Bitcoin Is Property Not Currency

[bbeagle]

Hmmmmmmmmmmm............good questions and it is problems like the ones you have suggested which are going to lead to all sorts of mischeif and headaches in the near future.  I don;'t have the answers but I'll bet the IRS doesn't either!

The IRS knows the answers - they want you to pay taxes on anything you profit from, no matter how it's done.

If your net worth goes from $10,000 to $100,000 in a year, the IRS wants you to pay taxes on $90,000 of income. If you try to move things around thinking you can outsmart the IRS - good luck. The penalties for doing this are severe, and not worth it. You're gaining $90,000. It's a good sum of money. Pay the IRS your tax of say $10,000 now and have peace of mind, or don't - and when they audit you, and you'll end up owing say $100,000 with the penalties. It's a risk you only know if you want to take.

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[rocks]

If you mined a coin at $1200 then you technically received property worth $1200 that is now worth $600.

When can you realize the loss?

This is hurting my head.

If you mine a coin at $1200 then you have $1200 in income on that day, minus any expenses used to produce that income (electricity, equipment cost depreciation, etc). The "bias" for you coin is now $1200.

Then if the price drops to $600 or goes to $10K nothing happens until you sell.

If on the day you sell the price of BTC is $600, then you would have a $600 loss ($600 - $1200 =  $-600).

If on the day you sell the price of BTC is $10K then you would have a $8800 gain ($10000 - $1200 = $8800).

To figure short or long term capital gains you just use the length of time you held the coin after mining it. If you sell it less than 1 year after mining it you pay short term capital gains, if you sell after holding for more than 1 year you pay long term.

[vitarian]

Who cares what the label is, whether currency or property. It's use remains exactly the same. It is still a means of exchange regardless what you call it. My Benjamin Franklin's are also property because they're mine damnit, but I use them to buy stuff just like I use bitcoin to buy stuff.

[don giovanni]

No one pointed out the big purple elephant thats staring down its big trunk at bitcoin taxation, how can any of us including the IRS prove one way or another that the owner of an address that transacted years ago for a sum of bitcoin was in fact you? Perhaps if you were on an exchange in which you identified yourself, they would report this and it would be tied to you, but for all the other exchange methods that do not require or have no way of proving ones identity, what proof could any of us offer?

Now lets say instead of wanting to be taxed at the 25%-40% short-term capital gains rates you wanted to be taxed at the 15% long-term capital gains rates, instead of pointing to the addresses holding the coins you bought 6 months ago you could point way back in the blockchain (provided the purported gains did not offset the tax savings) and claim those were your bitcoins you bought from a guy on a forum. They demand proof, what proof? There is no proof, no way of proving that those coins were owned by you, does that mean they will then tax you at whatever rate they wish because there is no way to prove something? I dont know, do we all face maximum taxation unless we register our identities on an exchange?

[don giovanni]

Either you "own" the private keys which control the address or you don't.

Ive use online wallets, i do not own the private keys to those, the owner of the wallet site does, i am given a password to access those funds, are they no longer mine? Ie also lost many wallets and the private keys held within, does that mean i never owned them in the first place?

Either you have documentation from an exchange or you don't.

I dont because i dont use an exchange to buy/sell, am i required to pay 40% tax because i choose not to use an exchange?

[amspir]

No one pointed out the big purple elephant thats staring down its big trunk at bitcoin taxation, how can any of us including the IRS prove one way or another that the owner of an address that transacted years ago for a sum of bitcoin was in fact you? Perhaps if you were on an exchange in which you identified yourself, they would report this and it would be tied to you, but for all the other exchange methods that do not require or have no way of proving ones identity, what proof could any of us offer?

Now lets say instead of wanting to be taxed at the 25%-40% short-term capital gains rates you wanted to be taxed at the 15% long-term capital gains rates, instead of pointing to the addresses holding the coins you bought 6 months ago you could point way back in the blockchain (provided the purported gains did not offset the tax savings) and claim those were your bitcoins you bought from a guy on a forum. They demand proof, what proof? There is no proof, no way of proving that those coins were owned by you, does that mean they will then tax you at whatever rate they wish because there is no way to prove something? I dont know, do we all face maximum taxation unless we register our identities on an exchange?

I really don't think the IRS is going to care about the addresses where you store your bitcoins.   What they will be looking at is large reported purchases made with bitcoin, or large amounts of cash coming into your bank account (a bank following KYC/AML laws) from an exchange.  If you can't prove the source, then it will all get taxed.   There's no innocent til proven guilty in tax court.

Think of it like cash.  If you have sizable unexplained deposits to your bank account, or you buy a house with a duffel bag full of cash, the tax man will want to know what is going on.

[don giovanni]

Either you "own" the private keys which control the address or you don't.

Ive use online wallets, i do not own the private keys to those, the owner of the wallet site does, i am given a password to access those funds, are they no longer mine? Ie also lost many wallets and the private keys held within, does that mean i never owned them in the first place?

Either you have documentation from an exchange or you don't.

I dont because i dont use an exchange to buy/sell, am i required to pay 40% tax because i choose not to use an exchange?

No, this means you are making choices / taking actions which could have a negative impact on your financial situation by increasing the amount of taxes you may have to pay.

I would suggest you start making new choices / taking different actions which would have a positive impact on your financial situation by decreasing the amount of taxes you may have to pay.

There you go, the IRS has successfully deanonymized bitcoin.

[don giovanni]

Either you "own" the private keys which control the address or you don't.

Ive use online wallets, i do not own the private keys to those, the owner of the wallet site does, i am given a password to access those funds, are they no longer mine? Ie also lost many wallets and the private keys held within, does that mean i never owned them in the first place?

Either you have documentation from an exchange or you don't.

I dont because i dont use an exchange to buy/sell, am i required to pay 40% tax because i choose not to use an exchange?

No, this means you are making choices / taking actions which could have a negative impact on your financial situation by increasing the amount of taxes you may have to pay.

I would suggest you start making new choices / taking different actions which would have a positive impact on your financial situation by decreasing the amount of taxes you may have to pay.

There you go, the IRS has successfully deanonymized bitcoin.

I'm confused. Do you want to remain anonymous or do you want to file your taxes with the IRS? You are correct, you can't do both, but this has nothing to do with Bitcoin. These are choices you must make as an individual.

I want to stay true to bitcoins original purpose, to give power back to the people over their money. What this ruling has in effect done, as evidence by your "better shape up or ship out" response to my dilemma (which is reasonable to assume would be representative of most taxpayers), is change the nature of bitcoin from a "keep your nose out of my business" stance to a "if i want to get favorable tax status i should register all my activities with an official exchange and report this to the government" mentality.

Im not anti-government, nor am i trying to dodge paying my dues, but i dont like to trade on an exchange, you know how much money i lost on mt-gox? $0. Do you know how much i will lose on bitstamp when it gets hacked? $0. Now the IRS is in effect saying, you had better use those services or else we will hit you with a full-taxable amount, that is not fair, nor is it reasonable to presume a small time speculator like myself would have the ability to produce solid evidence of a p2p trade. In fact, its not reasonable to presume anyone has the ability to provide evidence of a p2p trade, this is no more possible than if you sold something on craigslist to a stranger for cash and then get audited and asked the details of the transaction, who was the buyer? prove that you sold the item in question and not illegal drugs or stolen property. This is no different, they arent taxing bitcoin, they are effective threatening the entire bitcoin community with fines and jailtime for doing anything that isnt registered with the government. This is what i mean when i say deanonymized, its not hiding, its having nothing to hide from.

[amspir]

Im not anti-government, nor am i trying to dodge paying my dues, but i dont like to trade on an exchange, you know how much money i lost on mt-gox? $0. Do you know how much i will lose on bitstamp when it gets hacked? $0. Now the IRS is in effect saying, you had better use those services or else we will hit you with a full-taxable amount, that is not fair, nor is it reasonable to presume a small time speculator like myself would have the ability to produce solid evidence of a p2p trade. In fact, its not reasonable to presume anyone has the ability to provide evidence of a p2p trade, this is no more possible than if you sold something on craigslist to a stranger for cash and then get audited and asked the details of the transaction, who was the buyer? prove that you sold the item in question and not illegal drugs or stolen property. This is no different, they arent taxing bitcoin, they are effective threatening the entire bitcoin community with fines and jailtime for doing anything that isnt registered with the government. This is what i mean when i say deanonymized, its not hiding, its having nothing to hide from.

The tax law never fundamentally changed,  the IRS has laid claimed a portion of your income since before you were born.  You accepted that responsibility by choosing to be born here. The invention of bitcoin never changed those laws.

If you had engaged in another type of economic activity, such as trading pink sheet stocks or some other niche commodity, you would be legally obligated to report your capital gains from that activity.  The IRS would still require you to document your trades, if you wished to defend yourself in an audit.   Dealing with bitcoin isn't fundamentally different from that.

It may seem like a onerous requirement to calculate capital gains on all your bitcoin transactions, but they are going to have apps for that that combine your wallet data with historical market data.  It will probably print you a form showing your short term and long term capital gains, and you keep the wallet data for your records, in case of audit. It's not that much different than having an interest-bearing money market account and reporting the gains via the form that the institution administering the account sends you at tax time.   Same thing for an "interest-bearing" bitcoin account, except there's no bank or institution administering it for you -- that's become your responsibility.

[marcus_of_augustus]

http://www.washingtontimes.com/news/2014/mar/26/irs-says-it-will-take-years-produce-tea-party-targ/

So is it Commissioner John Koskinen who has handed down this objectionable ruling? Is this the guy who should be getting his email box pounded? Seems like he doesn't give shit much about public opinion ...

The Internal Revenue Service’s tea party targeting program is still withholding approval of 19 organizations’ nonprofit status, nearly a year after the scandal was revealed, the agency’s commissioner testified Wednesday to Congress — where he faced fierce criticism from lawmakers who said he is stonewalling.

John Koskinen, the man President Obama tapped to clean up the embattled agency, also said it will take years to respond to all of the document requests from Congress.

I guess with rogue agencies you get rouge rulings and no longer operate under rule of law .... dyodd. Morally corrupt organisations probably shouldn't be supported but rather disbanded for the greater good.

[Searing]

If you mined a coin at $1200 then you technically received property worth $1200 that is now worth $600.

When can you realize the loss?

This is hurting my head.

If you mine a coin at $1200 then you have $1200 in income on that day, minus any expenses used to produce that income (electricity, equipment cost depreciation, etc). The "bias" for you coin is now $1200.

Then if the price drops to $600 or goes to $10K nothing happens until you sell.

If on the day you sell the price of BTC is $600, then you would have a $600 loss ($600 - $1200 =  $-600).

If on the day you sell the price of BTC is $10K then you would have a $8800 gain ($10000 - $1200 = $8800).

To figure short or long term capital gains you just use the length of time you held the coin after mining it. If you sell it less than 1 year after mining it you pay short term capital gains, if you sell after holding for more than 1 year you pay long term.

problem is if a 2009 coin is treated different if spent in 2014 then a 2014 coin bitcon can't be used as a currency..it is like trading different land values that shift day to day for a walmart TV set....some days you pay capital gains with your mined coin some days less then

of course this is unenforceable ..but just saying

but the end result is btc loses any way to be used as a currency and thus if it can't be used as a currency then the underlying value is 'moot' because you are just mining virtual realestate that no longer has a function ..the movement of virtual currency....only thing you are doing is running in circles in my view hoarding 'imaginary coins" that you can't move use in a reasonable manner..so why bother ..if it is why bother in using the currency of BTC why bother to mine ..then the value tanks

the use of BTC as a currency (does not even need to be an anon currency) is what imho 'floats the boat on price" with out that it is like collecting 'green stamps" (remeber those) you can do so but if no one takes 'green stamps' at the grocery store anymore the value tanks

likely this will get resolved these IRS issues to something like 20% capital gains if coin is held more then 1 year....but then again if you we're 'vested interests' like banking and wanted the gov't help on how to kill bitcoin by muddying the waters ..what the IRS announced the other day would be a perfect plan

so my option is to sit on my BTC till this all shakes out (likely) sometime next hear (hopefully not longer) and mine ALT-COINS with machines that MAY last longer in difficulty then 4-6 months like ASIC's are likely to have (at least in the short term) with all these massive GH farms gonna dump on the BTC network soon

and following the IRS rules currently ..cash out the ALT-COINS that day (your gross income profit according to the IRS) put it in CASH (and or BTC to speculate if you are brave knowing you will likely lose 20% to capital gains after 1 year ..think it is 43% if less then a year??? something like that)

tall up you "gross income at the end of they year by your "mining to alt-coin to cash" (some sites make this easy) ...see if you brought in more then the taxes you set aside at the end of the year...ie treat alt-coins and bitcoin as an "INCOME"

or at least till they get their act together in the USA (likely with hearings etc this summer)

then a guy will see if "power exists" to kill alt-coins via IRS and making it too clumbersome to use as an alternate currency (at least in usa) for that and/or mining
or some sensible notions rear there head and all coins are equal......(BTC etc) till you SELL THEM  and then you eat the 20% capital gains limit or some such when you sell for fiat

so i'm out of BTC for now gonna do the above and go day to day or close to it for cash and keep a record take off elec inet equipment ....depreciate miner if possible the whole 9 yards...if i'm wrong about all this and' it don't drag on i'll be able to (i'm sure) get some reasonalbly priced ant-miners or some such 1Th end of spring or summer and play with that also ..btc again i mean

but gonna be cash and carry for a bit (with the usual business deductions as stated by IRS in that i'm mining and making "gross income" from my little business in alt coins

man thing is at the end of the year do i have more $$$ then i put in hopefully then i took out...

but with KNC's GH farm and the large Farms gonna dump hash here soon I dumped my Q2 3TH Neptune at 10.2k usd .......even if they kick in more hash etc...KNC's own farm and others imho will make this unit obsolete in 4-5 months imho...tough if not impossible to get ROI

anyway probably hand sitting on BTC thru the summer

my 2c worth (my logic is likley flawed i admit...so feel free to 'guide me with your wisdom"

Searing
 

[xiaohuolv]

If you made a ton of micro payments over say the course of a year when the bitcoin price was rising relative to usd, what are you supposed to do, go back and find the exact capital gains of each micropayment and total them? That's what they are implying and few people are going to do that.

[dogechode]

The bigger problem (in my opinion) is that even if people WANT to comply, it may be difficult or impossible to do so.

[sweetgirl01]

If you made a ton of micro payments over say the course of a year when the bitcoin price was rising relative to usd, what are you supposed to do, go back and find the exact capital gains of each micropayment and total them? That's what they are implying and few people are going to do that.

What you say is very reasonable, they should think so

[Searing]

If you made a ton of micro payments over say the course of a year when the bitcoin price was rising relative to usd, what are you supposed to do, go back and find the exact capital gains of each micropayment and total them? That's what they are implying and few people are going to do that.

yep that is what you are supposed to do.....same for trades...it is unworkable ..it prob will get resolved in our favor but i suspect with bank and other powers pushback
that won't happen in the usa till sometime the middle of summer...we will likely lalygag in this morass till then imho

but by then BTC will prob be like 200 bucks if we are lucky..would you take
BTC with the IRS spewing all this idiocy...miners will ignore it...but merchants can't imho

Searing

[dogechode]

I'll reach out to overstock.com and see if they will tell me how they plan to handle this. It should be interesting and might shed some light on this.

[bbeagle]

If you made a ton of micro payments over say the course of a year when the bitcoin price was rising relative to usd, what are you supposed to do, go back and find the exact capital gains of each micropayment and total them? That's what they are implying and few people are going to do that.

This is EXACTLY what day traders of stocks do. They have to calculate each buy and sell (which they do hundreds of times a day) and report it all at the end of the year.

[dogechode]

This is EXACTLY what day traders of stocks do. They have to calculate each buy and sell (which they do hundreds of times a day) and report it all at the end of the year.

The difference is your stock broker sends you documentation of your trades and cost basis (the good ones were already doing this years ago, I believe now there is some law requiring it.) E*Trade sends me a document and I give it to my accountant, it's really not that difficult or time intensive.

[sweetgirl01]

If you made a ton of micro payments over say the course of a year when the bitcoin price was rising relative to usd, what are you supposed to do, go back and find the exact capital gains of each micropayment and total them? That's what they are implying and few people are going to do that.

You say so and I like very much the same

[Searing]

The bigger problem (in my opinion) is that even if people WANT to comply, it may be difficult or impossible to do so.

well imho you could comply with say alt-coins there are sites where you cash out to usd same day say..would provide a paper trail
again imho big farms can prob keep track of how much usd btc per day they make and then they prob convert it all to usd .then
after the fact they may invest in btc but have to have an accounting trail

us puny types are not gonna go and keep track each day .0003888 btc and/or keep track of spending a mined bitcoin in 2009
that was made for like 1.11 and then buy a 600 buck tv and be required to pay capital gains on 598.89 usd...too cumbersome..
but then if 'big money banks or whatever" wanted to muck up bitcoin i can't think of a better way to cloud the waters then what the
IRS did a couple days ago

anyway my point is if you are supposed to 'mine' coin and it is like added to your 'gross income' and you more or less convert it
to cash right away (could use the web site for your transaction record) keep track of how much ...add it to your 'gross income"
as CASH for the year you'd prob be ok..on your normal income with your normal taxes as a side business
....if you converted it too bitcoin directly imho and wait a year 20% capital gains less then 1
year to cash it out i think it is 43% again the above is in the USA with latest IRS plug on what to do....well that seems
cumbersome and the temptation to 'hoard' the coin on speculation that btc is gonna go back up etc etc

mentally just go to a pool that mines the more profitable alt see how that goes on all this for a bit to cash out directly
btc equip imho are gonna be so short on lifespan this summer vs price...that alpha 16mh miner and the titan i have coming
yet hopefully as stated (now 250mh) by aug would show IRS it is a 'legit' business not a hobbs cash flow wise and
likely would make more then i would lose (again this is me ...and i want to mine for something to do....and it can
be modest return even thou more work...others likely have better ideas in this realm)

so just shoot it straight to cash like the IRS wants daily transaction record is their on the www you pool or cash out on...site...and do all the other
'business type things" you can by being legit ..right off inet costs,elec costs office costs equip costs training costs travel costs deductions
etc etc

end of the year you have more $$$ then you pay in taxes by 75% say of the gross total mined you are golden..sure 25% gone
but hey if the boat floats and you make a modest 'gross income' profit what the heck...need a break btc up/down sideways lately
makes me dizzy...go back to the basics "eat what you kill" day by day cashing out see how that is for my sanity in mining if lucky
i can find something to pump/dump on alts into next year.....(sorry cash flow is vicious don't ya know)

and i suppose if this does work with the titan and alpha asic alt-coin units..then somewhere around nov KNC will announce its
TITAN mining farm ...(I"m just postponing the inevitable don't ya know) what the heck its only money but a fair amount
above ROI for all the busness expenses i listed eventually would be nice!

so if i do mine this year i will look at it as "income" directly.....as an actual business like i'm selling shoes

i think you are ok in that manner...letting the IRS know about a hypothetical stash of 100000 btc you are supposed to pay
at the value to the day and min you mined them in 2009 till now so they can tax you  on it....er not so much ..in my more
modest case the BTC can turn to dust in paper wallet form first (good to have a goal)

but to pay say 25% toward the "income" from mining then goes to BTC the day it was mined.....then you have to keep track of that
and the cost that day of .00008888 etc ..then end of 1 year you can convert the bitcoin for the joy of 20% capital gains (hopefully grew)
by that time...screw that don't need the mental pressure ....just mine alts ...hopefully run the equip longer and play

again i'm wrong i'll be chasing down ant-miners at a very resaonable price or some such if calcs work this sujmmer

screw it...cash out immediately the day you mine it...no capital gains.....use all legit business deductions...if you end up with 5-9k
more gross $$$ at the end of the tax year and after taxes your are fine legit and golden to the IRS
 and like in my case you have to pay 30% on that money state and fed taxes...sucks but worth a shot even if i don't quite make
ROI (i bore easy need a hobby)

what the heck it is an income stream

myself i've never touched a BTC to spend I"ve made so i'm gonna sit this bitcoin mining out till this is resolved and just do the
above........it is what it is....(of course they take btc in germany i could have a VERY NICE vacation heh


if i'm incorrect and this is resolved before summer there will likely be plenty of T1 miners about at a reasonable non-pre-order
price i can go back to hoarding btc with the old 20% capital gains in mind


why not do this with BTC equip? ....(single ltc asic) the ltc asic MAY last with elec use into next year (i'm sure i can mine something
in alt at 800watt power supply use for a titan.) and the beast will plod along much longer then a neptune imho competeting
against knc and others large GH farms already nearing completion  ..irregardless of the btc price dump here lately

with deductions for elec a/c equip etc ...i will LIKELY make cash flow and get equip ROI but it will be very modest...likely back to
hobby mode...but want to mine...and an't prob ever gonna be able to mine a legit machine again when the next batch fall comes
around and they have creeped up to 25k or some such ....and knc annoucing its giant TITAN mining farm in the fall..sigh

so back to playing/hobby (why i orig got my jupiter from knc when it was 150gh a coin ..expected 6-7 months to pay it off..and
maybe cash flow my home utils incl the elec for the miner for the next 8-9 months) so it goes ...stuff to do..

so sitting on BTC waiting using this modest miner project "not to go crazy" got to do something and i don't want a bass boat!


as always i am likely very wrong on all this consider doing the opposite for best results

Searing

This is EXACTLY what day traders of stocks do. They have to calculate each buy and sell (which they do hundreds of times a day) and report it all at the end of the year.

The difference is your stock broker sends you documentation of your trades and cost basis (the good ones were already doing this years ago, I believe now there is some law requiring it.) E*Trade sends me a document and I give it to my accountant, it's really not that difficult or time intensive.

Documentation of your trades exist in the block chain, cost basis is easy enough to add (I expect software for that will soon exist).

Exchange users should start demanding that their exchange provides them with this information.

Many are acting like it's impossible to keep decent records when it's not. Bitcoin makes it easier than most things thanks to the block chain. It's an unalterable record ffs!

it is the transactions of the merchant etc etc the cumbersome nature of all this in the USA and IRS rules....other countries no problem (envy)

i think it will really depress the price of the coin and the number of miners will go down in usa big time

why deal with all this gross income stuff for mining when you can just buy bitcoin and pay 20% capital gains on it after 1 year...guess we will end up with
leaving mining to China Sweden Canada etc

yeah the neg press and roadblocks are epic with the clusterf***k as it exists now

likely summer it will be just all coins BTC  pay 20% capital gains after 1 year.but still next 3 months is gonna be FUD IMHO

again i know zip but my take/bet on stuff and or process or whatever you want to call what the hell i'm doing just want to mine
before the whole thing goes virtual mining or speculation seems the trend

as always don't know zip my take on this from a "play with a miner i can get and make $$$ ROI point of view" not the most logical direction

Searing