Speculation and Tax

[drnick]

How is taxation affecting your buy/sell decisions?

For simplicity, let's assume a high bracket of 50% for taxation, and that you bought:
10 BTC @ $10
10 BTC @ $100

If BTC were to hit $1000, and you sold 10BTC (half your holdings), and you cashed out $10,000 (for a net gain of $9500)...

And then, BTC falls to $500, and you buy $10,000 back in (+20BTC).

You've now got 30BTC, but a tax liability somewhere around $9500 of gains, or $4750.

You would have had the same net effect by buying $4750 worth of BTC when it was at $475 each.


Am I just false in my claims above? It seems like trying to play the bounce, you're more likely to lose out due to tax and it's just better to sit on unrealized gains. I must be missing a key point.

[superduh]

each country has their own laws

[drnick]

each country has their own laws

Sure, but unless you live in a tax free country (or a country that doesn't impose tax on bitcoin gains), or you don't plan on reporting, then how to weigh the tax implications?

I just wanted to run over a simple case study with simple numbers. I don't plan on making many trades a year, maybe a couple of big sells and the rest as small periodic buys.

I'm weighing in on whether or not it's worth trying to sell before a big correction, but my understanding, it would have to be a big correction for it to be worth trying to pin point it.

[superduh]

each country has their own laws

Sure, but unless you live in a tax free country (or a country that doesn't impose tax on bitcoin gains), or you don't plan on reporting, then how to weigh the tax implications?

I just wanted to run over a simple case study with simple numbers. I don't plan on making many trades a year, maybe a couple of big sells and the rest as small periodic buys.

I'm weighing in on whether or not it's worth trying to sell before a big correction, but my understanding, it would have to be a big correction for it to be worth trying to pin point it.

each country decides how to tax differently. FIFO, LIFO, Weighted Average, Capital Gains, buyback periods, exemptions, long term holding, short term holding, currency appreciation laws, currency appreciation exemptions, etc. it's more complicated that you may think and i recommend you talk to a professional in your respective country.

[drnick]

I think the key point is the fact that you started with an investment of $1100. If you had 4750 laying around why didn't you buy in with that in the first place?

Gains are gains. Sure, you lose some (or most) to taxes, but you are still in profit. That's why you owe taxes in the first place.

My goal is to increase my BTC holdings from my initial $1100 investment. In my example, I would now be holding 20 BTC from $1100 invested.

If I sell 10 BTC @ $1000, and buy back at $900, effectively I would have fewer BTC than before, because: I have to pay $4750 in taxes, which leaves me $5250, which only buys back about 5.83BTC @ $900 so I would have reduced my holdings from 20 BTC to 15.83 BTC.

My point is, for me to gain BTC holdings, I would *have* to buy back at a percentage drop about equal to my tax rate just to break even. So I was curious whether there are others who also factor this in, and how that affects their decision to sell and buy back in when it's much lower.

[sgbett]

I think cashing out is the key thing.

If you never took it out of the exchange, it never hit your bank account, you never saw 'profit'. Just numbers on a screen.

I realise a bank account is numbers on a screen too, but thats the screen the taxman is gonna be looking it. Gox (*insert favourite exchange) is like a virtual box under the mattress