Bitcoin tax and regulation experts? Make some BTC for your knowledge! $$$

[TaxingBitcoins]

Hello, I am looking to collaborate with experts of bitcoin tax and regulation information.

I am interested in how to claim bitcoins on taxes, as a speculator, merchant, user, etc.

I am involved in long term projects in this area and would love to get in touch with you!

Send me a PM or respond, can also email me at taxingbitcoins@gmail.com

[austin]

Bitcoin businesses could be taxed just like any other business. Bitcoin users aren't going to pay anything but transaction fees. It's just not worth the effort for any government to try to regulate and tax all the transactions that come to and from their country.

[TaxingBitcoins]

Someone out there is going to get audited for cashing out 100k bitcoins into their account this tax season.
I'd like to help the people that would have no problem paying taxes if it was made easier.

[naphto]

It depends on the country ... One might know it for one or two countries but not more

[luke.watson]

Bitcoin businesses could be taxed just like any other business. Bitcoin users aren't going to pay anything but transaction fees. It's just not worth the effort for any government to try to regulate and tax all the transactions that come to and from their country.

So you think the government are going to allow every bitcoin user to not pay tax because they dont know how to tax it?

[naphto]

Bitcoin businesses could be taxed just like any other business. Bitcoin users aren't going to pay anything but transaction fees. It's just not worth the effort for any government to try to regulate and tax all the transactions that come to and from their country.

So you think the government are going to allow every bitcoin user to not pay tax because they dont know how to tax it?

If they see any income on your bank account, they surely know how to tax it

[DebitMe]

I am an accountant in the United States currently studying for the CPA exam.  Here is my take on the taxing of bitcoin and what I have learned from talking with some counterparts.

Technically...you owe tax on bitcoins if your a merchant or you realize capital gains.  For anyone selling items this is easy.  In a nutshell(yes obviously there are deductions and credits and what not) you owe tax on whatever was brought in minus what it cost you to produce the item.  AKA revenue - COGS.

Mining bitcoin is where this gets tricky.  Let me preface this by saying that no official word has been given from any government entity on how to handle cryptocurrency gains.  There have been independent companies that occasionly realease statements that pretty much amount to that "soon" (probably soon as in BFL soon) bitcoin will have to be looked at by the government.  Most of those 3rd party reports admit to no official ruling out, but that you probably need a license (I forget which one, I think it has to do with trading) in order to do any merchanting that involves bitcoin.

Obviously, that was a tangent that had hardly anything to do with taxability of mining earnings.  We have learned that there is no official ruling as of yet, but, the U.S. Tax Code is very vague for reasons just like this.  The main point to remember with U.S. tax is that there is no definition of the word "income" anywhere in the tax code, and no government agency will ever release a definition, and this is for good reason.  This allows them to basically set and change rules whenever they deem fit and cast a pretty wide net on what is taxable.

So, the generation of bitcoins are taxable, but, what/when should they be taxed.  Since we dont have an official ruling, we do not know if they are a security (investment) or a currency.  If a currency, you would owe tax when they are generated, but if a security, then you would be taxed at the capital gains rate when they are realized (IE converted to cash). 

This brings up more questions though, what basis should be used for the coins, can we deduct the expenses that were used to produce them?  Should the cost of your mining equipment be depreciated over a 5 year life cycle and is the electricity costs associaited with producing coins allowed to be deducted?  If we need to realize the value of it when it is created, how do we do this with an ever changing value of the currency.  Just because it was created yesterday and then the price took a 30% dip today, does this mean I should be taxed at the higher price when it was created?

As you can see, there are many questions that need to be answered.  My best advice as of this time, and I can in no way be held liable for giving this advice and any action on your part is completely of your own free will, is that you should pay tax on them when they are realized.  IE buying somethng or converting to cash.  They should be taxed at capital gains rates, and you should be able to deduct the expenses you put into it (if it is a dedicated rig, if your rig is also your personal computer or gaming computer or anything other than bitcoin, you cannot deduct its cost)

Of course, if the coins are used to buy gold or silver, which are not comoodities or stocks, then this complicates things further.  What basis do we use now?  My thoughts on this would be that the basis rolls over and you will still have to recognize gains on the liquidation of the gold or silver.

My thought is though, what if you buy gold or silver and then put it into an RIA?  These grow nontaxable, and lead me to believe that by doing this you can grow your investment tax free and then only have to recognize the gains when you start drawing from it.  This is just a thought that I had, not sure if it is possible or not or how it would be viewed.

I would say that you shoudl just go for whatever you want though.  With something new like this the IRS will probably just slap you on the wrist and worst case scenario make you pay back taxes which you would owe anyway, without any interest or penalty.  Again, YOU SHOULD PAY TAX!  I in no way endorse this strategy, it is simply what would probably happen based on past circumstances.  It is also a possibility that they will make an example out of you (probably if the amount is big enough) and tax you out of your freaking mind.  So that is a judgement call based on risk assessment.

Let me repeat, these are my own opinions based on what I have been able to gather and what is provided in past ruling and the tax code.  They should be viewed as such and nothing that I saw is legally binding or should be used in conjuncture with any IRS rulings.

[austin]

Bitcoin businesses could be taxed just like any other business. Bitcoin users aren't going to pay anything but transaction fees. It's just not worth the effort for any government to try to regulate and tax all the transactions that come to and from their country.

So you think the government are going to allow every bitcoin user to not pay tax because they dont know how to tax it?

I mean for the ordinary bitcoin user. Of course they'll tax someone who's making $20k annually through bitcoin, but I doubt there would be an additional "sales tax" for every transaction; We already have the transaction fee. Maybe large mining companies would be taxed because our transaction fees fund them.

[BitCoinUser123]

Of course, if the coins are used to buy gold or silver, which are not comoodities or stocks, then this complicates things further.  What basis do we use now?  My thoughts on this would be that the basis rolls over and you will still have to recognize gains on the liquidation of the gold or silver.

My thought is though, what if you buy gold or silver and then put it into an RIA?  These grow nontaxable, and lead me to believe that by doing this you can grow your investment tax free and then only have to recognize the gains when you start drawing from it.  This is just a thought that I had, not sure if it is possible or not or how it would be viewed.

Watch yourself with this one.  The taxation of bitcoins is not as complicated as a lot of people want to make it (with the possible exception of mining).

Most countries have a barter provision in the tax code.  For any country with such a provision, when you buy anything with bitcoins, you immediately owe taxes on either the value of that item (if you somehow acquired the BTC for nothing) or the capital gains embodied in the price less whatever you paid for the bitcoins at the time you bought them.  These are facts.  The additional fact is that it may be very challenging and largely unrewarding for tax authorities to ascertain the value of such items or the price you paid for a given group of bitcoins, which may make it appealing for some people to either fabricate values or forget to pay taxes entirely.  The relative ease of tax avoidance with a given instrument does not equal the absence of tax oversight for them, however.  Canada and the UK have already released specific guidance on this point, but I don't know whether other countries have explicitly addressed bitcoins with guidance.  The general view of Canada Revenue Agency and of Her Majesty's Revenue and Customs was "We don't need to make changes to the tax code.  It already provides for this stuff.  Treat it as barter or as non-commodity investment assets."

So tax codes are not changing to account for Bitcoin currently, but that is because Bitcoin is viewed as falling within the scope of existing provisions.  This view will vary from case to case and country to country, but it doesn't mean the tax authorities don't care, just that the overall market cap of Bitcoin is still low enough that they aren't trying specifically to get a piece of that particular pie with special regulations yet.

I'm not ignoring mining, but I'm not that worried about it for the moment - the easiest option for it is to still treat it like any commercially produced product with a given rate of input (hardware, percentage of mortgage if relevant, and electricity rates) but with a variable sale price, like any commodity.  I'm not saying that bitcoin IS a commodity, only that there are plenty of businesses already producing commodities and that Bitcoin's price volatility is not unique from a tax standpoint.  It's true that at the lower income levels, tax authorities generally *likely* won't care.  Bear in mind that lack of official enforcement activity is not the same as permission though.

Anyway, hopefully this sheds some additional light.  I haven't included specific references but can do later.  I need to go catch a flight, but if anybody wants specific links just ask or PM me.  Cheers!

[CoinEntropy]

I will be watching this thread very closely.

[DebitMe]

Of course, if the coins are used to buy gold or silver, which are not comoodities or stocks, then this complicates things further.  What basis do we use now?  My thoughts on this would be that the basis rolls over and you will still have to recognize gains on the liquidation of the gold or silver.

My thought is though, what if you buy gold or silver and then put it into an RIA?  These grow nontaxable, and lead me to believe that by doing this you can grow your investment tax free and then only have to recognize the gains when you start drawing from it.  This is just a thought that I had, not sure if it is possible or not or how it would be viewed.

I'm not ignoring mining, but I'm not that worried about it for the moment - the easiest option for it is to still treat it like any commercially produced product with a given rate of input (hardware, percentage of mortgage if relevant, and electricity rates) but with a variable sale price, like any commodity.  I'm not saying that bitcoin IS a commodity, only that there are plenty of businesses already producing commodities and that Bitcoin's price volatility is not unique from a tax standpoint.  It's true that at the lower income levels, tax authorities generally *likely* won't care.  Bear in mind that lack of official enforcement activity is not the same as permission though.

This is a very good paragraph and one that should always be remembered given governments current stance on Bitcoins.  I think this is what I was trying to get across in my previous statement, but was summed up very nicely here.  It is very true that official enforcement is not the same as permission, and anyone who thinks otherwise is very liable for heavy fines and/or penalties.

I think the above two posts should be used in tandem as I am really only knowledgable in U.S. tax law, and bitcoinuser123 seems to have more knowledge of some other countries.  But I will repeat it again as it is worth repeating because I very much so like the quote and is probably the best way to handle the taxation of bitcoin...
Lack of official enforcement activity is not the same as permission.
I would never advise anyone to try and defraud the government of any country.  And to this point I would say that bitcoins are a taxable item when produced or traded for goods/currency.

[TaxingBitcoins]

guys this is a great thread! Exactly what I was looking for.

So basically I would like to pay someone to outline tax information for the following categories:

tax info for bitcoin miners
tax info for bitcoin merchants
tax info for bitcoin users
tax info for bitcoin investors/speculators

Some of these may be similar/overlap, specifically interested in US law.

[prophetx]

is there a tax benefit (personal or corporate) if you lose your bitcoin wallet or you lose them in a transaction or using a shady service? what about donations, are they deducted from your profit (if any)?

how does one claim that? 

[DebitMe]

is there a tax benefit (personal or corporate) if you lose your bitcoin wallet or you lose them in a transaction or using a shady service? what about donations, are they deducted from your profit (if any)?

how does one claim that? 

http://www.irs.gov/taxtopics/tc515.html
This first link will tell you a little bit about theft deductions.  It may be very tough to explain how you "lost" bitcoins to an auditor, and I am not sure that you would win that arguement, since you could have very easily sent them to yourself or a friend and there is no way to prove that you didn't.  Personally I would not even attempt this one as it seems very risky and likely auditable.

Donations I suppose could be deducted.
http://www.irs.gov/uac/Eight-Tips-for-Deducting-Charitable-Contributions
There is a helpful link for charitable contributions deductions.  Keep in mind that they have to go to a qualified institution.  I highly doubt any places that would be considered "qualified" will accept bitcoins yet, but you never know.  You also need a receipt for your transaction and the tricky part is keeping records that this was made.  Given the anonymity of Bitcoin, it could be tough to prove that you sent the coins to a qualified organization if you get audited.

Also, itemizing your deductions is the only way to claim such a benefit, so unless your going to itemize anyway, it would not create a tax advantage.

[ironcross360]

BTC Is so anonymous you dont need to Just use cold storage

[bitrebel]

income taxes = 100% VOLUNTARY!!!!

[MSantori]

Hi OP.  This is a topic we've digested a few times in the Legal subforum. 

Debitme gave a good topical summary of the US tax code as it applies to bitcoin.  As a business attorney I see tax issues every day, but taxation is not my specialty.  As a part of my practice, I work closely with tax professionals here in NYC.

Feel free to PM me if you have specific questions.  Maybe we can set up a telephone call and speak in more detail.