Bitcoin Tax Logistics

[Razick]

So I realize that per IRS guidance, Bitcoin is a taxable capital asset and every transaction is taxable. Logistically though, I can't find ANYTHING explaining exactly how it needs to be reported.

1) Do I just add up all of my proceeds and subtract all of my basis?

2) Let's say you have an account with 10 BTC you've held for over a year. You then purchase 1 BTC at $400 and sell it an hour later for $401. Do you have short term gain of $1 or long term gain of $1? Is there a way to keep your long term holdings separate in order to day trade while still keeping a long term position in order to take advantage of the lower rate.

3) Break even transactions: If I buy 1 BTC at $400 and sell it a month later for $400, $400.01 or something else that rounds to $400, does it have to be reported?

(Of course the IRS would come out with burdensome rules and not bother to explain them in any kind of helpful way.)

Any help would be appreciated. If I can get some good advice (preferably with references or some kind of credential) I might make an FAQ to try to make things clearer for the community.

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[Amph]

if you use coinbase they do everything for you, if you're a miners, it would be a pain in the ass to back up each transaction and the tx id

and anyway every amount that do not surpass $600 per year, is not taxable

[bitcointaxes]

1) Do I just add up all of my proceeds and subtract all of my basis?

Yes. Although you ought to be using FIFO, so using the basis of the earliest coins you owned.

2) Let's say you have an account with 10 BTC you've held for over a year. You then purchase 1 BTC at $400 and sell it an hour later for $401. Do you have short term gain of $1 or long term gain of $1? Is there a way to keep your long term holdings separate in order to day trade while still keeping a long term position in order to take advantage of the lower rate.

The default is FIFO, so you would have long-term gains of $401-$x from your 10 BTC pool. You could use LIFO (last-in-first-out) but you should use it consistency and not to avoid taxes. The IRS might not accept it in an audit.

If you maintain separate wallets and separate exchange accounts, then you can keep one for investment and one for spending. As long as they never mix.

3) Break even transactions: If I buy 1 BTC at $400 and sell it a month later for $400, $400.01 or something else that rounds to $400, does it have to be reported?

All capital gains transactions have to be reported. However, they round to nearest dollar (so $0) on your tax forms.

and anyway every amount that do not surpass $600 per year, is not taxable

This is wrong. There are no limits for capital gains in the US, everything is reportable. You are confusing the 1099-MISC business form requirement.


See https://bitcoin.tax for more information and to help calculate your capital gains and income.

[Amph]

and anyway every amount that do not surpass $600 per year, is not taxable

This is wrong. There are no limits for capital gains in the US, everything is reportable. You are confusing the 1099-MISC business form requirement.


See https://bitcoin.tax for more information and to help calculate your capital gains and income.

i said not taxable not not reportable, which is vastly different

[Razick]

1) Do I just add up all of my proceeds and subtract all of my basis?

Yes. Although you ought to be using FIFO, so using the basis of the earliest coins you owned.

2) Let's say you have an account with 10 BTC you've held for over a year. You then purchase 1 BTC at $400 and sell it an hour later for $401. Do you have short term gain of $1 or long term gain of $1? Is there a way to keep your long term holdings separate in order to day trade while still keeping a long term position in order to take advantage of the lower rate.

The default is FIFO, so you would have long-term gains of $401-$x from your 10 BTC pool. You could use LIFO (last-in-first-out) but you should use it consistency and not to avoid taxes. The IRS might not accept it in an audit.

If you maintain separate wallets and separate exchange accounts, then you can keep one for investment and one for spending. As long as they never mix.

3) Break even transactions: If I buy 1 BTC at $400 and sell it a month later for $400, $400.01 or something else that rounds to $400, does it have to be reported?

All capital gains transactions have to be reported. However, they round to nearest dollar (so $0) on your tax forms.

and anyway every amount that do not surpass $600 per year, is not taxable

This is wrong. There are no limits for capital gains in the US, everything is reportable. You are confusing the 1099-MISC business form requirement.


See https://bitcoin.tax for more information and to help calculate your capital gains and income.

Excellent info. The one thing I'm still not clear on is if all my transactions have to be reported separately.

For example. If I buy 1.15 on 1/1/16 for $565 and buy 2.0 on 1/5/16 $1020 and sell it at some point in the future for a total of $5000, when I file, can I just say I have taxable gains of $3,415 ($5000-($565+$1020)) or do I have to differentiate the transactions?

I like your site by the way, the thing that makes it difficult for me is that I have Bitcoin from prior years for which I have no records...

[Dinki]

Interesting. Does this apply when you sell bitcoins on localbitcoins.com and you withdraw your funds to a foreign bank account [euro currency]?

[Razick]

Interesting. Does this apply when you sell bitcoins on localbitcoins.com and you withdraw your funds to a foreign bank account [euro currency]?

If you are a U.S. citizen you have to pay U.S. taxes regardless of where you sell or what currency you receive. I think there are deductions for foreign taxes paid though if you also owe foreign tax.

[bitcointaxes]

and anyway every amount that do not surpass $600 per year, is not taxable

This is wrong. There are no limits for capital gains in the US, everything is reportable. You are confusing the 1099-MISC business form requirement.


See https://bitcoin.tax for more information and to help calculate your capital gains and income.

i said not taxable not not reportable, which is vastly different

They are both taxable and reportable.

Excellent info. The one thing I'm still not clear on is if all my transactions have to be reported separately.

For example. If I buy 1.15 on 1/1/16 for $565 and buy 2.0 on 1/5/16 $1020 and sell it at some point in the future for a total of $5000, when I file, can I just say I have taxable gains of $3,415 ($5000-($565+$1020)) or do I have to differentiate the transactions?

I like your site by the way, the thing that makes it difficult for me is that I have Bitcoin from prior years for which I have no records...

While a pain, yes, the IRS requires you report all capital gains transactions. So in your example there is one tax event per sell transaction even if in the end you came up with the same value.

Thanks for saying, glad you find the site useful.

Interesting. Does this apply when you sell bitcoins on localbitcoins.com and you withdraw your funds to a foreign bank account [euro currency]?

It applies when you sell on localbitcoins.

> you withdraw your funds to a foreign bank account [euro currency]

If you are selling BTC (or any coin) into EURO, then capital gains applies. Doesn't matter if you haven't converted into USD, but you'd have to calculate any USD gains. If you just mean withdrawing already converted funds (in USD/EURO) from localbitcoin to a foreign bank account, then this isn't a tax event. (unlikely exception, if there was a gain in exchange rate of more than $200).

[Amph]

and anyway every amount that do not surpass $600 per year, is not taxable

This is wrong. There are no limits for capital gains in the US, everything is reportable. You are confusing the 1099-MISC business form requirement.


See https://bitcoin.tax for more information and to help calculate your capital gains and income.

i said not taxable not not reportable, which is vastly different

They are both taxable and reportable.

no it's not taxable only reportable if above 600 https://www.irs.gov/pub/irs-drop/n-14-21.pdf

Is a payment made using virtual currency subject to information reporting?
A-12: A payment made using virtual currency is subject to information reporting to the
same extent as any other payment made in property. For example, a person who in the
course of a trade or business makes a payment of fixed and determinable income using
virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a taxable
year is required to report the payment to the IRS and to the payee. Examples of
payments of fixed and determinable income include rent, salaries, wages, premiums,
annuities, and compensation.
Q-13: Is a person who in the course of a trade or business makes a payment
using virtual currency worth $600 or more to an independent contractor for
performing services required to file an information return with the IRS?
A-13: Generally, a person who in the course of a trade or business makes a payment
of $600 or more in a taxable year to an independent contractor for the performance of
services is required to report that payment to the IRS and to the payee on Form 1099-
MISC, Miscellaneous Income. Payments of virtual currency required to be reported on
Form 1099-MISC should be reported using the fair market value of the virtual currency
in U.S. dollars as of the date of payment. The payment recipient may have income
even if the recipient does not receive a Form 1099-MISC. See the Instructions to Form
1099-MISC and the General Instructions for Certain Information Returns for more
information. For payments to non-U.S. persons, see Publication 515, Withholding of
Tax on Nonresident Aliens and Foreign Entities.

[bitcointaxes]

no it's not taxable only reportable if above 600 https://www.irs.gov/pub/irs-drop/n-14-21.pdf

You're talking about making payments, I'm not sure why, but we're talking about ordinary income and capital gains income. The former is irrelevant to OP.

if you're a miners, ... and anyway every amount that do not surpass $600 per year, is not taxable

You started talking about mining income and now switched to making payments. All mining income is reportable and taxable. For B2B payments, then there is a $600 reporting requirement for issuing a 1099-MISC, but taxes are irrelevant.

[Amph]

no it's not taxable only reportable if above 600 https://www.irs.gov/pub/irs-drop/n-14-21.pdf

You're talking about making payments, I'm not sure why, but we're talking about ordinary income and capital gains income. The former is irrelevant to OP.

if you're a miners, ... and anyway every amount that do not surpass $600 per year, is not taxable

You started talking about mining income and now switched to making payments. All mining income is reportable and taxable. For B2B payments, then there is a $600 reporting requirement for issuing a 1099-MISC, but taxes are irrelevant.

are you sure? it say "Generally, a person who in the course of a trade or business makes a payment of $600 or more in a taxable year"

trade or business is assimilable to mining in my view, or they are not very clear here

[Alex3D]

Interesting. Does this apply when you sell bitcoins on localbitcoins.com and you withdraw your funds to a foreign bank account [euro currency]?

If you are a U.S. citizen you have to pay U.S. taxes regardless of where you sell or what currency you receive. I think there are deductions for foreign taxes paid though if you also owe foreign tax.

But.. if we are not from U.S. ?

[mindrust]

Fuck taxes and the taxman.

I ain't come to this world to pay taxes. This is internet, if you are smart enough you don't have to give them anything.

Sorry,  i am just mad at high taxes. 

[energoro]

Well... I didn't hear about any taxes... so what you don't know, can't hurt... right ?

[bitcointaxes]

are you sure? it say "Generally, a person who in the course of a trade or business makes a payment of $600 or more in a taxable year"

trade or business is assimilable to mining in my view, or they ar enot very clear here

This is a normal requirement for reporting, even outside of Bitcoin. See https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Reporting-Payments-to-Independent-Contractors.

For example, if you did some work for me as an independent contractor and I paid you more than $600 in a tax year, I have to send you a 1099-MISC. If I run a payment network business, and I make payments out to individuals, then I have to send them a 1099-MISC if they receive more than $600 per year. This could well be applied to mining pools, in that they ought to be sending their individual contributors 1099s.

So it doesn't really apply to individuals (except they might receive a 1099). In any case, it's for when you have paid out, not received income so there are no tax implications for the payer.

But.. if we are not from U.S. ?

Rules vary by country. If you say where you're from, someone might be able to help.

[BellaBitBit]

Simply treat it like any capital gain tax laws in your location.  It is taxable.

[Amph]

are you sure? it say "Generally, a person who in the course of a trade or business makes a payment of $600 or more in a taxable year"

trade or business is assimilable to mining in my view, or they ar enot very clear here

This is a normal requirement for reporting, even outside of Bitcoin. See https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Reporting-Payments-to-Independent-Contractors.

For example, if you did some work for me as an independent contractor and I paid you more than $600 in a tax year, I have to send you a 1099-MISC. If I run a payment network business, and I make payments out to individuals, then I have to send them a 1099-MISC if they receive more than $600 per year. This could well be applied to mining pools, in that they ought to be sending their individual contributors 1099s.

So it doesn't really apply to individuals (except they might receive a 1099). In any case, it's for when you have paid out, not received income so there are no tax implications for the payer.

well like you said it applyed to pool operator which are the one that give money to the miners, so in that case for them below 600 there is no tax to pay

[bitcointaxes]

well like you said it applyed to pool operator which are the one that give money to the miners, so in that case for them below 600 there is no tax to pay

Please stop confusing people and providing bad information. The $600 is a form requirement, nothing to do with taxes. For the miners, it's income, they declare it and pay taxes no matter the amount. For the pool operator, it's gross income so would be declared in their P&L, but the payouts are a business expense so would reduce net income and corporation taxes.

[adelhmdt]

if you use coinbase they do everything for you, if you're a miners, it would be a pain in the ass to back up each transaction and the tx id

and anyway every amount that do not surpass $600 per year, is not taxable

[Amph]

well like you said it applyed to pool operator which are the one that give money to the miners, so in that case for them below 600 there is no tax to pay

Please stop confusing people and providing bad information. The $600 is a form requirement, nothing to do with taxes. For the miners, it's income, they declare it and pay taxes no matter the amount. For the pool operator, it's gross income so would be declared in their P&L, but the payouts are a business expense so would reduce net income and corporation taxes.

well i'm lucky that i live not in the usa, and in the europe where there is a roof under which you don't pay nothing, which is 4800 in my case

it seems wrong to force everyone to pay taxes, even those that live in poverty, there should be a better distribution of the taxes there...