Bitcoin accounting and taxes

[steverabincpa]

Can I sell through a corporation then pay myself a salary to avoid capital gains, giant bracket and se tax?

This is possible, but you would be well advised to retain a tax adviser to help you execute your plans.

Can I retain you?

You are likely better off paying capital gain tax as an individual, rather than income+payroll tax, particularly if the holding period might be over a year and the capital gain is long term.  In general corporations are like lobster traps, it is easy to put stuff in but expect to pay tax when taking it out. 

Try to find a licensed tax advisor in your state (each state has its own tax rules and licensing peculiarities) who is up to speed on virtual currency issues.  I am taking qualified California bitcoin clients this 2013 tax season and am even accepting payment in Bitcoin.  I can be found through google or linkedin.

Here is my circular 230 disclaimer.  This post is intended to provide generalized tax and valuation information that is only appropriate in certain situations. It is believed accurate at this time, but these rules, alas, are constantly changing.  It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding tax penalties that may be imposed on any taxpayer. These contents should not be acted upon without specific professional guidance. Our liability, under any circumstances, is limited to the amount paid for our services.  Please contact us if you have questions. 

[bitpop]

Can I sell through a corporation then pay myself a salary to avoid capital gains, giant bracket and se tax?

This is possible, but you would be well advised to retain a tax adviser to help you execute your plans.

Can I retain you?

You are likely better off paying capital gain tax as an individual, rather than income+payroll tax, particularly if the holding period might be over a year and the capital gain is long term.  In general corporations are like lobster traps, it is easy to put stuff in but expect to pay tax when taking it out. 

Try to find a licensed tax advisor in your state (each state has its own tax rules and licensing peculiarities) who is up to speed on virtual currency issues.  I am taking qualified California bitcoin clients this 2013 tax season and am even accepting payment in Bitcoin.  I can be found through google or linkedin.

Here is my circular 230 disclaimer.  This post is intended to provide generalized tax and valuation information that is only appropriate in certain situations. It is believed accurate at this time, but these rules, alas, are constantly changing.  It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding tax penalties that may be imposed on any taxpayer. These contents should not be acted upon without specific professional guidance. Our liability, under any circumstances, is limited to the amount paid for our services.  Please contact us if you have questions. 

Is this because there is no self employment tax on capital gains?

Now what about people running a business accepting btc? They have to pay both income tax and capital gains if they gain anything at all on their btc?

[luqash3]

Thanks for answering all the questions in such a detail and simple English that I have clarified various confusions which were built up in my mind regarding bitcoins. However, I still have one problem. Are these IRS laws applied worldwide or in some specific countries like I am not residing in USA?

[bitpop]

Thanks for answering all the questions in such a detail and simple English that I have clarified various confusions which were built up in my mind regarding bitcoins. However, I still have one problem. Are these IRS laws applied worldwide or in some specific countries like I am not residing in USA?

Irs is usa of course. If you have citizenship it applies, whether living there or not.

[steverabincpa]

!!!ALERT!!!
New IRS guidance on virtual currency (VC) released 3/25/14
http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance

For most purposes, IRS requires a property approach (Schedule D gain/loss) not a foreign currency approach.

VC is taxable when mined by miners.  VC transactions are reportable.  See the IRS document for details and FAQ.  If you have been doing it differently, consult a tax professional. 

Regarding the scope of IRS rules, they only apply to US taxes.  Although the IRS might wish to be the top tax authority in the US they are not.   They are beneath the constitution, the revenue code (written by lawyers in congress and constantly changing), court case law, and the treasury department.  However in the absence of guidance from these other authorities, IRS rules should be followed.

Here is my circular 230 disclaimer.  This post is intended to provide generalized tax and valuation information that is only appropriate in certain situations. It is believed accurate at this time, but these rules, alas, are constantly changing.  It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding tax penalties that may be imposed on any taxpayer. These contents should not be acted upon without specific professional guidance. Our liability, under any circumstances, is limited to the amount paid for our services.  Please contact us if you have questions. 

[mmortal03]

On the other hand, while shares are totally fungible, bitcoins are not, at least when it comes to LIFO/FIFO.

For each spend transaction, it should be possible, at least in principle, to figure out which of your receive transactions it/they came from.  Whether the IRS would care to enforce this, or deem the LIFO/FIFO question a matter of local policy, is unknown.

Bitcoins are certainly fungible.  Fungible just means that they are a commodity that can be substituted. Just because you can specifically identify the acquisition or disposal of a particular bitcoin doesn't mean that one is any more or less useful or valuable.  I can specifically identify exactly the same information with stocks, bonds, options, etc.  

Also the cost basis of financial instruments is either determined through FIFO or specific identification. LIFO is not an option.

Pub 550 has more details here

http://www.irs.gov/publications/p550/ch04.html

This was a good discussion back when all of this was up in the air. Is the above still applicable, given that bitcoins are being treated as property? In other words, is LIFO accounting not an option?

[USBitcoinServices.Com]

If I sell tokens earned from bounties, do I have to pay taxes? or are exempted because that was a gift?