How Will the IRS Tax Bitcoin?

[Raize]

I was a CPA for over 10 years working in an International Firm
and an NYSE listed bank. I am also a miner. I've been a corporate
CFO and COO over 20 years since then….

Thanks, and I seriously mean thanks for contributing. You and hanwong's comments are both appreciated.

I do trust my tax advisor to handle this professionally and I actually spoke with her this weekend about it, but I can tell you there's not only a dearth of people informed on how to do this, but a dearth of accountants that are *willing* to do it, so the fact that you're willing to provide any advice at all, with or without the disclaimers is beneficial.

I don't think Goat or I really have any animosity toward the IRS itself, but I, at least, feel like if those with billions of dollars in assets, like the Warren Buffets of the world get to talk like they aren't being taxed enough while still setting up charitable trust funds with billions in holdings for their kids, there's definitely a double-standard going on. It's like they want the rest of us to be punished for not taking advantage of loopholes which they consistently abuse. I don't want there to be loopholes I have to pay to take advantage of, I'd rather see a system where everyone just pays a set rate and the gov't doesn't pick who gets credits and who gets subsidies.

I believe that's probably the biggest problem with fiat, anyway, the way it's been gamed. Anymore the amount of paper with numbers on them you hold is meaningless, it's the power with which you wield it that matters. I'm not sure why this ruse wasn't uncovered earlier, honestly. We owe Satoshi a lot more than we think.

[hanwong]

I was a CPA for over 10 years working in an International Firm
and an NYSE listed bank. I am also a miner. I've been a corporate
CFO and COO over 20 years since then….

Thanks, and I seriously mean thanks for contributing. You and hanwong's comments are both appreciated.

I do trust my tax advisor to handle this professionally and I actually spoke with her this weekend about it, but I can tell you there's not only a dearth of people informed on how to do this, but a dearth of accountants that are *willing* to do it, so the fact that you're willing to provide any advice at all, with or without the disclaimers is beneficial.

I don't think Goat or I really have any animosity toward the IRS itself, but I, at least, feel like if those with billions of dollars in assets, like the Warren Buffets of the world get to talk like they aren't being taxed enough while still setting up charitable trust funds with billions in holdings for their kids, there's definitely a double-standard going on. It's like they want the rest of us to be punished for not taking advantage of loopholes which they consistently abuse. I don't want there to be loopholes I have to pay to take advantage of, I'd rather see a system where everyone just pays a set rate and the gov't doesn't pick who gets credits and who gets subsidies.

I believe that's probably the biggest problem with fiat, anyway, the way it's been gamed. Anymore the amount of paper with numbers on them you hold is meaningless, it's the power with which you wield it that matters. I'm not sure why this ruse wasn't uncovered earlier, honestly. We owe Satoshi a lot more than we think.

your looking for fairness in the tax system

what's the old saying "who said life is supposed to be fair?"

[Raize]

I suppose "fairness" is one way of saying it, but honestly, I'd just be happy with consistency at this point. Why do we change subsidies for say, agriculture every year? I live in Iowa and I'd be happy with just eliminating everything, including ethanol subsidies. All I'd ask is that we get rid of oil and other subsidies as well. Let them all compete on an even keel, the market will sort them out. If something is "bad" then the environmentalists will boycott that product and the companies that distribute it, thus decreasing demand. It seems kind of self-explanatory at this point, I'm not sure why government in particular has to be involved.

Anyway, I'm preaching to the choir I'm sure. Sanity simply has no place in politics.

[hanwong]

I suppose "fairness" is one way of saying it, but honestly, I'd just be happy with consistency at this point. Why do we change subsidies for say, agriculture every year? I live in Iowa and I'd be happy with just eliminating everything, including ethanol subsidies. All I'd ask is that we get rid of oil and other subsidies as well. Let them all compete on an even keel, the market will sort them out. If something is "bad" then the environmentalists will boycott that product and the companies that distribute it, thus decreasing demand. It seems kind of self-explanatory at this point, I'm not sure why government in particular has to be involved.

Anyway, I'm preaching to the choir I'm sure. Sanity simply has no place in politics.

Sanity has no place in taxation either.

So here's a story about tax fairness...

I have a friend he's in the cigar business. Totally legal business, but of course it's frowned upon by the government and society at large what with all the cancer thing and of course the smell of cigar smoke. He must pay 75% excise taxes on cigar sales. Is this fair to the cigar business? Imposing such a high tax? Or if you took the tax away, now is it fair to the rest of normal society who hates smelling cigar smoke and paying for cancer treatment?

Tax policy is not about fairness, and many times it is about the opposite of fairness, which is power. Non-smokers have the power. Iowa corn farmers have the power. Which side of the power coin (u see what I did there?) do you think bitcoin falls on? And what do you think the ultimate tax treatment for bitcoin will be? Fair or unfair to bitcoiners?

[kendog77]

Is Bitcoin mining income taxable the moment it is received, or at the time it is converted to goods, services, or fiat?

[Bob Derber]

There is no guidance on when to recognize mining income kendog77 - I think the IRS will ultimately say it is taxable at time of receipt of the coinbase and valued  using a reasonable valuation method (pull it from coindesk?) either on the date the block is included in the blockchian, the date it has sufficient confirms (6?) so as not to be considered an orphan or the date it reaches the 99 confirms required for it to be spendable.  I think any convention on timing of the three is supportable, but once you select a method you will have to stick with it for other income from the same mining operation.

You might choose to report it on disposition or sale of the BTC but you may need to consider disclosing what you are doing on the return to avoid significant penalties.

Now how you tax it - ordinary income, capital gain, etc., will be more of a conversation between you and your accountant.  They may also disagree with what I state above.... the 'right' answer is not entirely clear and I have spent several hours on mining income recognition.....

Note if you are in a pool or mining as a group the above may be quite different as the mining pool structure will impact how the income is recognized.........

my two cents.

[frente]

The only reasonable decision to make by IRS is that there's no tax on digital currencies. If I buy btc on LocalBitcoins or similar site anonimously and sell them later for a profit, how will they control that? For gold, stocks etc. it is different because there's no easy way to make anonymous purchases, so they can easily find if someone "forgot" to declare gains.

[maaku]

If you buy gold for cash in person, guess what? It is taxable.

[frente]

Only if you declare that you bought it and have some evidence. You must also have evidence that you either hold it at the end of the year or that you sold it during the year, right?

[maaku]

No, if it happens it's taxable. If you fail to declare it, you are evading taxes and just haven't been caught (yet).

[2dogs]

Excellent (free) advice from a tax attorney posting on reddit:

https://bitcointalk.org/index.php?topic=398262.new#new

[frente]

It's not that simple. Let's say I buy bitcoins on LocalBitcoins and sell them later for a loss. I declare that loss to IRS - will I be able to deduct that amount from my income? I highly doubt it.

No, if it happens it's taxable. If you fail to declare it, you are evading taxes and just haven't been caught (yet).

[maaku]

Yes, yes you could.

[frente]

I can declare anything but how will I prove my loss? Screenshots? List of transactions and a statement that the username "btcloser" belongs to me?

It's not that simple. Let's say I buy bitcoins on LocalBitcoins and sell them later for a loss. I declare that loss to IRS - will I be able to deduct that amount from my income? I highly doubt it.

As far as I understand it yes.

I will be doing this exact thing but with gold. I ended up taking a small loss on some gold I bought and then resold.

[greenlion]

I wonder to what extent it might be possible that the lack of IRS guidance is putting an upward pressure on price.

Personally, I have no desire to take profits in fiat whatsoever yet (I don't necessarily mean cashing out of Bitcoin entirely a la what the cynical mainstream media pushes as the "bubble" narrative), simply because the risk of having to deal with audits and scrutiny is not worth it even if you have nothing to hide and everything is completely above-board.

Could it be that the lack of guidance actually promotes the fairly commonly-held notion that "once it's time to cash out, you won't need to cash out"?