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Author Topic: [INFOGRAPHIC] What Are Bitcoins and How Are They Taxed? (Comments from TurboTax)  (Read 1379 times)
BitcoinPorn
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July 26, 2011, 11:02:41 PM
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http://www.theatlantic.com/technology/archive/2011/07/infographic-what-are-bitcoins-and-how-are-they-taxed/242448/

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You've heard about bitcoins, the digital exchange system, if only because of a recent hack that resulted in tens of thousands of usernames, email addresses and passwords being released. But you should be paying closer attention, argues TurboTax, which recently put together this explainer on the anonymous, decentralized currency.

"In today's economy, the value of the dollar is weaker than ever and the thought of a digital currency is becoming more of a reality with the recent introduction of bitcoins," TurboTax explains in the introduction to this infographic. "Bitcoins can be compared to cash, but cash is limited to physical exchange, where as bitcoins can be sent throughout the Internet. Today there are more than 6.3 million bitcoins in existence and this number continues to grow. So, how are bitcoins used and how have they become a currency that can be used like dollars, but is tax avoidable? Let's explore."





Infographics are always a bit of a hodgepodge of statistics culled from a variety of sources. Here, we sort through the clutter and pull out some of our favorite facts and figures:

What are bitcoins? Created in 2009 by a Japanese programmer, bitcoins are the first anonymous decentralized digital currency. They are digital coins that you can send through the Internet.

As of May 2011 there are over 6.3 million bitcoins in existence. At current prices, it would cost over $49 million to buy these. The value of a bitcoin drastically changes during the course of a single day; however, they have generally hovered around $14 to $17 per unit.

Advantages to bitcoins: Bitcoins are transferred directly from person to person; fees are much lower; they can be used in any country; and accounts cannot be frozen and there are no prerequisites or arbitrary limits.

Disadvantages to bitcoins: There are privacy and security issues that arise, since bitcoins are shared publicly online; transactions are difficult and based on scripts contained inside them; bitcoins are the currency for many criminals online.

Bitcoins are generated all over the Internet by anybody running a free application called a bitcoin miner. Mining requires a certain amount of work for each coin. This amount if automatically adjusted by the network, such that the bitcoins are always created at a predictable and limited rate.
Bitcoins are produced without the involvement of governments or banks, thus avoiding taxes. Instead, they are generated by software and are stored in an online e-wallet, similar to cash.

On June 19 of this year, a security breach of the Mt. Gox Bitcoin Exchange caused the leakage of usernames, emails and passwords of over 60,000 users into the public domain. In a separate incident, an unknown criminal allegedly transferred or stole 25,000 BTC, worth approximately $500,000, out of an unsuspecting user's wallet.

http://www.theatlantic.com/technology/archive/2011/07/infographic-what-are-bitcoins-and-how-are-they-taxed/242448/

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MrCrabs
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July 27, 2011, 10:50:57 AM
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Great post .I'm going to print it of and hang it on stuff.
myhoho
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July 27, 2011, 12:01:22 PM
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 Graphics looks nice, but i don't  see anything informative behind it.... 
Rob Lister
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July 27, 2011, 01:12:27 PM
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Graphics looks nice, but i don't  see anything informative behind it.... 

Not much 'how they are taxed' info at all.  We get this:



Which is slightly misleading and completely unhelpful.  You'd have to declare the $ value of the BTC earnings, but I'm not sure when that conversion would be fixed: time of exchange, time of declaration, average exchange, etc.  Of course, none of that matters unless they audit you.  You could just declare it on a 1040C as other income and hope for the best.  So long as you declare in good faith, you'll be okay in the legal sense...unless you're somehow not.  Smiley  Anyway, the worst they'd likely do is adjust your exchange method to better benefit them.
airdata
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July 27, 2011, 01:26:40 PM
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Is this just an attempt to guilt people into paying taxes on their bitcoins?  Turbotax is obviously acknowledging that bitcoins exist.. but who else is?  What does the IRS think of bitcoin ?
Rob Lister
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July 27, 2011, 01:38:01 PM
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Is this just an attempt to guilt people into paying taxes on their bitcoins?  Turbotax is obviously acknowledging that bitcoins exist.. but who else is?  What does the IRS think of bitcoin ?

Guilt people into paying taxes?  I suppose that's one way to look at it.  You can declare your bitcoin earnings or not, as you see fit, but if you don't, and you get audited, be prepared to pay the consequences.  Income tax evasion is a serious crime.
Frozenlock
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July 27, 2011, 08:21:47 PM
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Guilt people into paying taxes?  I suppose that's one way to look at it.  You can declare your bitcoin earnings or not, as you see fit, but if you don't, and you get audited, be prepared to pay the consequences.  Income tax evasion is a serious crime.

So, there must be such a thing as a tax prison?
I suppose the crime would be "being born"?  Tongue

On a more serious note, I would like to see any taxman try to find my bitcoins.  Wink
Arius
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July 27, 2011, 08:59:30 PM
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Tax evasion is a crime, remember Kent Hovind?  If you exchange BTC for a physical good or service, that good or service is a type of capital good.  In the US, if you receive capital goods in excess of $6k in value, annually, you are required to claim them on your taxes.  It's the reason that you pay 30% of the sticker price of a car you win on a game show.  The tax man knows what you buy.  Be smart, claim capital goods that exceed $6k in value, but claim them as goods traded in-kind for a service.  The tax rate is lower.
Tasty Champa
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July 27, 2011, 09:29:23 PM
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I get seriously screwed on my taxes.
So no, I will not be telling mr hole in pockets.
nhodges
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July 28, 2011, 05:26:03 AM
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I get seriously screwed on my taxes.
So no, I will not be telling mr hole in pockets.

Hahaha

It's like the boogeyman that hides in my bank accounts!

Meatpile
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July 28, 2011, 05:47:45 AM
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I get seriously screwed on my taxes.
So no, I will not be telling mr hole in pockets.

Whyyyyy would you ever say such a thing on a public forum???
Tasty Champa
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July 28, 2011, 12:40:53 PM
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I get seriously screwed on my taxes.
So no, I will not be telling mr hole in pockets.

Whyyyyy would you ever say such a thing on a public forum???

they have much bigger things to worry about, like how China is going to feel when it finally realizes it isn't going to be getting any of their money. xD

Chinese can't take our bitcoins.
Rob Lister
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July 28, 2011, 01:12:15 PM
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Guilt people into paying taxes?  I suppose that's one way to look at it.  You can declare your bitcoin earnings or not, as you see fit, but if you don't, and you get audited, be prepared to pay the consequences.  Income tax evasion is a serious crime.

So, there must be such a thing as a tax prison?
I suppose the crime would be "being born"?  Tongue

On a more serious note, I would like to see any taxman try to find my bitcoins.  Wink

On an even more serious note, I don't think you would like to see that. Sad
There is no aspect of the IRS audit process that any rational human would enjoy seeing.  Not to worry though.  Unless you are laundering serious green through bitcoin, you're probably not a big enough target to show up on their radar.
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