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Author Topic: Has anyone reported bitcoin capital gains or losses on their taxes?  (Read 11790 times)
Dan The Man
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October 26, 2011, 06:40:25 PM
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I'm curious about how much of a hassle will it be to try to explain where your money is coming from. My dollars are routed through an exchange which turns them into Bitcoins which are moved into a mostly anonymous (so far) Mt Gox account where they are traded. I have no way to actually prove the source of Bitcoins which are later converted back into dollars.

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RyNinDaCleM
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October 26, 2011, 07:06:51 PM
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AFAIK, Gox is the only one that reports such activity! If you just cash out mining profits, it would fall under self employed income. I would treat the first sell as income, then any gains/losses from that.
But, I'm sure there's an [Other] option for claiming capital gains.

However, If you put it all back into BitCoins, then it's unrealized gains and you don't have to claim it!

For the record: I'm not a tax law expert! =)

miscreanity
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October 26, 2011, 08:32:34 PM
 #3

I consider Bitcoin to be the equivalent of a tax haven. Therefore, hell-f*@$ing no.

How would an audit work if your transactions were no longer necessary to the integrity of the blockchain and had been culled?

Which transactions could be verified as yours without exposing your wallet to gov't inspection for verification of ownership?

Why in the world would you want to prostrate yourself as a sacrificial lamb to be made an example of?

Too risky to even consider, especially for anyone with substantial amounts of BTC. There are methods of protecting your tax status internationally against domestic gov't reporting requirements. Bitcoin assets and profits could easily be transferred to such a vehicle; many nations provide for a limited tax-free disbursement of funds from foreign sources. In the US, it's about $90k/year, which is like a ~$150k/year taxable salary.
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Mike Caldwell
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October 26, 2011, 08:34:25 PM
 #4

Has anyone filed a tax return since significant capital gains ever happened?  Bubble was in June, taxes aren't due until next April in the US, the year hasn't even ended.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
Bitcoin Oz
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October 26, 2011, 08:39:44 PM
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I think governments will need to go to a consumption based tax in future because of bitcoin.

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October 26, 2011, 09:20:39 PM
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I think governments will need to go to a consumption based tax in future because of bitcoin.

I think it would be more likely that they instruct people to declare their Bitcoin activity in the same way they do with other things like PM's.  People who fail to do so will simply be breaking the law.  I hope so at least since a consumption tax is highly regressive and thus unfair and damaging to society (in my opinion.)

Cluster2k
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October 26, 2011, 09:55:46 PM
 #7

When I converted bitcoins into dollars through BitPiggy and that money hit my real bank account, I declared the money as income.  Tax costs have always been included in my calculations for mining profitability.

Do not send bitcoins to me: 16b8s7pBJ9rUmsExNW25qD5VUqVqRPZuXu
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epetroel
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October 26, 2011, 10:17:17 PM
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If I've made anything by the end of the year (big if) I'd plan to report it as capital gains - just like I would if I were trading stocks, commodities or forex.
Bitcoin Oz
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October 26, 2011, 10:22:03 PM
 #9

If you have to declare bitcoins its only fair you can claim a rebate for any electricity used to create them and/or store them on your computer. This includes wear and tear and other depreciation costs as well as the elecricity used to access your coins.

How do you treat bitcoins you've mined differently than ones you purchased/earned ?




epetroel
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October 26, 2011, 11:22:01 PM
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How do you treat bitcoins you've mined differently than ones you purchased/earned ?

Treat it like a sole proprietorship (schedule C).  Your product is bitcoins, which you sell for a profit.  Any costs involved in that are deductible or depreciable against that profit (electricity, equipment, etc.)
BitMagic
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October 27, 2011, 02:08:56 AM
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How do you treat bitcoins you've mined differently than ones you purchased/earned ?

Treat it like a sole proprietorship (schedule C).  Your product is bitcoins, which you sell for a profit.  Any costs involved in that are deductible or depreciable against that profit (electricity, equipment, etc.)

Right. And any you bought and sold for profit are taxable as capital gains, like any investment, whether you invested in your brother's lemonade stand or not.

Please give me your money, because I am a shameless libertarian elite who deserves your money more than you do: 9Hkao8U82WWDp6SQGn4k7ad9gT1LWeL5s3
stic.man
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October 27, 2011, 02:31:54 AM
 #12

fuck i hope it's not an issue, already bought a house with some of it
BitMagic
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October 27, 2011, 03:06:55 AM
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fuck i hope it's not an issue, already bought a house with some of it

You're only really at risk if you get audited. But if you get audited, get ready to pay some serious taxes. That sounds like a lot of money to hide from the IRS.

Please give me your money, because I am a shameless libertarian elite who deserves your money more than you do: 9Hkao8U82WWDp6SQGn4k7ad9gT1LWeL5s3
miscreanity
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October 27, 2011, 03:57:36 AM
 #14

So the mere potential of a government threat involving tax liability is going to spawn a cottage industry that does virtually nothing productive other than assist in the navigation of an equally incomprehensible and financially-parasitic entity? Of all the absurdity.

Bitcoin offers a means to make governments, banks and their respective hordes of secondary and tertiary industries such as tax accountants and the IRS and countless paper-pushers completely irrelevant. This is the power that everyone seems so willing to give up to someone else - the power to eliminate taxation, not just minimize it; reinventing government functions as utilities instead of a unified, authoritarian force. In effect granting the greatest degree of free will to the individual than has ever been available before. Maybe it's the implied personal responsibility that's scary for people so used to passing it off onto others.

It saddens me that there is still so little revulsion toward the magicians behind the curtain and so much quarter given at the slightest of threats. We may not have to literally shed much blood to foment a modern revolution, if any at all, but battles of various types must still be fought.

When a business does wrong by us, we choose to take our business elsewhere. When a government wrongs us, do we stop providing support to that government or leave the country? Internationalize to protect yourself from the dying paradigm that is the all-powerful nation-state, lest it drag you down as well.

Take whatever positives you can from the following resources and put them into action:

Dan The Man
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October 27, 2011, 04:06:43 AM
 #15

Oh, sorry I was talking about people who wanted to pay taxes but were unsure of the legal standing of Bitcoin trading. I like the services provided by my government and don't mind paying my share.

miscreanity
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October 27, 2011, 05:14:32 AM
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Oh, sorry I was talking about people who wanted to pay taxes but were unsure of the legal standing of Bitcoin trading. I like the services provided by my government and don't mind paying my share.

I apologize if my post seemed confrontational. If you are a US citizen there is some information which might be relevant. Legal counsel or tax professional advice might not even be sufficient since this is still new and fairly obscure legislation; adding Bitcoin into the mix results in multiple unknowns.

The legal standing certainly hasn't been officially determined yet, although in the US any financial instrument or income-generating asset valued over USD$10,000 and held outside of the US must be declared; not necessarily taxable, but the Gestapo IRS must be informed of its existence by using a TDF 90-22.1 (PDF) form. I see no reason for Bitcoin to escape similar treatment, since it is basically a supranational currency outside of any regional jurisdiction. Oh, did you get the memo about the new TPS reports?

Be warned: if you do report your Bitcoin holdings, you may be risking more than you bargained for. The initial reaction of most governments in the face of potentially threatening uncertainties is to shoot first and ask questions later.

No service that any gov't provides is anything that couldn't be provided as a utility. If emergency services of police, fire and medics (to name a few) were paid for on a utility and/or per-use basis, there would be little to no justification for the bureaucracies that dwarf the actual work force. The same goes for conflict mediation and legal services. There is empirical evidence that shows private contract services which develop just such a utility system cut costs while providing a better level of service.

Control of commerce through the money supply has historically marked the transition from a government that respects its constituents to one that demonizes them. In the latter stages of a government's lifespan, arbitrary retribution can be exceptionally harsh.

The services I linked to in my previous post provide extensive information on how to protect yourself and your assets from needless government waste and aggression. Make use of them if you can.
BitMagic
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October 27, 2011, 07:50:02 AM
 #17

Be warned: if you do report your Bitcoin holdings, you may be risking more than you bargained for. The initial reaction of most governments in the face of potentially threatening uncertainties is to shoot first and ask questions later.

Sucks for you, I guess. I'm reporting my capital gains, regardless. Hope that doesn't ruin the party for you insane lolbertarians. Hilarious link, btw. Content ftw!

Please give me your money, because I am a shameless libertarian elite who deserves your money more than you do: 9Hkao8U82WWDp6SQGn4k7ad9gT1LWeL5s3
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Mike Caldwell
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October 27, 2011, 06:22:34 PM
 #18

I plan to pay my taxes on USD I have gained through Bitcoin (mining and trading)... I plan to just count the income into my bank account as what I made, and deduct the costs of buying BTC and mining them (electricity, equipment, etc.)... which my accountant feels should be reasonable and simple enough.  My accountant doesn't share the opinion that the IRS wants to "stick it" to people dealing in Bitcoin, they ostensibly just want a reasonable and accurate calculation of profits made and taxes paid consistent with the law.  And that where the law is unclear with respect to the new technology, that a reasonable best guess interpretation is made that doesn't blatantly skew toward not paying taxes.

This year, Bitcoin has been a windfall for me, and I can't really hide it (Bloomberg BusinessWeek sort of told the whole world)

As the tax year draws to a close, I have been deliberately incurring expenses which may or may not produce a profit in the end (such as producing physical bitcoins and offering software development bounties) to promote Bitcoin - which I believe I can legitimately deduct as business expenses because they are arguably expenses and efforts incurred to improve the value of BTC I have been holding.

per my accountant, I am advised to BEWARE if I bought BTC earlier in the year, made a profit on it by selling it, bought BTC afterwards, and took a loss.  In the US, according to him, if I don't sell those BTC by the end of the year to "Realize" the loss, AND keep my hands off them for 30 days, I run the risk of being on the hook for capital gains (which become taxable the moment it's sold for a gain) but not able to offset them with the losses (which only get realized if I sell AND DO NOT BUY THEM RIGHT BACK for 30 days).  Instead the capital losses would roll forward from year to year, and I could deduct them later, but only against future capital gains, and/or up to $3,000 per income per year (which could be a long time, or never, if the gains are substantial).  The 30 day rule is biased towards taxing gains: the government is apparently happy to take a piece of my "gains" unconditionally, but will only cut me a break on "losses" under relatively narrow conditions.  Don't get stuck with a scenario where you have both gains and losses but the rules force you to pay on the gains without the benefit of offsetting the losses.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
BitMagic
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October 27, 2011, 06:42:21 PM
 #19

The 30 day rule is biased towards taxing gains: the government is apparently happy to take a piece of my "gains" unconditionally, but will only cut me a break on "losses" under relatively narrow conditions.  Don't get stuck with a scenario where you have both gains and losses but the rules force you to pay on the gains without the benefit of offsetting the losses.

It's not biased, it's to prevent a scam called "wash sales," where you constantly realize and accrue tax credits on downtrends, but only pay once on the uptrend.

Please give me your money, because I am a shameless libertarian elite who deserves your money more than you do: 9Hkao8U82WWDp6SQGn4k7ad9gT1LWeL5s3
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October 27, 2011, 08:36:01 PM
 #20

Everyone should here should report their gains/losses just so they can be on point with the law.  Smiley

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