TurboTax advertises Bitcoin as a tax dodge!

[LeonGeeste]

If you're growing say cucumbers in your backyard and pickled them for storage. How would your taxman view that? Logically it seems to me that if you're not selling away your pickles, then there's no tax. But if you start selling them or trading them regularly on significant volumes, then there might be a tax.

Right, cucumber growing would be like Bitcoin mining, and I agree the IRS probably doesn't see that as income.  But if you trade cucumbers for carrots, the IRS sees that as barter income, which they claim is taxable (at least if over a certain volume) at the market rate for what you received.  So it would follow if you traded bitcoins for condoms, they would view the condoms as taxable income at their market value  

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[SgtSpike]

Example 3 on Page 19 seems like the most relevant tax information... talks about a barter club giving people credits to use.

You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year.

http://www.irs.gov/pub/irs-pdf/p525.pdf

So, you should record taxable income when you mine or receive bitcoins for any purpose at the value of the bitcoins at that time.  Then, at the time you sell or use said bitcoins, and they have increased or decreased in value, you would record a capital gain/loss in the extended amount of the difference between the value of the bitcoins at time of receipt, and the fair market value of the goods/services purchased with the same number of bitcoins.

[LeonGeeste]

Example 3 on Page 19 seems like the most relevant tax information... talks about a barter club giving people credits to use.

You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year.

http://www.irs.gov/pub/irs-pdf/p525.pdf

So, you should record taxable income when you mine or receive bitcoins for any purpose at the value of the bitcoins at that time.  Then, at the time you sell or use said bitcoins, and they have increased or decreased in value, you would record a capital gain/loss in the extended amount of the difference between the value of the bitcoins at time of receipt, and the fair market value of the goods/services purchased with the same number of bitcoins.

Well, that f***ing sucks.

[Meatpile]

Why does it suck? You are only paying if you are MAKING money, profit, income, Earning, dropping fat stacks, be happy you arent in debt.

[a63ntsm1th]

I guess if you wanted to volunteer information on totaly anonymous and unconfiscatable transactions in a virtual currency it might suck.

Tax man- "Do you have any bitcoin income to declare?"

You- "What are bitcoins?"


Also did an article on my bitcoin blog pointing out the errors in turbotax's little infographic http://www.bitcoinjunkie.wordpress.com

[repentance]

If tax laws in the US are anything like they are here, then tax agents are reaching beyond their scope when they give an opinion on how something new will be treated for tax purposes and you're better off asking for a private ruling from the Tax Office than relying on the Tax agent's opinion.

[Shinobi]

the real question is how is income from selling them taxed?  long- or short-term capital gain?  which is why i think the client needs to be able to send specific coins - so those bitcoin which were mined more recently, and have a higher cost of production [for miners], can be exchanged.

Interesting idea.

in any case, it's remarkable to see an entity like turbotax deal with Bitcoin - it'll do us good.  i doubt the information they're putting out about it will remain unchanged, however.

I think it's quite irresponsible of Intuit to even recognize Bitcoin, much less comment on its tax implications. Their lawyers should know better.

[Shinobi]

Taxman - "the things that you buy and sell on Mt. Gox, the exchange which we have receipts of being funded by transaction you've made with an intermediary called Dwolla. Still want to play dumb?"

Give it up on the anonymity routine guys. Unless you are mining and hoarding with no tie to the exchanges, this isn't an anonymous game for you all.

I guess if you wanted to volunteer information on totaly anonymous and unconfiscatable transactions in a virtual currency it might suck.

Tax man- "Do you have any bitcoin income to declare?"

You- "What are bitcoins?"


Also did an article on my bitcoin blog pointing out the errors in turbotax's little infographic http://www.bitcoinjunkie.wordpress.com

[LeonGeeste]

Why does it suck? You are only paying if you are MAKING money, profit, income, Earning, dropping fat stacks, be happy you arent in debt.

It sucks because if I mine just 1 BTC, then, to stay compliant with the law (which would be a nice bonus regardless), I have to report that "income" at its present USD exchange rate, even though:

- I haven't converted it into USD
- I may *have* to convert it just to pay the taxes on it
- it could be worth less when I do convert it, meaning I have to keep records just because of this tiny transaction.

And remember, even if I get bitcoins, that doesn't mean I made a profit!  I have to deduct the cost of the mining rig I put together to get that, which (in the case of receiving just 1 BTC) is a lot more than revenue.  Now, if the IRS actually allows those deductions, it's not so bad.  But really, how much crap do you think you'll have to go through when they see you trying to deduct high-end computing/graphics equipment, and audit you, and you have to convince them the machine just sat in the corner and computed hashes?

Most likely outcome is that they'll declare some arbitrary fraction of its cost to be "personal use" and non-deductible, and then fine you for not guessing that number.

F*** that.  From now on, I'll shut up about how many bitcoins I have, and I'll leave it to them to prove I know the trapdoor information about this or that elliptic curve (i.e. the private keys to certain addresses, in case you missed the reference).

EDIT: OTOH, if the IRS decides to be cool and accept payment directly in BTC, that's one more argument the haters can't use  "Bitcoin's stupid because, unlike the dollar, you can't pay your taxes in it."  "Actually, you can.  See this IRS ruling." "Oh.  Nevermind!  Wait, I've got another one..."

[JoelKatz]

So, you should record taxable income when you mine or receive bitcoins for any purpose at the value of the bitcoins at that time.  Then, at the time you sell or use said bitcoins, and they have increased or decreased in value, you would record a capital gain/loss in the extended amount of the difference between the value of the bitcoins at time of receipt, and the fair market value of the goods/services purchased with the same number of bitcoins.

Say I play World of Warcraft and I kill a boss and get an item worth 10 gold. If the fair market value of that 10 gold is $5, do I have a taxable gain of $5? (As I understand it, the answer in the United States is "nobody knows".)

[mpfrank]

So, you should record taxable income when you mine or receive bitcoins for any purpose at the value of the bitcoins at that time.  Then, at the time you sell or use said bitcoins, and they have increased or decreased in value, you would record a capital gain/loss in the extended amount of the difference between the value of the bitcoins at time of receipt, and the fair market value of the goods/services purchased with the same number of bitcoins.

Except, if you just buy Bitcoins, using US dollars, then in that case the BTC shouldn't count as income, right?  Because, you have already paid income tax on the US dollars, and now you are just spending them to buy something.  At most, you should just have to pay a sales or use tax (or a VAT)...

E.g., if I used USD$100 to buy myself a gift card worth $100 at Borders (say), then the gift card shouldn't count as income.

However, if those gift cards later became rare & valuable collector's items, then I can see paying capital gains on the appreciation in value.  Same as for the BTC, if they appreciate.  But, you only have to pay capital gains if/when the item is sold.  What if the Bitcoins appreciate to the point where I can use 1 BTC to buy a million loaves of bread from a baker who accepts BTC?  Then do I have to count the bread so purchased as capital gains in a barter trade?

[mpfrank]

Say I play World of Warcraft and I kill a boss and get an item worth 10 gold. If the fair market value of that 10 gold is $5, do I have a taxable gain of $5? (As I understand it, the answer in the United States is "nobody knows".)

I would guess the IRS isn't interested in WoW gold.  Although that might be a mistake on their part.  Some people have made a lot of money off of Chinese sweatshops that play WoW and rake in the gold...

[repentance]

So, you should record taxable income when you mine or receive bitcoins for any purpose at the value of the bitcoins at that time.  Then, at the time you sell or use said bitcoins, and they have increased or decreased in value, you would record a capital gain/loss in the extended amount of the difference between the value of the bitcoins at time of receipt, and the fair market value of the goods/services purchased with the same number of bitcoins.

Say I play World of Warcraft and I kill a boss and get an item worth 10 gold. If the fair market value of that 10 gold is $5, do I have a taxable gain of $5?

Playing WoW would probably be regarded as a hobby here and any income from it treated as hobby income.  While you can sell WoW gold for real money, the purpose of the game isn't to generate something of real world value.  Bitcoins, on the other hand, are intended to be a currency and there are no non-financial reasons for mining/buying them - whether people mine them or buy them, trade them or hoard them, they are doing so in expectation of a financial return - that's likely to influence how they are treated for tax purposes as opposed to WoW gold, frequent flyer points, or Facebook credits.

As far as I know the tax question hasn't been settled anywhere yet, but I do recall a Guardian article which suggested that in the UK and Australia, the tax offices would most likely treat Bitcoins as an asset.

[JoelKatz]

Say I play World of Warcraft and I kill a boss and get an item worth 10 gold. If the fair market value of that 10 gold is $5, do I have a taxable gain of $5? (As I understand it, the answer in the United States is "nobody knows".)

I would guess the IRS isn't interested in WoW gold.  Although that might be a mistake on their part.  Some people have made a lot of money off of Chinese sweatshops that play WoW and rake in the gold...

They are definitely interested in businesses that extract money at the end. For example, if I kill WoW bosses for money and sell those items on eBay, there's no question the IRS wants me to pay income tax on the dollars I get. I can deduct my basis in the item and if I really do play WoW for profit, I can deduct my reasonable business expenses too.

The question is -- what if I never pass through to dollars? What if I earn Bitcoins for consulting -- how is that materially different from getting an item for killing a boss on WoW? And if I buy hardware with my bitcoins, how is that materially different from buying an item at auction in WoW?

The problem is that if they're not taxable if they don't contact a real currency, then you really can bypass income and sales taxes. And if they are taxable even if they don't contact a real currency, then playing WoW could run up a tax bill even if you have no intent to ever cash out.

[JoelKatz]

Playing WoW would probably be regarded as a hobby here and any income from it treated as hobby income.  While you can sell WoW gold for real money, the purpose of the game isn't to generate something of real world value.  Bitcoins, on the other hand, are intended to be a currency and there are no non-financial reasons for mining/buying them - whether people mine them or buy them, trade them or hoard them, they are doing so in expectation of a financial return - that's likely to influence how they are treated for tax purposes as opposed to WoW gold, frequent flyer points, or Facebook credits.

Whether or not you intended to earn a profit only matters for tax purposes if you didn't make a profit. If you do make a profit, it matters not one bit whether it was accidental or by design.

[a63ntsm1th]

I think the real lesson here is how f**ked up the current taxation situation is.  Of course bitcoin represents an opportunity to change that without going through representative government (ie. nothing will change).

[repentance]

Whether or not you intended to earn a profit only matters for tax purposes if you didn't make a profit. If you do make a profit, it matters not one bit whether it was accidental or by design.

The reason I specified "here" (Australia) in my post is because different laws apply in different jurisdictions.  Not all profit is regarded as taxable income here.  The most well known example of that is us not usually having to pay tax on gambling wins or on income generated from hobbies.

Intention also matters here when the Tax Office is determining whether an activity is a hobby or a business.  If it's a hobby, the income and profit aren't taxable but nor can you claim deductions or losses.

Do you have the purpose of profit as well as the prospect of profit? Do you intend to make a profit or genuinely believe that you will make a profit, even if you are unlikely to do so in the short term?

http://www.ato.gov.au/corporate/content.aspx?doc=/content/00199712.htm

It's a good time for this topic to come up as it's tax time in Australia right now and people need to make choices about whether or not they're going to declare Bitcoin income and if so as what type of income.

[bitcon]

the best reason to avoid taxes:

http://readersupportednews.org/opinion2/268-35/5671-we-cant-afford-the-war-in-afghanistan


On this Tax Day, many Americans are likely taking a moment to consider the costs associated with funding the public services that, among other things, keep our air and water clean, create educational opportunities for our children, and provide financial security to our most vulnerable fellow citizens. Although no one likes to pay taxes, most Americans understand that our country is stronger because we collectively fund our national priorities and promote the common good.

Unfortunately, Americans are all too aware that they are bearing another, highly unpopular, financial burden: the direct and indirect costs of the wars in Iraq and Afghanistan.

This year, the government will spend $159.3 billion in direct spending on these wars. In the decade since these conflicts began, we've spent approximately $1 trillion. And, if and when these wars finally end, the bills will continue to roll in, as our veterans return home with grievous mental and physical injuries. The economist Joseph Stiglitz has estimated that these legacy costs could push the final tally for our occupations to more than $3 trillion.

So what are Americans getting for their $107 billion taxpayer investment in Afghanistan this year? Troop casualties are up, civilian deaths are at an all-time high, and, according to our own CIA Director, there are fewer than 100 Al-Qaeda remaining in the country.

The American people are willing to pay their fair share and engage in shared sacrifice for the good of the country. It's all a part of being a responsible, patriotic citizen. However, as elected officials, we should not be asking our constituents to sacrifice unnecessarily. Right now, we just can't afford it. For example, according to the Rethink Afghanistan campaign, a household bringing in the median income in my district in Detroit, Michigan - a mere $32,365 - will pay $1,250 in taxes to support the War in Afghanistan and other military spending.

We shouldn't be asking Americans to spend more than $1,000 a year on a counterproductive and wasteful war when they're struggling to get by. Wouldn't it be better to put that money into popular programs that help working families? With the money spent on the wars this year, we could put 14.1 million children into the Head Start program or put 1.6 million additional cops on the beat or give 19.3 million low-income students a $5,000 Pell Grant scholarship. The math is clear. For the sake of working people across this country, for the health of our troops, for a more responsive democracy, and a stronger and smarter national security posture, we need to start bringing our troops home now.

[Meatpile]

Wouldn't that be a difficult conundrum for the IRS if a majority of taxpayers withheld 30% of their taxes because they didnt want to contribute to the war (I guess if its like stranger than fiction, a bunch of auditors will get layed for once)

[JoelKatz]

Intention also matters here when the Tax Office is determining whether an activity is a hobby or a business.  If it's a hobby, the income and profit aren't taxable but nor can you claim deductions or losses.

Wow. In the United States, hobby income is fully taxable though you don't have to pay self-employment taxes on it. Hobby losses are deductible but only against hobby income.