Potentially silly question concerning paying taxes on cashed-in Bitcoins...

[BuhTuglia]

Howdy!

Okay, I'm sure I'll get flamed by some holier-than-thou's for even thinking this out loud (cheating the IRS! Lordy!) but, say, okay, I cash in some of my hard-mined bitcoins using one of the major exchanges (like Coinbase), don't I need to be sure and report that income to the tax man? Of course I would! I heard just the other day on NPR that the feds were coming down hard on the exchanges, and why else would they be interested? Somebody please reassure me that the exchanges report all their transactions to our gracious and benevolent government.

thanks.

russell

[Zombiehasslehoff]

I don't know which exchanges report transactions and which ones don't but even if you use one that doesn't, that can change by the end of the year. Also, if you get audited, they will be able to look into your bank accounts and you will have to be able to prove taxes were paid on all of your income. If you do report it, report it as capitol gains but be sure to deduct your hardware investment first.

[manoamano]

It depends where you live...
Anyway, for less than 10k euros, it should be fine. But if it is for large amount of money, you should contact the tax office and ask them what to do.

[RodeoX]

In the U.S. you should pay capitol gains. If it makes you feel better, you are only paying at the 20% rate. The money you earn from working your ass off will likely be taxed at a higher rate.

[alp]

A lot of really bad advice in this thread so far, so make sure you talk to someone who knows what they are doing.

This is not tax advice but my best understanding of the situation.

If you are running a mining operation like a business, you will take the value of the bitcoins at the time you mine them as income.  This is going to be tricky, since you likely are a part of a mining pool and get lots of payments periodically.  You might be able to deduct the costs of your mining rigs and reasonable other costs (electric bill for the operation, etc...).

You can do capital gains on the value gained from the time you mined the coins to the time you sold them.  Or capital losses if they went down in value.  Long term vs. short term capital gains depends on how long you held them.  You'll also need to worry about self-employment taxes if you treat this as a business.  You may be able to treat it as hobby income, but then you cannot deduct expenses.

To properly report, it will be a huge pain in the ass.  The simpler method that you might be able to use is to take all the money you sold them for on an exchange and report it as other income.  Talk to a tax attorney (not some H&R Block data entry specialist) for a better opinion.  Above all, do not listen to anyone on this forum (including myself).

[notlist3d]

You need to have all gains/losses/investments etc.  Honestly you should go to your local CPA not here for tax on this.

[BuhTuglia]

Howdy again!

Gotcha, and thanks to all the folks for the helpful and polite replies. I will do what I was probably going to do anyway, and talk to my CPA/tax guy at the end of the year. I just wondered what the general concensus out there was, and maybe the experiences of some people who had been through this already.

Thanks again!

russell