New IRS rules for BTC as related to US Tax payers

[vesperwillow]

My take:

It gives certain businesses and ventures a good feeling and eases their tension about cryptocurrency for whatever purpose they have in mind to use or exploit it. So some places will feel better about it, but the reality is you won't see widespread adoption by a lot of smaller places because of the additional pain which comes from the potential level of detail an audit could induce.

Therefore, it's bad for the original purpose of cryptocurrency, because the subtlety being skirted here is that they're suffocating the movement in its sleep.

If you've ever been through an audit or threatened by an audit, you understand what I'm saying here. Imagine just one of your transactions being in question on the chain, likely one where you rolled one coin into another and another and it just looks fishy, or heaven forbid you send coin to some place like the Mid East.

This is probably part of the reason the IRS has quietly been forcing US based companies and exchanges to hand over user/address information. Google it.. Coinbase, CampBX and the rest have been doing this for awhile now. The IRS's ruling didn't come as a surprise, it was planned carefully.

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[Tzupy]

The IRS ruling on bitcoin may cause the drop of money laundering charges towards DPR:
http://www.cryptocoinsnews.com/news/irs-ruling-to-help-silk-road-creator-in-court/2014/04/02

[precrime3]

The IRS ruling on bitcoin may cause the drop of money laundering charges towards DPR:
http://www.cryptocoinsnews.com/news/irs-ruling-to-help-silk-road-creator-in-court/2014/04/02

I read that. Was a stroke of pure genius xD Hopefully this makes IRS change there statements to benefit us, and punish DPR appropriately.

[MinorError]

Yes.
Income taxes are "voluntary", Harry Reid said so.

I believe this is a monumental opportunity for bitcoin.
Watch the IRS flail about as it attempts to tax everything that moves including 1's and 0's.
And fail stupendously.

Since the tax is due in USD and not bitcoin, I expect this will quickly hasten the demise of the dollar and send BTC exponentially upward.
This will also result in the US government hyper inflating away its debts, and the IRS turning into a septic cleaning service to clear out all their inked TP.


Grab the popcorn. This should be a good show. David vs. Goliath like.

I'm failing to grasp your logic here...if taxes were to be acceptable using BTC, now THAT would be a good thing for bitcoin. Paying income tax is definitely voluntary... Just like I voluntarily don't rob banks or kill people, because staying out of prison is high on my priority list, as is not being audited and having everything I own taken from me.

[vesperwillow]

Yes.
Income taxes are "voluntary", Harry Reid said so.

I believe this is a monumental opportunity for bitcoin.
Watch the IRS flail about as it attempts to tax everything that moves including 1's and 0's.
And fail stupendously.

Since the tax is due in USD and not bitcoin, I expect this will quickly hasten the demise of the dollar and send BTC exponentially upward.
This will also result in the US government hyper inflating away its debts, and the IRS turning into a septic cleaning service to clear out all their inked TP.


Grab the popcorn. This should be a good show. David vs. Goliath like.

I'm failing to grasp your logic here...if taxes were to be acceptable using BTC, now THAT would be a good thing for bitcoin. Paying income tax is definitely voluntary... Just like I voluntarily don't rob banks or kill people, because staying out of prison is high on my priority list, as is not being audited and having everything I own taken from me.

I also don't follow the logic. You're taxed on many things including property, they don't expect you to send 20% of your vinyl siding.. they expect you to send the USD of its value.

[godislove]

I would like to point out a few things this thread is omitting.

1) I do not know why anyone would be surprised by the ruling because it is a limited-supply digital commodity AND digital currency. Read "digital" as "better" in terms of ease of exchange, as merchants get on board.  There was never any reason to think that it would not be treated like any other commodity or FOREIGN CURRENCY subject to normal capital gains.  The IRS publishes an official December 31 exchange rate on all currencies so that you can calculate your capital gains.  Currencies are commodities, subject to normal supply and demand rules. The only difference is that your government defines which commodity (currency) you must use to pay taxes in and therefore if you have capital gains or not (none in the case of the asset/commodity we call "dollars").  We used to pay taxes in silver, a era commodity that was historically also called a currency. The best currency is the commodity that can't be counterfeited, can be easily transported, and changes the least relative to a basket of the most common commodities so that true economic value remains unchanged since traditional commodities (physical or energetic as opposed to currency) are the fundamental inputs to society.

2) Therefore the IRS has declared bitcoin is the same as foreign currency.

3) I do not know why coindesk wants to keep slamming bitcoin over this *expected* tax clarification without any rational consideration, discussion, or explanation.

4) The current drop is partly due to people selling in order to pay their taxes. I am sure MANY bought below $200 sold a largish portion above $1,000 and therefore they are paying 50% taxes in terms of late-2013 bitcoins instead of 25% because the coins are now worth less than half of where they made the profit.  For example, if you bought 100 bitcoins "early" last year at $100 and sold 50 at $1000, you have $45k in short term gains, and used the money for something else. Today they would have to sell 25 coins to pay the taxes, a 50% tax rate in terms of bitcoins.  I'm holding at least until a few weeks after April 15.  

5) If a miner declares it a business, he owes 15% social security/medicare in addition to 33% in federal income taxes  (48% plus state taxes) if he made a substantial amount.  I don't know if he can do it, but it would be good to call the expenses a loss on the capital gain investment (cost basis) and get the 15% rate instead.  The only other way to lower the 48% is to declare it treatment like a C-corp with dividends and declare a low "salary" to get the self-employment tax down.  Or start a SEP IRA for the business and lock up to 20% of the profit in the IRA and not have to pay today's taxes on that portion (but taxed when withdraw at your "retirement" tax rate (without SE tax?).  Then don't forget you have to pay for your own health care and in some places your children's education to get something decent, and you can't really expect the social security retirement to ever come through, whereas normal countries offer these things in exchange for a similar tax rate.  All military-dominant societies like the US collapse like this: by using an excessively strong currency and debt structures (IMF/world bank) to force other populations into excessive labor and getting access to cheap commodities. The colonial slaves (Asia in our case) become the only experts as the empire citizens get too lazy. The slaves then can make better deals with the commodity producers (S. America, Africa, Arabic oil, and even Australia) so that the empire's currency is no longer able to get cheap access to even the commodities even if it tried to produce things again.

6) If its dollar value does not change there are no taxes owed.  Why is coindesk acting like making a PROFIT from doing nothing and having to pay taxes on it is a death blow to bitcoin as a currency which is not supposed to be increasing in value?  Even the sting of a loss on bitcoin is reduced by the tax deduction.  If you are willing to take the risk on it losing value, there is nothing new here except that the IRS has made the obvious and expected definition the rule.

[bitlegger]

I don't see how this is good news. I am not trying to troll here, I was just talking to people the other day and telling them my arguments for Bitcoin being around for a very very long time. I was really excited about Bitcoin.

But this is a deathblow. How will businesses keep track of what a coin was worth when they exchanged a good or service for said bitcoin? This Bloomberg article puts it perfectly

"Today’s IRS guidance will provide certainty for Bitcoin investors, along with income-tax liability that wasn’t specified before. Purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of gross income for the coffee shop. "

Actually this is not a problem at all.  Recording transactions is what Bitcoin is all about.

It should be easy to establish base for a Bitcoin transaction.  It is all in blockchain.  All that is needed is a simple change to client software, and of course all U.S. citizens will have to report their Bitcoin addresses to IRS. 
There is absolutely no doubt I my mind, all patriotic U.S. citizens will dutifully do so.

[vesperwillow]

SO much for anonymity eh? Satoshi would be sad.

[briantree]

The long and short of this is that it's time to get yourself a copy of quick books and truly run/account for your mining operation like a real business.  This way you can fully exploit the tax code.

H@shKraker

Very well summed.
I agree this might intimidate most miners (esp. in US).
But overall it won't be a big deal.
And eventually people will adopt IRS ruling. That's a good thing.
Think about it. Tax money goes back to your grandfather, your kids, your neighbors, the road that you drive on every morning.

BTC is being taxed similarly to fiat currency.
BTC has the superiority that fiat currency doesn't.
IMHO, with or without being taxed, BTC is still superior to fiat.

[kimchi64]

SO much for anonymity eh? Satoshi would be sad.

*Sigh*

Everything eventually dies
And so as the anonymity with bitcoin

[vesperwillow]

Think about it. Tax money goes back to your grandfather, your kids, your neighbors, the road that you drive on every morning.

Hahahahahahaha.... oh man, that made me laugh.

US taxes go to make politicians fat, go to other countries, help fuel the American war machine...  rarely ever roads, especially if you've seen any of them.

[briantree]

Think about it. Tax money goes back to your grandfather, your kids, your neighbors, the road that you drive on every morning.

Hahahahahahaha.... oh man, that made me laugh.

US taxes go to make politicians fat, go to other countries, help fuel the American war machine...  rarely ever roads, especially if you've seen any of them.

Show me a country where there is no tax; and you can keep laughing

[vesperwillow]

Think about it. Tax money goes back to your grandfather, your kids, your neighbors, the road that you drive on every morning.

Hahahahahahaha.... oh man, that made me laugh.

US taxes go to make politicians fat, go to other countries, help fuel the American war machine...  rarely ever roads, especially if you've seen any of them.

Show me a country where there is no tax; and you can keep laughing

There are very few countries without taxes, I didn't think that was what was being discussed though. US federal taxes as a whole do not go back to the general welfare of the citizens. Some county and state taxes may, but largely not, and it's still up to the local and state governments to properly use the funds, which few do.

I was laughing because the reality is, a fraction of a percent of taxes goes back to general welfare of society.