Bitcoin Circle Tax Question

[viking02]

I recently did a transfer from my electrum wallet to my circle account.  At first i was surprised i got a few dollars in my circle account because i had thought i would receive the amt of btc i sent from electrum.  It was a test transfer of just 0.02 btc so basically $5.50 or so.  I then saw that i could change my currency on circle to bitcoin as oppose to usd.  


However it says if i want to do this i have to check both options


1.  If I choose to convert back to US dollars, this is considered a taxable event.
2.  I understand that the price of bitcoin can be volatile, and often changes rapidly.





1.  First off, does that mean even if my balance was 0... I would have to check both of these options before i continue?  I have around $5.50 in my circle usd account at the moment.


2.  Even if my account was in bitcoin currency and not USD, wouldn't that mean when i sell the bitcoins to circle and get credited with an ACH transfer, well that is considered a taxable event?


3.  Are transfers from circle or coinbase to bank account reported to the irs?  I can imagine bigger amounts are yes.   But what if someone just did a $200 transfer from circle or coinbase to their bank of america account and only did 1 transaction for the year.  I know that is suppose to be reported but i want to know is that transaction reported similar to how a W2 form is reported?  However, if someone just did a few transfers from circle/coinbase to their usa bank account... let say a few of them for 100 or 200 dollars each, would they get in trouble for not reporting it?  I assume since so many ppl use bitcoin and im sure tons of ppl have done bitcoin transactions and many might have done a few transactions only for 100-500 dollars total, i assume those people who don't report the bitcoin isn't going to get in trouble?  Im sure there are tons of ppl who might have just did 1 bitcoin withdraw for 20 dollars and obviously didnt know you had to pay tax on it even if its like a 1 dollar gain etc.



4.  The reason why i ask this is b/c i wanted to know does me checking that option  


If I choose to convert back to US dollars, this is considered a taxable event.



Does that mean its automatically reported to the IRS even if i did like a 5 dollar transfer.  




5.  I'm assuming whether its checked or not, well any time you go from coinbase or circle to your bank acct, you are selling bitcoin and thus whether you checked anything or didn't have option to check this like on circle, it would be the same thing?  

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[viking02]

anyone?

[EternalWingsofGod]

I'll take a shot at this but not 100% certain myself as I do not use circle.

I presume that since you put the coins into Circle they are already taxed at some point previous to being deposited there in Circles logic.
However if you want to buy coins from them they become taxable when you turn them into cash and withdraw to a bank account.
Simply put its tax free until its converted into USD and then deposited in a bank.

1.  First off, does that mean even if my balance was 0... I would have to check both of these options before i continue?  I have around $5.50 in my circle usd account at the moment.

Presume not it's default setting is likely what you put into it first aka Bitcoins then it showed the exchange rate equivilent in USD

2.  Even if my account was in bitcoin currency and not USD, wouldn't that mean when i sell the bitcoins to circle and get credited with an ACH transfer, well that is considered a taxable event?

Not until its withdrawn to a bank account as the USD can sit on the site but would not have any cash value till a bank order was recieved, perhaps they send a Tax Form at the end of the year.

3.  Are transfers from circle or coinbase to bank account reported to the irs?

To my knowledge yes, if the sum is large enough they report it to the FDC or IRS as part of their KYC/AML procedures and you would have different levels of account verification.

4. If I choose to convert back to US dollars, this is considered a taxable event.

Does that mean its automatically reported to the IRS even if i did like a 5 dollar transfer.  
 
(Not really the IRS would not care about $5)
It has bigger fish to fry such as Bitcoin sellers who make it a job etc without declaring it as their occupation.


5.  I'm assuming whether its checked or not, well any time you go from coinbase or circle to your bank acct, you are selling bitcoin and thus whether you checked anything or didn't have option to check this like on circle, it would be the same thing? 

Sounds about right to me when its linked to a bank account it becomes taxable at the point of transfer and not before.

[viking02]

anyone else?

[RaginglikeaBoss]

anyone else?

It's considered a capital gain once you go from Bitcoin to USD, every time always forever and ever no matter where.

Yes, everything is audit-able by the IRS.  Do they actually report it all?  Yes.  Will the IRS give two-shits about transactions under $600/once per year? Probably not, but legally you are supposed to file taxes on it personally as a capital gain.  Just compare it to any commodity investment you have, it is that simple.

[bitcointaxes]

1.  If I choose to convert back to US dollars, this is considered a taxable event.

Yes. Any time you convert from capital property to currency, it's a tax event and you have to account for gains.

2.1.  First off, does that mean even if my balance was 0... I would have to check both of these options before i continue?  I have around $5.50 in my circle usd account at the moment.

Depends on if you want a USD balance or a BTC balance.

2.2  Even if my account was in bitcoin currency and not USD, wouldn't that mean when i sell the bitcoins to circle and get credited with an ACH transfer, well that is considered a taxable event?

If you did an ACH where your coins got converted to USD, then yes.

3.  Are transfers from circle or coinbase to bank account reported to the irs?

No. They are no reporting mechanism at the moment. If they did, you would get a form, as you do with a bank or broker. However, they will report your account for any suspicious activity like all banks.

4.  The reason why i ask this is b/c i wanted to know does me checking that option  

Simply put, if you choose to have a USD account, any transfers you make in are tax events and capital gains are possible. Any transfers out is in effective purchasing of new coins, and so sets their new cost basis (e.g. date and price).

If you have a BTC account, there an no tax implications except when you sell those coins.

5.  I'm assuming whether its checked or not, well any time you go from coinbase or circle to your bank acct, you are selling bitcoin and thus whether you checked anything or didn't have option to check this like on circle, it would be the same thing?  

Coinbase doesn't hold USD balances in their BTC wallets, it's BTC. However, they do have a separate USD wallet, where you would be selling and so capital gains apply.

[mkc]

Anything less then $600, doesn't need to showing up in your tax return ...
I took a HR block class, the instructor said so.
They are after big fish, not tiny tiny $6.

[bitcointaxes]

Anything less then $600, doesn't need to showing up in your tax return ...
I took a HR block class, the instructor said so.
They are after big fish, not tiny tiny $6.

You need to ask for a refund. They were wrong.

There are no limits for capital gains reporting in the US. Every $1 gain should be reported.

The $600 common misconception is the limit at which a business needs to issue a 1099 form. Nothing to do with gains.

[mkc]

Anything less then $600, doesn't need to showing up in your tax return ...
I took a HR block class, the instructor said so.
They are after big fish, not tiny tiny $6.

You need to ask for a refund. They were wrong.

There are no limits for capital gains reporting in the US. Every $1 gain should be reported.

The $600 common misconception is the limit at which a business needs to issue a 1099 form. Nothing to do with gains.

Theoretically, you are right, however, instructor gave example like bank interest, go figure ...

[mkc]

Anything less then $600, doesn't need to showing up in your tax return ...
I took a HR block class, the instructor said so.
They are after big fish, not tiny tiny $6.

You need to ask for a refund. They were wrong.

There are no limits for capital gains reporting in the US. Every $1 gain should be reported.

The $600 common misconception is the limit at which a business needs to issue a 1099 form. Nothing to do with gains.

I think you are right, a person has to report all his earnings. Thanks for correcting me on this.

[The1AndOnlyFIRE]

ok so I have a question about this im looking at getting into some small time trading as the numbers go up and down ive been watching how the number go up and down each day tracking it for a bit now and feel confident i can make money day trading but the problem is how exactly the taxing works say i start with 2000 i wait for a low point trade into bit coin way till it peaks that day normally a 20 dollar difference roughly so at 2000 that would be trading it back into usd 2100 say then it gets low again i trade back into bit coin then it gets high i trade again i get 2200 now are they only gonna see the 2100 and the 2200 and tax me for 4300 dollars worth of income when truthfully i only gained 200 dollars i dont mind being taxed for what i actually gain but if there taxing me for the full amount that gets converted into usd each time i could never make any money cause say i made 100 profit a day thats 36500 a year using the model i was showing earlier trading back and forth once a day if they taxed me for what i trade back into usd each time it would be something like 770,000 i would get taxed for

[bitcointaxes]

One sec...

I have a question about this. I'm looking at getting into some small time trading.

I've been watching how the number go up and down each day, tracking it for a bit now and feel confident I can make money day trading.

The problem is how exactly the taxing works. Say I start with $2,000 and I wait for a low point, trade into bitcoin, way till it peaks that day. Normally a $20 difference roughly, so at $2,000 that would be trading it back into $2,100.

Say then it gets low again. I trade back into bitcoin then it gets high. I trade again, I get 2200. Now are they only gonna see the 2100 and the 2200 and tax me for 4300 dollars worth of income? When truthfully I only gained 200 dollars.

I don't mind being taxed for what i actually gain but if they're taxing me for the full amount that gets converted into usd each time, I could never make any money. Say i made 100 profit a day, that's 36,500 a year using the earlier model, ie. trading back and forth once a day.

If they taxed me for what I trade back into USD each time I would get taxed for something like $770,000

Are you one of those people who doesn't take a breath when talking?

Answer:

First, if you are a day trader, then the rules are different. This would be a business and probably your primary income. Most people aren't.

So as an individual, you are taxed only on gains (and losses) not the whole conversion.  In your first example, you made $100. That is $100 short-term capital gains.

Next trade, you put $2,100 in and get $2,200. Another $100 short-term capital gains.

Now, say you put that $2,200 back in and only get $2,000 out. Now you have a $200 loss, which means you net gain is zero. No income, no taxes.

There is an added complication if you were using Bitcoins you already owned, which is that you'd have to take their cost basis into account when you started. However, if you don't own any and are just starting with a USD balance, then at the end of the year you can just take your final USD balance less what it was when you started. That's your gain (or loss) and is capital gains income.