It is now next to impossible to spend bitcoins legally if your american

[DeathAndTaxes]

its not reasonable to expect people to start looking up what the exchange rate was when they received their bitcoins just so they could buy a cup of coffee without breaking the law.

The same thing applies to a US tourist traveling overseas.  You take $100 and exchange it for 300 pesos (an example no idea what the exchange rate is) and by the time you spend those 300 pesos they are worth $102.81.  You "should" report that $2.81 as taxable income.

Does anyone do that?  Does the IRS try to round up every single $0.37 in taxes owed? No.  The reality is most people are not compliant with the tax code.  It is asinine in its complexity.  The average tax return has a half dozen errors or omissions.  Now if you buy some Bitcoins and later buy a $40M yatch with those Bitcoins he probably should consult with a CPA on the capital gain impact.

[DeathAndTaxes]

What I don`t understand is, if 1 bitcoin = 1 bitcoin, and in my bitcoin wallet all my coins are lumped together, how do I know how much capital gains I have made on a PORTION of those bitcoins? I don`t know which bitcoin is which or when/where I bought each one, it`s not like they`re physical objects I can easily distinguish between. Do we average all of our fiat-to-bitcoin conversions to determine the starting basis?

The default method is LIFO which means the earliest bitcoins you bought are the ones assumed to be sold (or spent). You can also identify specific bitcoins, and that may well be useful with the ZGL-coin technique, but from the IRS point of view that is optional.

With mutual funds you can use an average cost basis technique, and on the surface that would seem reasonable for bitcoin as well, further simplifying accounting (you need only track a single number). But the IRS has not stated this method is allowed for bitcoins.

Correct except it is FIFO (likely a typo).  First In - First Out.

[iambk]

That cup of coffee is going to have its price pegged to the dollar rather than BTC.  Perhaps you'll get a receipt when purchasing that cup of coffee that shows the USD/BTC exchange rate that was used for the transaction.

Anyway, no such thing as a free lunch, eh?

[Alley]

So will overstock have to report all transactions to the IRS?  Will I need to give my SSN to them?

[Joshuar]

Watch as Litecoin price skyrockets...

[DeathAndTaxes]

So will overstock have to report all transactions to the IRS?  Will I need to give my SSN to them?

No.

[gentlemand]

Watch as Litecoin price skyrockets...

You don't think the exact same principle applies to every coin?

[corebob]

Next to impossible? Hardly...

A pain in the ass and outright theft, sure. But anyone residing in the US obviously accepts their tax burden, right?

I wish it were the case that residence mattered. The truth is that US is possibly the ONLY country that taxes it's citizens even when they live and earn all of their income abroad. Renouncing your citizenship costs ~$400 and even then does not release you from any unmet tax obligations or risk of audit from time during your citizenship.

Worse still, Americans abroad are increasingly being denied foreign bank accounts because of new reporting requirements that the US imposes on banks who accept US citizens as customers.

http://aaro.org/denied-bank-accounts

It doesn't stop there.
All western countries are pumping huge piles of money into the US industry every year. US has become an extremely expensive financial octopus in the global economy. Its a redistribution of wealth that needs to stop.

[smooth]

What I don`t understand is, if 1 bitcoin = 1 bitcoin, and in my bitcoin wallet all my coins are lumped together, how do I know how much capital gains I have made on a PORTION of those bitcoins? I don`t know which bitcoin is which or when/where I bought each one, it`s not like they`re physical objects I can easily distinguish between. Do we average all of our fiat-to-bitcoin conversions to determine the starting basis?

The default method is LIFO which means the earliest bitcoins you bought are the ones assumed to be sold (or spent). You can also identify specific bitcoins, and that may well be useful with the ZGL-coin technique, but from the IRS point of view that is optional.

With mutual funds you can use an average cost basis technique, and on the surface that would seem reasonable for bitcoin as well, further simplifying accounting (you need only track a single number). But the IRS has not stated this method is allowed for bitcoins.

Correct except it is FIFO (likely a typo).  First In - First Out.

Yes typo. Text following is correct.

[hellscabane]

But something tells me that the federal government won't be so laissez-faire about taxes.

You don't understand what I'm saying to you. Cryptocurrency liberates the people from the currency-monopoly, and thus the authority, of the nation-state.

Credit scores are being rendered irrelevant! If you divest from the dollar into crypto, your debts are rendered irrelevant too, as over time they are eroded into only a tiny fraction of your wealth!

Think about it. Let's say I've got 60,000$ of student debt. The law says I've got to pay back 60,000 DOLLARS... now if Bitcoins value continues to increase relative to the dollar year over year... eventually that very large sum of money will actually be a tiny fraction of the value it once represented in your life. This is financial liberation of the highest caliber!

I didn't really see that kind of connection from your previous argument, but I do see debts divesting through crypto-currencies. Of course though, regarding the $60,000, you have to pay back those debts on a regular basis otherwise, well, repossession right? Of course, if you can get out of those other shackles that inherently turns to financial liberation, but that isn't inherently through bitcoins. The way you've implied your argument is that bitcoins is an means to an end of financial liberation. That's great and all, but in this short term how do you expect people to reconcile with or address the various government ties that already exist?

[johnyj]

It's more and more likely become a saving medium for pension fund, and that is always the biggest focus for bitcoin in its early days of adoption

[BigV]

If you are using bitcoin for coffee then you are not getting cash.  Tax laws are complex and there are no experts, just people who claim to be.

If you have a capital gain on bitcoin and invest those gains in something else it is a different set of rules than if you cash out and take a trip to Vegas.  Tax law is aimed at protecting the wealthy and punishing the stupid.  Don't be stupid.

[jonald_fyookball]

https://bitcointalk.org/index.php?topic=531135

there is no way the IRS will allow people to avoid paying taxes using this trick.
if this really catches up i am sure they will clarify that the determining exchange rate for tax purposes is the median of all inputs or something of that sort.

There is no trick involved. Quite the opposite, that method is using precision to achieve the most desirable ends.

Let's say I bought two plots of land, one in 2011 and one in early 2014. A family emergency comes up and I need some extra cash. I can choose to sell whichever plot of land I want, and I'm obviously going to choose to sell the one which results in the most favorable tax outcome for me at that point in time. There is nothing wrong with this kind of thing.

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes." - Learned Hand.  (Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).)

[Beliathon]

the war the banking elite will wage on bitcoin if it gets anywhere close to mainstream adoption will be of biblical proportions, unlike anything we have ever seen when fighting piracy or drugs.this legislation is just the first step (and it is a major one) in the fight against honest and practical money.

*laugh*

It doesn't matter if the war is of biblical, astronomical, inter-galactic, or inter-dimensional proportions. You can't beat technology or global decentralization with nation-state law. Never gonna happen.

[The_Gloomfrost]

I dunno about you guys but I'm going to continue mining my bitcoins and using my bitcoins and selling my bitcoins locally for cash without putting it on my tax return UNTIL I see some way for them to POSSIBLY track it in ANY way or a benefit to me for paying them.

The "you pay your taxes or you risk being found out and fined much more than what you would've had to pay" doesn't make sense to me here because the 'risk of being found out' IMO is 0% unless they waste millions trying to figure out how to track it, then enforce even heavier regulation on the few that actually have or use or want to use bitcoins.

Frankly it's not worth it at this time for any government, and by the time it is, it'll be too late.

Maybe in a few years I'll change my perspective...

[iambk]

I dunno about you guys but I'm going to continue mining my bitcoins and using my bitcoins and selling my bitcoins locally for cash without putting it on my tax return UNTIL I see some way for them to POSSIBLY track it in ANY way or a benefit to me for paying them.

The "you pay your taxes or you risk being found out and fined much more than what you would've had to pay" doesn't make sense to me here because the 'risk of being found out' IMO is 0% unless they waste millions trying to figure out how to track it, then enforce even heavier regulation on the few that actually have or use or want to use bitcoins.

Frankly it's not worth it at this time for any government, and by the time it is, it'll be too late.

Maybe in a few years I'll change my perspective...

If you get audited and they look at your bank accounts and assets will there be anything to show that you've purchased or mined or sold bitcoins?  Do you have a regular job or other significant source of income?  Do you have KYC forms at any of the exchanges where you traded?  If the IRS interviews your friends will any of them know you've invested or mined BTC?

I agree that risk of getting caught can be mitigated but for many people there might be a little denial if they think the risk is zero.  Maybe you've done an awesome job and the risk of getting caught is zero.

Regardless I do agree that most people won't be reporting BTC profits.

I however will be reporting BTC loss since I got goxxxed.

[Phinnaeus Gage]

Fuck me! It's now impossible for me to spend the dollars I earn due to capital gains tax on the barn wood I sell at a 500% (sometimes more) markup. If only there were a way for me to fudge the numbers.

[amspir]

Fuck me! It's now impossible for me to spend the dollars I earn due to capital gains tax on the barn wood I sell at a 500% (sometimes more) markup. If only there were a way for me to fudge the numbers.

You wouldn't be paying capital gains on your wood.   If you were legally paying your taxes, you'd be paying tax on the regular earned income from selling the wood - the price you paid for it and expenses, like any business that sells stuff.  Capital gains would be involved if the bitcoin you got for it rose in value before you traded/sold it.

[~Coinseeker~]

the war the banking elite will wage on bitcoin if it gets anywhere close to mainstream adoption will be of biblical proportions, unlike anything we have ever seen when fighting piracy or drugs.this legislation is just the first step (and it is a major one) in the fight against honest and practical money.

*laugh*

It doesn't matter if the war is of biblical, astronomical, inter-galactic, or inter-dimensional proportions. You can't beat technology or global decentralization with nation-state law. Never gonna happen.

Sure you can. I actually can't believe people still think like this. Bitcoin is useless if it's not used, therefore it would be worthless.  All they have to do is prevent banks and businesses from legally dealing with Bitcoin.  It's done.  Sure, the blockchain lives on, blah, blah, blah...but you can forget about mass adoption.  It's back to some basement internet token, used by a handful of hackers and gamers.  It's utility that Bitcoin needs, so Bitcoin needs to learn to play nice with others.

I'm sure as the digital currency space continues to evolve, the tax codes and regulations will evolve with it. Everything is not a tin-foil hat conspiracy.

[BitTrade]

Currently, the majority of BTC owners are investors.  If it becomes mainstream, then maybe change it, but for now the classification is correct.

The problem is, Bitcoin will never become mainstream and function as a currency if this regulation stands.  The chicken just ate the egg.