US citizens, do you pay taxes on bitcoin exchange?

[JoelKatz]

hmm, could a US citizen earn millions of dollars worth of AUD without ever paying tax on it? let's say they are a currency trader and started out with 1 USD but traded it up to 1,000,000 AUD.

let's say they never ever 'cash out' to USD, but manage instead to by 1,000,000 AUD worth of food, electricity, clothing, fuel, etc.

The food, electricity, and fuel *are* cashing out. When you acquire a consumable good and then consume it, you are cashing out.

replace 'AUD' with wow gold if you like... it's still the same question... could one earn millions of dollars worth of wow gold and then spend that gold directly (through private transactions) on food, electricity, clothing, fuel, etc, and pay no tax on that incoming wealth?

No, but that's because spending it or trading it for a good you then consume is cashing out. The question is whether you have to pay tax on *unrealized* capital gains. That is, assets you hold that have some value but that you have not put into either a hard currency or a form in which they can be consumed.

At least in the United States, Bitcoins are just like items in an MMORPG. You can acquire them, hold them, and they can go up in value tax free. If you lose them or they go down in value without you ever cashing out, no taxes are due. Until you convert them into hard currency or exchange them for a commodity you intend to consume, no taxes are due. Your tax basis in the Bitcoins would typically be deductible (I'm oversimplifying a bit here. There are some exceptions.)

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[JoelKatz]

interesting... just wondering now what hard definition of 'consumable' is... are virtual items consumable?

and, if you used wow gold to buy in-game items which would otherwise have to be paid for with fiat, is that a form of 'cashing out'?

I don't think anyone knows the answers to those questions yet. At least, so far as I know, there's no precedent to make the answers to those questions "yes". As I understand it, you can accumulate a virtual fortune (whether in the form of stocks or items) and pay no taxes until you "cash out" into something you can physically consume. (Or something the government recognizes as hard currency, with some exceptions.)

[Aberrix]

you know, this never really crossed my mind until just now...

[awigaxeh-443]

is it worth moving to usa from canada?

[geffaxiv-532]

Hi for those of you paying taxes on US capital gains tax, how much do you make per year with BTC?

One person said 15%, but 15% of what?

[5850Guy]

actually one of the thing i'm very curious about bitcoin was tax...

How can the government force tax on bitcoins? if you dont exchange and bitcoin was being use for transaction.

As for the bitcoin exchange, how do you file tax? do you get the account history and attach that in your "other" income box?

I bet most big miners (30ghs or above) wont file tax on their bitcoin "income"

it is only income once it is us dollars. its like growing corn. farms don't pay tax on 12 tons of corn. they pay tax on the amount they sold the corn for minus costs...

Right.  Although I'm not a lawyer, I'd assume it's not taxable until it's real money.

Another way of saying it is that if it's not USD it's not taxable.

If a buddy of mine gives me three socks and a hat in exchange for breakfast, thats' not taxable, as it's not USD.

I guess BTC will always have this advantage, as it is a foreign currency.

[BitcoinAndie]

is it worth moving to usa from canada?

No, don't be rash. Visit on holidays, marry a Yankee if you dare, but move? Why? Canada is a very nice, clean, and uncomplicated place.

[Stephen Gornick]

Hi for those of you paying taxes on US capital gains tax, how much do you make per year with BTC?

One person said 15%, but 15% of what?

15% of whatever your capital gains were for the year.   So let's say I bought 100 BTC at $0.25 (100 X $0.25 = $25) in November 2010 and then did a stupid move like sell all 100 for $2.50 (100 X $2.50 = $250) in December 2011.  The capital gain on that long term investment then was $225 ($250 - $25).  The capital gains tax then, at a 15% rate, would be $33.75.

But I'm guessing you are not asking how to compute the capital gains tax but instead are asking for people to tell you the actual amount of capital gains tax that they paid.  For most people that is considered to be private information.  In some cultures it is considered rude to even ask.

[Dutch Merganser]

Remember you only have to pay on gains. So if you buy at 3 and sell at 5 that's a 2$ gain. If you bought at 32 and sold at 7 that is a loss and can claim a refund.

If you mined these coins it's very different. Cost of equipment and electric come into play.

If you are just holding coins you don't need to pay anything as you did not gain dollars.

But I'm not an expert, I don't pay American taxes, lulz.

Racking up losses ends up being more of a long-term benefit in that an individual can only claim a net capital loss of $3000 per year, so the major benefit to losses is offsetting taxable capital gains. Personally, I think $3000 is a ridiculously low number that must be a historical artifact, but I can also see some obvious opportunities for abuse were one allowed to use unlimited capital losses as an offset against current income, as all it would take is a little collusion to make it a win-win for the participants.

I don't pay American taxes either, at least not for the past 4 years. 10 years ago I fantasized I might actually have enough historic losses racked up to never have to pay taxes again, but then I screwed that up by achieving the best investment results of my entire life in the past decade, now it looks like I may actually have to make a tax payment in the next 5 years or so. Given my survival expectancy to that time is less than 20%, I'm not worried about it 

[PawShaker]

doesn't work like that in australia. you're supposed to declare any income earned and pay tax on it's AUD equivalent, whether you cashed out or not.

So if I play World of Warcraft and in a raid I get an item I could sell for $30, I have a taxable gain of $30? Do I have to pay taxes every time I level up -- after all, I could sell my account.

you only report after you sell your account, not when you can...

That's the law in the United States. Capital gains are not taxed until realized. But read what payb.tc said, "you're supposed to declare any income earned and pay tax on it's AUD equivalent, whether you cashed out or not". I don't see how such a system could possibly work. It would mean that if you acquired any virtual asset you could sell (such as an MMORPG account with characters and items), you'd have to pay taxes on its increase in value.

From what I know hobby is not taxed in AU. If you make an odd income or obviously too labour intensive for reward it is not taxed.
http://www.ato.gov.au/corporate/content.aspx?doc=/content/00199712.htm

[marked]

interesting. How do you prove gains and losses?

for arguments sake we have an exchange ourbitcoin.

1) I trade 10000USD at 5.00 for 2000 BTC. It drops to 0.5, so I have lost 9000USD.

2) I "trade" 10000USD at 5.00 for 2000 BTC, the exchange disappears. So I have lost 10000USD

3) I "trade" 10000USD at 5.00 for 2000 BTC on an exchange that disappears, but sent it to a.n.other exchange.


How would you and/or the IRS/revenue-service-of-your-country prove or disprove gains/losses?


marked

[dannyo]

How do you write off those gains when you cash out?

Where do you say they came from? That'd be an interesting conversation to have with the IRS...

[EuSouBitcoin]

Google "Publication 550". That has most of the answers you are looking for. The US considers Bitcoins as commodities for income tax purposes. Each tax payer is required to report his own realized gains and losses on each transaction.

Disclaimer: I am not a tax attorney. I am not an accountant or CPA. I suggest you consult with your tax adviser to discuss your own personal situation.

[ldrgn]

interesting. How do you prove gains and losses?

You never had any gains or losses there.  The IRS only taxes income that is "recognized and realized," which means that you have to "cash out" in order for it to be taxable.  If you had sold in example 1 you would recognize a loss.  You don't recognize a loss from just having the currency drop in value.

[kjlimo]

So it doesn't sound like anyone has agreed they have paid taxes on bitcoin capital gains (on the commodity known as bitcoin).  Nor has anyone admitted they have paid taxes on their "bitcoin income."

I have a spreadsheet which tracks both my mining operations as well as my trading gains & losses.

I'm currently in the red on both ventures (not too surprising).

I hope to turn a profit during 2012 and will deal with the issue for my tax return due April 2013; however, is anyone willing to admit they paid taxes due April 17, 2012?

Otherwise, I'll assume there are no people compliant which is probably a fair assumption for now.

[Stephen Gornick]

I'll assume there are no people compliant which is probably a fair assumption for now.

You are asking for private information to be shared on a public forum.  Just because nobody responds to your nosy inquiry doesn't mean they aren't handling things properly.

[highlevelminer]

I avoid the direct transfer of bitcoin into any time of government monitored currency so I don't really have that problem.

Just stick to low key online services which accept bitcoins as a form of payment.

This is why having a well paying corporate job pays off in the end kids

[triplehelix]

https://bitcointalk.org/index.php?topic=76938.0

So, about 2 months ago I went to H&R Block to get my taxes prepared.  I explained to the lady, who apparently was very experienced and had worked there for many years, about Bitcoin.  At the time, she told me that she was unsure of how to treat Bitcoin with regards to taxation -- is it a business?  Is it a hobby?  Is it an investment?

Well, 2 days ago I finally got my answer.  After asking the 5 longest-working members at that particular H&R Block location AND after calling the IRS, the lady said that Bitcoin is a hobby.  She knows that I buy precious metals with Bitcoin, knows that I have money in accounts all over the globe, and knows that I have conducted business deals and have provided services specifically dealing in Bitcoin.  I even showed her an old TradeHill check of some of my profits.

[simplelove]

US doesnt even pay that much anyways. we Canadian buys or bitcoins from american. SO if it sucks for them it sucks for us

[JoelKatz]

How would you and/or the IRS/revenue-service-of-your-country prove or disprove gains/losses?

That's not how the tax system works in the United States. Other than the specific cases where there is mandatory reporting, neither you nor the IRS needs to prove anything.