IRS Releases Tax Rules on BTC

[IrishFutbol]

http://www.businessinsider.com/irs-bitcoin-is-property-not-currency-full-release-2014-3

Major ruling - BTC is property, not currency.  Basically means if you mine it at $600/coin, and then buy a product that costs $1,200 down the road for 1 BTC, you owe taxes on that $600 gain.

[1715263551]

1715263551

[BldSwtTrs]

Is it good or bad?

[amspir]

http://www.businessinsider.com/irs-bitcoin-is-property-not-currency-full-release-2014-3

Major ruling - BTC is property, not currency.  Basically means if you mine it at $600/coin, and then buy a product that costs $1,200 down the road for 1 BTC, you owe taxes on that $600 gain.

It seems like a reasonable ruling, however where are they going to catch the tax cheats?

If you convert your BTC back to fiat at a IRS-reporting-compliant institution, it is obvious that the IRS will note that you probably have gains there.

But as BTC is used more as a currency, in that you make small purchases with BTC, will sellers have to report all their BTC transactions to the IRS?

[IrishFutbol]

Is it good or bad?

Overall: Depends on when you bought it, and how you got it.

Purchased BTC when it was at $1,000 and used it to buy goods = Good, you can write the loss off as an investment loss.

Purchased BTC when it was below $600 and used it to buy goods = Bad, you owe taxes on the gains.

Mine BTC = bad, for two reasons.  
First, you owe taxes on the value of any BTC you mine on the date you mined it.  
Second, while you can write off the cost of mining to offset the taxes from the first point, anyone mining off of their personal computer (or a computer used for anything other than mining) will not be able to write off any expenses, and will owe taxes on the full value of what they mined.  The IRS has some very strict rules on personal businesses, and has been heavily cracking down on these deductions the past few years.

[Dimelord]

Oh bitcoin, what have you become? Taxed by the very thing that you were created to eliminate... 

[IrishFutbol]

http://www.businessinsider.com/irs-bitcoin-is-property-not-currency-full-release-2014-3

Major ruling - BTC is property, not currency.  Basically means if you mine it at $600/coin, and then buy a product that costs $1,200 down the road for 1 BTC, you owe taxes on that $600 gain.

It seems like a reasonable ruling, however where are they going to catch the tax cheats?

If you convert your BTC back to fiat at a IRS-reporting-compliant institution, it is obvious that the IRS will note that you probably have gains there.

But as BTC is used more as a currency, in that you make small purchases with BTC, will sellers have to report all their BTC transactions to the IRS?

They go after the businesses (think overstock), and request a list of people who purchased goods using BTC.

Kind of similar to what Italy has done recently with focusing their audits on people who shop at certain stores.

[sammart57]

Is it good or bad?

Overall: Depends on when you bought it, and how you got it.

Purchased BTC when it was at $1,000 and used it to buy goods = Good, you can write the loss off as an investment loss.

Purchased BTC when it was below $600 and used it to buy goods = Bad, you owe taxes on the gains.

Mine BTC = bad, for two reasons.  
First, you owe taxes on the value of any BTC you mine on the date you mined it.  
Second, while you can write off the cost of mining to offset the taxes from the first point, anyone mining off of their personal computer (or a computer used for anything other than mining) will not be able to write off any expenses, and will owe taxes on the full value of what they mined.  The IRS has some very strict rules on personal businesses, and has been heavily cracking down on these deductions the past few years.

Seems to be unenforceable in my opinion.
how are they going to know what you paid for them or if you mined them? How would they know when you bought them or if you'd had them for 3 years prior?
quite a few variables that are not explained very well here.

[runam0k]

Good for businesses in the US because they have a clear definition instead of ambiguity.

And a clear path forward: relocate.

[FeedbackLoop]

Wall Street Journal's Q&A Via Zerohedge. Notice the interpretation of wsj on the "meals" in number 3 and the one before last collide unless 600 USD is a normal lunch price for a WSJ writer:



"How is virtual currency treated for federal tax purposes?

Bitcoin and other virtual currencies are treated as property, not as a currency. Therefore, an investor who buys bitcoin would typically have a capital gain or loss when it’s sold but wouldn’t have foreign-currency gains and losses.

If a taxpayer receives a payment in virtual currency, is it considered income?

Yes, the fair-market value of the currency (in U.S. dollars) on the date the payment was received is considered to be income. For more information on exchange rates, see the notice.

Does a person who makes a payment using bitcoin have a gain or loss on the transaction?

Yes, typically. For example, say a person buys $5,000 of bitcoin, which then doubles in value. If she then uses the bitcoin to pay a $10,000 tuition bill, she could have a $5,000 taxable capital gain on the transaction.

This clarification means that people who use bitcoin in small amounts, such as to buy a meal, could face onerous record-keeping issues.

Is a person who “mines” a virtual currency considered to have received income?  

Yes, and if the taxpayer engages in mining as a trade or business, self-employment tax is often due.

Does virtual currency that’s paid by an employer in return for services meet the definition of wages for payroll-tax purposes?

Yes, and it’s also subject to income-tax withholding.

Must payments made in bitcoin be reported to the IRS?

Yes, if they meet the requirements for information reporting on payments made in property. Typically, the threshold is payments of $600 or more.

Will taxpayers be penalized for having treated bitcoin transactions in a different manner before today’s notice?

They could be, especially if they underpayed tax or didn’t report income, or both. But the IRS noted that penalty relief “may be available” to persons who were required to file information reports but didn’t, if there’s a reasonable cause for the nonfiling."

[IrishFutbol]

Is it good or bad?

Overall: Depends on when you bought it, and how you got it.

Purchased BTC when it was at $1,000 and used it to buy goods = Good, you can write the loss off as an investment loss.

Purchased BTC when it was below $600 and used it to buy goods = Bad, you owe taxes on the gains.

Mine BTC = bad, for two reasons.  
First, you owe taxes on the value of any BTC you mine on the date you mined it.  
Second, while you can write off the cost of mining to offset the taxes from the first point, anyone mining off of their personal computer (or a computer used for anything other than mining) will not be able to write off any expenses, and will owe taxes on the full value of what they mined.  The IRS has some very strict rules on personal businesses, and has been heavily cracking down on these deductions the past few years.

Seems to be unenforceable in my opinion.
how are they going to know what you paid for them or if you mined them? How would they know when you bought them or if you'd had them for 3 years prior?
quite a few variables that are not explained very well here.

Think of it like a parking garage.  If you can't prove when you got in there, the garage assumes the worst and hits you with the highest fee.

[nanook7]

It is good and bad...depends on each persons situation.

First are you a US taxpayer...

If yes, then it depends on whether you mine or buy/sell.

Buy/sell are easy.  If you by at one price and sell for another you have a gain/lose of the difference.

If you mine then Q8 of the release applies; then I read it as the IRS thinks we should realize the gain when "mined" based upon some exchange price.  This is nearly impossible, since each pool pays a tiny fraction of a bitcoin with each block solved.  Most pools don't keep exact enough records to know when each tiny fraction of a bitcoin was paid to each user.  I only know when I sent the accumlated tiny fraction to my personal wallet.

Does anyone see it differently?

[amspir]

Must payments made in bitcoin be reported to the IRS?

Yes, if they meet the requirements for information reporting on payments made in property. Typically, the threshold is payments of $600 or more.

What is the "requirements for information reporting"?  Essentially, any transaction over (XBT/$600) involving an American taxpayer must be reported to the IRS?

[bitbouillion]

But as BTC is used more as a currency, in that you make small purchases with BTC, will sellers have to report all their BTC transactions to the IRS?

There will be an App for that. At the end of the year just import it into Turbo Tax or whatever. Just makes you tax return filing a little bit bigger.

[RodeoX]

I consider it super good news. There never was a chance of it not being taxed, so the question is which taxes apply and at what rate. The USD I work hard for are taxed as income at around 30%. My bitcoin gains, which mostly I earned while sitting on my ass are taxable at the lower capitol gains rate. even better, If I had a loss I could claim losses now. This is going to be big news for businesses sitting on the side lines. They have been waiting for a ruling that gives them some direction in implementing bitcoin.

[worldtreasurefinders]

This is going to be both good and bad.  In reality this ruling now treats Bitcoins just like physical gold coins.  For institutional investors and investment companies who deal in large quantities, this is good because the rules are clear and there is now no question on the legality or illegality of bitcoins.  For the casual user, similar to a gold bug who buys/sells in small amounts with cash at local coin shops, bitcoins are now in the same boat.  If you want to avoid the IRS, buy/sell on exchanges outside the US or for cash in person.  Small time bitcoin users will mostly be unaffected, while the big players now have legal legitimacy to it all.  Overall I think this is a positive step for the bitcoin economy and should boost long-term confidence.

[Digi7ech]

This is insane if they expect miners to go off of moment of holding/creation for gains

Would this include Alt coins? I mine a variety of coins and have thousands of them. Then I have at the least 30 or so Alt coin to BTC trades going on each day.

Do they expect me to base the gains on when I get the actual BTC? or the Alt coins?

Then there's my tiny little bluefury making a whopping .00002 btc a day. Do they really want a gain for that fraction when after a few months I have enough to even hit the withdraw limit from a pool?

Fuck, this is how you kill mining for the common person.

[amspir]

I consider it super good news. There never was a chance of it not being taxed, so the question is which taxes apply and at what rate. The USD I work hard for are taxed as income at around 30%. My bitcoin gains, which mostly I earned while sitting on my ass are taxable at the lower capitol gains rate. even better, If I had a loss I could claim losses now. This is going to be big news for businesses sitting on the side lines. They have been waiting for a ruling that gives them some direction in implementing bitcoin.

I would think that the IRS would start using standardized historical data on the XBT rate.

You could fudge your taxes putting more income in capital gains vs. non-gain income depending on the historical data set that you use.

Personally, I think the special capital gains rate should be eliminated that the general income tax rates should be lowered in compensation, but that is politically impossible.

[cottoneyeJoe]

So, if I mined through 2013 at an average price of say $200/btc and put my coins on gox, then lost them with gox's closure when the price was ~$500 then...

I pay income tax on the $200/btc mined coins - my mining equipment and electricity expenses

Can I then claim property loss at the price when gox closed?

[FeedbackLoop]

This is insane if they expect miners to go off of moment of holding/creation for gains

Would this include Alt coins? I mine a variety of coins and have thousands of them. Then I have at the least 30 or so Alt coin to BTC trades going on each day.

Do they expect me to base the gains on when I get the actual BTC? or the Alt coins?

Then there's my tiny little bluefury making a whopping .00002 btc a day. Do they really want a gain for that fraction when after a few months I have enough to even hit the withdraw limit from a pool?

Fuck, this is how you kill mining for the common person.

I would assume there are thresholds on how much of something you produce before you have to declare self employment. Is growing two tomato plants considered self-employment in the US? Then again government's job is not to make sense or be reasonable.

[relm9]

This is insane if they expect miners to go off of moment of holding/creation for gains

Would this include Alt coins? I mine a variety of coins and have thousands of them. Then I have at the least 30 or so Alt coin to BTC trades going on each day.

Do they expect me to base the gains on when I get the actual BTC? or the Alt coins?

Then there's my tiny little bluefury making a whopping .00002 btc a day. Do they really want a gain for that fraction when after a few months I have enough to even hit the withdraw limit from a pool?

Fuck, this is how you kill mining for the common person.

The ruling is for "virtual currency" it does not mention Bitcoin specifically, so yes would apply to alts.