Capital gains and Bitcoin

[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

[1713443318]

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[1713443318]

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[1713443318]

1713443318

[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.