IRS to come after people for selling Bitcoins

[frankAcct366]

Isn't there some sort of "minimum" that one must make in order for it to even be taxable?

Say...hypothetically, that someone was unemployed during 2010/2011, and did some small time bitcoin mining, but sold those coins back in 2010-11 and made less than $500 total from all the sales.

Aside from kicking themselves for not holding them and selling at the recent peak for $260....would the said person be liable for any tax on that "income"? Hypothetically again, if it were conducted via paypal and the sales were done OTC.

Technically speaking, any profits would be capital gains and thus are reportable.  Whether it's taxable or not depends on whether sufficient deductions or credits are available in your situation to offset the gains.  $1 of gain is still a gain.  Now, having said that, the IRS is likely looking for worse offenders in general.

[1714877207]

1714877207

[darkmule]

Technically speaking, any profits would be capital gains and thus are reportable.  Whether it's taxable or not depends on whether sufficient deductions or credits are available in your situation to offset the gains.  $1 of gain is still a gain.  Now, having said that, the IRS is likely looking for worse offenders in general.

There is a certain complexity here when you're gambling with BTC and that is your main source of the commodity.  Almost all my BTC come from poker in one way or another, or through some other form of gambling.  The tax law for gambling, especially in the United States, is basically nutty.  It requires accounting for every session, and allows deductions for losing sessions, but those also must be tracked and you have to do enough gambling that it exceeds the standard deduction.  You also have to itemize deductions.

The taxable event in this case is actually winning the money at the table.  It can't be dodged by simply keeping the money (denominated in dollars) as casino chips and putting them in a safe deposit box.  In fact, the IRS has often gone after gamblers and the casinos generally cooperate in emptying out such safe deposit boxes to cash the chips.  If the gambler can't then document session losses and gains, tough titty.

However, BTC and the sale of BTC (especially when purchased with fiat) is a lot like the kind of event that triggers short-term capital gains taxes, particularly if you only hold the BTC for a year or less.  So what about the situation where you played a lot of Bitcoin poker when it was practically play money, you now have a bunch, and you cash out some when it hits $250?  

Capital gains is generally applied to when a purchased asset appreciates in value.  To some extent, even mining constitutes a capital investment, but suppose you just got it for free by playing poker freerolls, then letting that money ride until it turned into something real, then held it for a while?  

The fact is, the IRS has neither sane nor sensible regulations on these policies, and the statutory law is even further behind the times.  If the IRS does what the IRS does in any other case, it will adopt whatever position enables it to gouge the most money from you.

I know, some will say fuck the IRS, just do whatever, evade taxes, whatever.  Can't do that.  I'm in a profession where getting in IRS trouble gets you kicked out of the profession.  Won't work for me.  When I was making money on poker to the point it exceeded the income from my "real" job, I paid every damn penny of taxes and had my paperwork (well databases) in order to withstand any possible audit.

However, the denominated in Bitcoin shit presents serious accounting and legal issues.  I think anyone in that situation (including me) would benefit from professional advice in that area if the cost of the professional advice does not exceed the comparative benefit of having the advice.  One guy (apparently an accountant) who posted in this thread, is probably qualified to give such advice, but frankly, I am in just as good a position to give advice to myself.  The law is not established in this area, and it is dangerous ground.

Are there any other (mostly) law-abiding citizens out there who have established their own personal "best practices" in this area?  

Remember, the law is not what makes sense when you read it in a book of statutes, or even the regulations, it is what some 80 year old guy decides while his bowels are acting up and he doesn't understand your argument.

[biodieselchris]

the IRS goes after unreported income. That will always be true whether gold coins or bitcoins.

[QuantPlus]

True, in most cases they won't be able (or won't bother) to find you. But the fact that you can escape being taxed, doesn't mean you are legal. Quite the opposite. You are breaking the law, and what you are telling me (quite right) is that it will be difficult for them to discover you. Yes, possibly, just the same as if you work for cash and don't declare the income. Still, it's a) risky and b) illegal.

If you're worried about the IRS, don't let me stop you.  Report all your earnings on BTC and roll with it from there.

This.

Doyle Brunson is a very wealthy man from his poker empire...
But he makes clear, "You can only get rich by paying taxes".

This allows you to leverage everything with real estate, loans, etc...
Any rich man should control assets 10 times his net worth...
In the end, it's what you control... not your liquidation value that matters.

It may sound glamorous to be a tax outlaw at 22...
But being outside the system will get real old at 40 or 50 or 60...
And the IRS plays the Loooong Game.

I fully expect Bitcoin to continue to grow...
And I fully expect 100s if not 1000s of BTC millionaires...
To end up in US Federal prisons.

[Peter Lambert]

'Tis no different than reporting and paying taxes for other types of capital gains, such as stocks and precious metals.

Ah, yup.

The folks at the IRS must love Bitcoin: all that lovely, lovely capital gains to tax, and if the US-based user does not hold for at least one year before selling, it is taxed at the personal income tax rate.

Even better, if the US-based user fails to declare his or her Bitcoin earnings and files a fraudulent tax return, just look at all that lovely, lovely asset-forfeiture potential.

Keep it legit.  Declare your gains, and remember that if you're making money, then you shouldn't mind paying taxes.

Question: If I buy one bitcoin, hold it for a year, buy another bitcoin, hold it for a month, then sell one bitcoin, should I count that as long-term capital gains or short-term capital gains?

[BIGMERVE]

Is there any reported cases of anyone getting in trouble for this yet?

[mjsbuddha]

Use your gains to buy bitcoins December 31st. Boom. No capital gains for the year. Sell Jan 1st to get your money back.

[2dogs]

Oh please!

Since when is KD some kind of tax expert dispensing IRS rules and regulations?

[darkmule]

Oh please!

Since when is KD some kind of tax expert dispensing IRS rules and regulations?

Denninger is a nutjob.  He is also apparently of the belief that he is basically an expert on everything, and seems to have a specialty in believing himself to be an expert on subjects he understands less than the rankest BTC noob.

[frankAcct366]

'Tis no different than reporting and paying taxes for other types of capital gains, such as stocks and precious metals.

Ah, yup.

The folks at the IRS must love Bitcoin: all that lovely, lovely capital gains to tax, and if the US-based user does not hold for at least one year before selling, it is taxed at the personal income tax rate.

Even better, if the US-based user fails to declare his or her Bitcoin earnings and files a fraudulent tax return, just look at all that lovely, lovely asset-forfeiture potential.

Keep it legit.  Declare your gains, and remember that if you're making money, then you shouldn't mind paying taxes.

Question: If I buy one bitcoin, hold it for a year, buy another bitcoin, hold it for a month, then sell one bitcoin, should I count that as long-term capital gains or short-term capital gains?

You can actually choose the method you wish to account for it (assuming you treat it as an investment), but in this case, likely the most advantageous approach would be to adopt a first in, first out (FIFO) approach and thus consider the sale for long-term capital gains.

[Luckybit]

Yep.  Cheat on your taxes like "everyone does" for a couple grand here and there, and even if you get caught, they might waggle their finger at you and say "Oh you."  And, of course, collect the delinquent taxes plus a nice fat penalty and interest.  Do it for a few million, though, and you're looking at serious time.

People who get caught at that level often haven't been tracked down by any extraordinary means or any genius investigation.  The IRS just gets interested in you for whatever reason and notices you claim to do tech support for a buck above minimum wage and yet you showed up at the audit driving a Rolls, live in a million dollar house, and wear a Rolex.

The IRS has informants everywhere and can basically violate all privacy. There is nothing they can't search, no one they can't question and no rule they can't bend or break to get the information they want.

[Anenome5]

Keep it legit.  Declare your gains, and remember that if you're making money, then you shouldn't mind paying taxes.

Because taxes are legit? Don't think so. Taxation is at best extortion.

Pay your taxes because they have no problem bringing the full weight of the law down on you for not letting them steal the wealth you produce from you. But otherwise don't agree that taxation is legitimate, it's not.

[theta]

Keep it legit.  Declare your gains, and remember that if you're making money, then you shouldn't mind paying taxes.

Because taxes are legit? Don't think so. Taxation is at best extortion.

Pay your taxes because they have no problem bringing the full weight of the law down on you for not letting them steal the wealth you produce from you. But otherwise don't agree that taxation is legitimate, it's not.

yes,  it is.

le·git·i·mate  (l-jt-mt)
adj.
1. Being in compliance with the law; lawful

 Are you  really not aware of the tax laws  or do you not know the definition of legitimate?

[Mike Christ]

A law that states a man can love a horse would be legitimate.  That doesn't mean you have to agree with it.

Oh wait, yes it does.  Boy I sure do love this State business!

[frankAcct366]

A question if you will. How does it work in the US? One must declare the bitcoins that he holds, or just declare the income when converting them to dollars?

Here in 'merica you would only have to claim your income you made from selling Bitcoins, the Bitcoins you're holding are completely worthless in the eyes of the IRS, they can't tax it. Which is why it is a good thing to pay for things using bitcoins.

So is it taxable income if I were to say go from BTC -> Silver Bullion -> Cash?

Yes, it would be taxable income in that transition if you had made any gains.

[Peter Lambert]

A question if you will. How does it work in the US? One must declare the bitcoins that he holds, or just declare the income when converting them to dollars?

Here in 'merica you would only have to claim your income you made from selling Bitcoins, the Bitcoins you're holding are completely worthless in the eyes of the IRS, they can't tax it. Which is why it is a good thing to pay for things using bitcoins.

So is it taxable income if I were to say go from BTC -> Silver Bullion -> Cash?

I keep seeing people say if they buy something with their bitcoins they don't have to count it as income, but that is just silly.

If you buy a bitcoin for 1 USD, and then later buy an item with that bitcoin which is worth $10, then clearly you have made $9 worth of income and you need to count that somehow in your income for taxes. It does not matter if you use the bitcoin to buy usd or a pizza.

[Wuji]

A question if you will. How does it work in the US? One must declare the bitcoins that he holds, or just declare the income when converting them to dollars?

Here in 'merica you would only have to claim your income you made from selling Bitcoins, the Bitcoins you're holding are completely worthless in the eyes of the IRS, they can't tax it. Which is why it is a good thing to pay for things using bitcoins.

So is it taxable income if I were to say go from BTC -> Silver Bullion -> Cash?

I keep seeing people say if they buy something with their bitcoins they don't have to count it as income, but that is just silly.

If you buy a bitcoin for 1 USD, and then later buy an item with that bitcoin which is worth $10, then clearly you have made $9 worth of income and you need to count that somehow in your income for taxes. It does not matter if you use the bitcoin to buy usd or a pizza.

Technically you are right and it would be the right thing to do, pay taxes honestly.  However, in practice most people will not and I seriously doubt there will be consequences.  Is the IRS spending massive resources to track BTC transfers to make sure you paid tax when you bought a pizza?  I know people (immediate family) who have owed the IRS for decades (10s of thousands of dollars) on reported income and haven't had the IRS come knocking.  They seem to be understaffed and focused on the big fish in reality.

[Peter Lambert]

So is it taxable income if I were to say go from BTC -> Silver Bullion -> Cash?

I keep seeing people say if they buy something with their bitcoins they don't have to count it as income, but that is just silly.

If you buy a bitcoin for 1 USD, and then later buy an item with that bitcoin which is worth $10, then clearly you have made $9 worth of income and you need to count that somehow in your income for taxes. It does not matter if you use the bitcoin to buy usd or a pizza.

Technically you are right and it would be the right thing to do, pay taxes honestly.  However, in practice most people will not and I seriously doubt there will be consequences.  Is the IRS spending massive resources to track BTC transfers to make sure you paid tax when you bought a pizza?  I know people (immediate family) who have owed the IRS for decades (10s of thousands of dollars) on reported income and haven't had the IRS come knocking.  They seem to be understaffed and focused on the big fish in reality.

I am not trying to say what most people will do, or what is even feasible (the way tax laws are written, it is almost surprising anybody gets their taxes right), I am just stating the honest thing to do.