral, unless bitcoin users are willing to spend big bucks lobbying them into those tax breaks, like the actual mining companies have.

I have a feeling we will find out soon whether it even matters, as bitcoin values either seem headed towards the stratosphere or back down to being worth pennies.

Oh - there are no tax breaks for mineral miners in my jurisdiction.

[buttcoin]

Just put buttcoin gains in the same place you put "Coke Rewards Points" on your taxes, it's all the same.

[Goldenmaw]

lol

I love the site, buttcoin.

[realnowhereman]

Here's another angle that's just occurred to me.

Gambling profit in the UK is now tax free.

If I "invest" 1 BTC in a game of chance and win, is that then a capital gain, or a gambling win?

[mikegogulski]

The federal reserve system is VOLUNTARY. If you do not use the system you are not liable for taxes paid into it. The moment you use federal reserve notes you give your consent to being bound by this contractual agreement.

This is a nice dream. It falls apart, though, when men with guns break down your door.

I highly recommend that you read this (http://www.nostate.com/116/the-penalty-is-always-death/), and then think about how voluntary it is.

[TECSHARE]

The federal reserve system is VOLUNTARY. If you do not use the system you are not liable for taxes paid into it. The moment you use federal reserve notes you give your consent to being bound by this contractual agreement.

This is a nice dream. It falls apart, though, when men with guns break down your door.
I highly recommend that you read this (http://www.nostate.com/116/the-penalty-is-always-death/), and then think about how voluntary it is.

That's an interesting bed time story. As I stated in my original thread, the question is  - how much is your freedom worth to you? You have the legal right. Does that mean the government won't kick in your door? No.