US Accountability Office Reports Re: Virtual Currencies

[esenminer]

This report came out on May 15th and addresses issues regarding IRS and virtual currencies - bottom line seems to be in closed systems where virtual currencies aren't exchanged for FIAT, goods or services i.e. trading Bitcoin for Litecoin than no taxable income is generated - where virtual currencies are traded for FIAT, goods or services than income is generated.

http://www.gao.gov/products/GAO-13-516

Another interesting part - the recommendation:

Recommendation: To mitigate the risk of noncompliance from virtual currencies, the Commissioner of Internal Revenue should find relatively low-cost ways to provide information to taxpayers, such as the web statement IRS developed on virtual economies, on the basic tax reporting requirements for transactions using virtual currencies developed and used outside virtual economies.

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[johnyj]

Interesting, since bitcoin's value is always rising, means most of the purchases made by bitcoin always result a loss, does it mean that people who spend bitcoin always receive tax deduction?

[QuestionAuthority]

That's a good find. That means every time someone cashes out Bitcoins from MtGox to dollars or buys a tangible product with Bitcoin they must report that as earned income. I wonder if that is considered capital gains or just earned income in the classic sense? Mining Bitcoins in the USA will lose a lot of value when the IRS issues reporting requirements.

[esenminer]

Interesting, since bitcoin's value is always rising, means most of the purchases made by bitcoin always result a loss, does it mean that people who spend bitcoin always receive tax deduction?

there are a couple of scenarios which probably apply

a) you buy bitcoins with fiat - the only thing that makes sense is to treat it like you would shares. when / if you cash out or redeem for goods / services you must claim any capital gains or losses.

you purchase 5 bitcoins at $100 USD then use / cash out when they are $120 USD you claim $20 x 5 = $100 USD of capital gains on your taxes. i don't think they would qualify as long-term capital gains so you get taxes at your regular rate - see

http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

in canada you are only taxed for 50% of your capital gains which is a little better. an interesting question will be if the IRS / CRA will treat bitcoins as investments - so for example you can include them in your ira (US) or rrsp or tfsa (canada)



b) you mine bitcoin - when / if you cash our or redeem for goods / services you claim the total value as income

you mine 5 bitcoins and sell for $100 USD each then you must report $500 USD income on your taxes - although I'm not sure how you report this - self employment income or 'other income' - they will probably need to clarify that

[QuestionAuthority]

Interesting, since bitcoin's value is always rising, means most of the purchases made by bitcoin always result a loss, does it mean that people who spend bitcoin always receive tax deduction?

there are a couple of scenarios which probably apply

a) you buy bitcoins with fiat - the only thing that makes sense is to treat it like you would shares. when / if you cash out or redeem for goods / services you must claim any capital gains or losses.

you purchase 5 bitcoins at $100 USD then use / cash out when they are $120 USD you claim $20 x 5 = $100 USD of capital gains on your taxes. i don't think they would qualify as long-term capital gains so you get taxes at your regular rate - see

http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

in canada you are only taxed for 50% of your capital gains which is a little better. an interesting question will be if the IRS / CRA will treat bitcoins as investments - so for example you can include them in your ira (US) or rrsp or tfsa (canada)



b) you mine bitcoin - when / if you cash our or redeem for goods / services you claim the total value as income

you mine 5 bitcoins and sell for $100 USD each then you must report $500 USD income on your taxes - although I'm not sure how you report this - self employment income or 'other income' - they will probably need to clarify that

You're agreeing with the fact that every mining calculator now needs to have a tax component built in to calculate the ROI. Those ASICS are looking worse every time I turn around. LOL 

[esenminer]

Interesting, since bitcoin's value is always rising, means most of the purchases made by bitcoin always result a loss, does it mean that people who spend bitcoin always receive tax deduction?

there are a couple of scenarios which probably apply

a) you buy bitcoins with fiat - the only thing that makes sense is to treat it like you would shares. when / if you cash out or redeem for goods / services you must claim any capital gains or losses.

you purchase 5 bitcoins at $100 USD then use / cash out when they are $120 USD you claim $20 x 5 = $100 USD of capital gains on your taxes. i don't think they would qualify as long-term capital gains so you get taxes at your regular rate - see

http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

in canada you are only taxed for 50% of your capital gains which is a little better. an interesting question will be if the IRS / CRA will treat bitcoins as investments - so for example you can include them in your ira (US) or rrsp or tfsa (canada)



b) you mine bitcoin - when / if you cash our or redeem for goods / services you claim the total value as income

you mine 5 bitcoins and sell for $100 USD each then you must report $500 USD income on your taxes - although I'm not sure how you report this - self employment income or 'other income' - they will probably need to clarify that

You're agreeing with the fact that every mining calculator now needs to have a tax component built in to calculate the ROI. Those ASICS are looking worse every time I turn around. LOL 

maybe it's a good idea

i'm not sure that the irs will bother with income made by a couple of bitcoins but if you've earned substantial amounts selling Bitcoins or purchased more than that with Bitcoins probably a good idea to report the income. it's much better to report the income and owe the irs taxes than not to report and end up in jail!

[🏰 TradeFortress 🏰]

This report came out on May 15th and addresses issues regarding IRS and virtual currencies - bottom line seems to be in closed systems where virtual currencies aren't exchanged for FIAT, goods or services i.e. trading Bitcoin for Litecoin than no taxable income is generated - where virtual currencies are traded for FIAT, goods or services than income is generated.

Is this really true? If so, that's a huge loophole.

[esenminer]

This report came out on May 15th and addresses issues regarding IRS and virtual currencies - bottom line seems to be in closed systems where virtual currencies aren't exchanged for FIAT, goods or services i.e. trading Bitcoin for Litecoin than no taxable income is generated - where virtual currencies are traded for FIAT, goods or services than income is generated.

Is this really true? If so, that's a huge loophole.

İt's what the report says

Bitcoin -> FIAT is taxable - eg convert to usd from mt gox

Bitcoin -> goods / services taxable - eg buy computer at bitcoinstore.com

Bitcoin -> other virtual currency not taxable - eg convert to litecoin

Where is the loophole?




Edited: for spelling and omission of 'taxable' for goods / services

[MSantori]

I believe this is precisely the tax professionals I work with are treating income from virtual currencies.