Author Topic: Bitcoin as per the IRS  (Read 8112 times)

Offline JC2

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Offline Nicodemus

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Re: Bitcoin as per the IRS
« Reply #1 on: March 25, 2014, 02:39:11 PM »
This cracked me up:

Quote
In the wake of the collapse of one of the largest online exchanges for buying and selling Bitcoin last month, governments around the world have stepped up their efforts to figure out a way to protect consumers against fraud and other illegal activities.

Because the IRS is only looking out for you and your best interests, taxpayer...  ::)

Offline Prodigy

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Re: Bitcoin as per the IRS
« Reply #2 on: March 25, 2014, 03:59:57 PM »
Interesting

Offline FreeLancer

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Re: Bitcoin as per the IRS
« Reply #3 on: March 25, 2014, 05:56:38 PM »
Good news:  I won't have to redo my 2013 tax return, since I choose to treat my holdings as an asset and thus had already calculated the short and long term capital gains appropriately.

Bad news:  People getting paid in BTC, or doing a lot of purchases with it, are going to have a complicated mess on their hands if they want to stay on the up and up with the IRS.  Having to calculate the USD basis and capital gain on each BTC used for every purchase is going to be an accounting nightmare.

Offline CharlesH

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Re: Bitcoin as per the IRS
« Reply #4 on: March 25, 2014, 06:49:50 PM »
Jack and a few others were just talking about this on the blog.  I think you all have caught the implications of this faster than they have over there.  It is my understanding that now if you receive a botcoin worth $100 (for example) and then buy with it when it is valued at $200 you are going to have to report a $100 capital gain.  Is that correct?  I hope not but it sounds like it is. If so large businesses are not going to want to deal with it.  No one likely to be audited will either because, as was just mentioned, every sale would require tracking like buying and selling a stock.
 
Quicken or someone will come up with a bitcoin account for people to keep up with all this, but it will still be a lot of work to know how much you gained or lost each year if you use them a lot.

Offline FreeLancer

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Re: Bitcoin as per the IRS
« Reply #5 on: March 25, 2014, 07:17:33 PM »
It is my understanding that now if you receive a botcoin worth $100 (for example) and then buy with it when it is valued at $200 you are going to have to report a $100 capital gain.  Is that correct? 

You are correct. 


No one likely to be audited will either because, as was just mentioned, every sale would require tracking like buying and selling a stock.

Precisely why I won't be using mine for commerce and will continue to hoard them for the long term.


Quicken or someone will come up with a bitcoin account for people to keep up with all this, but it will still be a lot of work to know how much you gained or lost each year if you use them a lot.

I've heard of a couple solutions already in the works for managing this problem.

Offline Prodigy

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Re: Bitcoin as per the IRS
« Reply #6 on: March 26, 2014, 08:12:53 AM »
It is my understanding that now if you receive a botcoin worth $100 (for example) and then buy with it when it is valued at $200 you are going to have to report a $100 capital gain.  Is that correct?  I hope not but it sounds like it is. If so large businesses are not going to want to deal with it.

That is not a great example, though.  If you receive/buy a bitcoin worth $100 (say 1 bitcoin, for simplicity sake), then when the bitcoin doubles in value to $200, you only need to spend .5 bitcoins to spent that same $100.  You don't have to spend all $200 at once.

I don't see how this is bad at all, other than the normal government taxation BS we've always dealt with.  If you want to cash in on your gains, you are going to pay taxes on it.  Otherwise, be smart like FreeLancer and simply hold them.  Either way it's a good deal - you either get an extra $100 to play with, minus taxes, or you get a free .5 bitcoins.  Businesses should be jumping at the possibility of their holdings doubling, not being afraid of it.  Either way, if a businesses changes into cash right away with any BTC transaction, they'll never have to worry about this anyway.  Smart businesses will accept BTC - but it's purely preference what they do with it after they get it.

Offline CharlesH

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Re: Bitcoin as per the IRS
« Reply #7 on: March 26, 2014, 08:20:08 AM »
That is not a great example, though.  If you receive/buy a bitcoin worth $100 (say 1 bitcoin, for simplicity sake), then when the bitcoin doubles in value to $200, you only need to spend .5 bitcoins to spent that same $100.  You don't have to spend all $200 at once.
 
It's not necessarily a problem, but the issue would be the same.  Your .5 bitcoin would have a cost basis of $50, be used to purchase a good for $100 and result in you having to account on your taxes for a $50 capital gain, wouldn't it?
 
There are day traders who do this all the time so being able to do it is not a problem.  I suspect a lot of people will not want to deal with the added complexity on their taxes.

Offline theBINKYhunter

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Re: Bitcoin as per the IRS
« Reply #8 on: March 26, 2014, 08:27:31 AM »
i think the IRS is making a move like this because of what you guys have said, what a nightmare to deal with all of the transactions. i think they are trying to make it so difficult to deal with that no one will want to mess with the headache. i also wouldn't be surprised if they gave more scrutiny to people who have dealt with bitcoins, auditing them and so on.

not promoting anything illegal... but isn't the whole point of bitcoin supposed to be anonymity? if you buy them why do they even have to be reported? if it is because there is a record of you purchasing them on an exchange, sure, i can see that. but what if someone paid you in bitcoin for whatever and you slowly accumulated them in your paper wallet (or whatever it is). who is to know about those holdings but you? it seems to me like this could be similar to a waiter earning cash tips. it's under the table and no one knows about it but them.

Offline Prodigy

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Re: Bitcoin as per the IRS
« Reply #9 on: March 26, 2014, 08:31:22 AM »
 
It's not necessarily a problem, but the issue would be the same.  Your .5 bitcoin would have a cost basis of $50, be used to purchase a good for $100 and result in you having to account on your taxes for a $50 capital gain, wouldn't it?
 
There are day traders who do this all the time so being able to do it is not a problem.  I suspect a lot of people will not want to deal with the added complexity on their taxes.

That's true - at any point you spend the bitcoins whose value has doubled, the capital gains comes in.  I certainly can't argue it makes things more complicated.

I expect a flood of new software over 2014 to solve these issues, or at least make them easily manageable.  But if you're a business and want to accept them and don't want to think about this stuff yet, just convert them to dollars at the time of transaction.


not promoting anything illegal... but isn't the whole point of bitcoin supposed to be anonymity? if you buy them why do they even have to be reported? if it is because there is a record of you purchasing them on an exchange, sure, i can see that. but what if someone paid you in bitcoin for whatever and you slowly accumulated them in your paper wallet (or whatever it is). who is to know about those holdings but you? it seems to me like this could be similar to a waiter earning cash tips. it's under the table and no one knows about it but them.

Yeah, there are easy ways to turn cash into bitcoins, so that bank-transaction history doesn't exist.  It's just like cash in that instance, so you can be as honest as you want.  As soon as you turn them into cash, though, or other physical holdings, then you might have a problem.

Offline FreeLancer

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Re: Bitcoin as per the IRS
« Reply #10 on: March 26, 2014, 09:31:46 AM »
For tax filers in the two lowest tax brackets, the capital gains rate is 0%, which means the likelihood of audit will be low for those individuals doing business with small amounts of BTC. For large amounts, which could be everyone if the price goes to 4 or 5 digits, plan on the IRS to come looking for "their" share.

Offline Prodigy

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Re: Bitcoin as per the IRS
« Reply #11 on: March 26, 2014, 11:03:47 AM »
For tax filers in the two lowest tax brackets, the capital gains rate is 0%, which means the likelihood of audit will be low for those individuals doing business with small amounts of BTC. For large amounts, which could be everyone if the price goes to 4 or 5 digits, plan on the IRS to come looking for "their" share.

Yep, and as a reminder to everyone else, that 0% is for long term capital gains, which means you have to hold your bitcions for at least a year.  Otherwise, you're paying your normal income tax rate for anything under a year.

Offline Josh the Aspie

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Re: Bitcoin as per the IRS
« Reply #12 on: March 26, 2014, 02:00:00 PM »
Yeah, there are easy ways to turn cash into bitcoins, so that bank-transaction history doesn't exist.  It's just like cash in that instance, so you can be as honest as you want.  As soon as you turn them into cash, though, or other physical holdings, then you might have a problem.

What do taxes and honesty have to do with one another?

Offline Phantom

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Re: Bitcoin as per the IRS
« Reply #13 on: March 26, 2014, 02:35:32 PM »
"If a user buys a product or service with Bitcoin, for example, the I.R.S. will expect the individual to calculate the change in value from the date the user acquired Bitcoin to the date it was spent."

How are they to calculate what the change is? Are we to use first in first out, first in last out, or a rolling average?

With out it defined that can make for some accounting issues.

So I buy 1 BTC at $10 later I buy 1 BTC for $100. Now I sell 1 BTC for $110 do I claim a gain of $100 from the first coin, $10 from the second coin, or $55 from the total purchase price of the coins?

It will only get worse when BTC is bought and sold at fractions of coin all at different prices. On top of that if I mine 1 BTC now I would claim the total price or the coin as a gain.

Offline EagleSteel

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Re: Bitcoin as per the IRS
« Reply #14 on: March 27, 2014, 06:40:13 AM »
 
It's not necessarily a problem, but the issue would be the same.  Your .5 bitcoin would have a cost basis of $50, be used to purchase a good for $100 and result in you having to account on your taxes for a $50 capital gain, wouldn't it?
 
There are day traders who do this all the time so being able to do it is not a problem.  I suspect a lot of people will not want to deal with the added complexity on their taxes.

First let me say that I have not read the article yet but will so so shortly. My current view is until the IRS requires companies like Coinbase to report transactions I would not worry about this at all. Meaning that I would not report it and the IRS can go pound sand! Far as I'm concerned I should not be punished because the greenback is worth less and doing a death spin in comparison to my litecoin and bitcoin. I love these crypto currencies because it's like a big FU to the Beast.

Offline FreeLancer

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Re: Bitcoin as per the IRS
« Reply #15 on: March 27, 2014, 07:24:11 AM »
First let me say that I have not read the article yet but will so so shortly. My current view is until the IRS requires companies like Coinbase to report transactions I would not worry about this at all. Meaning that I would not report it and the IRS can go pound sand! Far as I'm concerned I should not be punished because the greenback is worth less and doing a death spin in comparison to my litecoin and bitcoin. I love these crypto currencies because it's like a big FU to the Beast.

Since Coinbase is US based, and has made a point of following regulations, you can expect them to fully embrace any reporting requirements this IRS decision will bring. For those just getting into crypto, I don't think you need to be too concerned at this stage about accounting for every millibit worth of capital gain realized with small transactions.

The people who need to be most aware of this are the ones who acquired coin when it was selling at single digit prices and are now thinking about paying off their mortgage with their gains after seeing it run up to three and four digits. I don't think it's realistic to think the IRS won't come poking around asking questions about large USD transactions suddenly popping up on their radar.

Offline r_w

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Re: Bitcoin as per the IRS
« Reply #16 on: March 27, 2014, 07:45:04 AM »
Jack was already taking silver, so he already had this problem. 

But it is definitely an issue lots of companies won't want to deal with.

I am betting there will be a PayPal of bitcoin pop up, that will do the transaction for retailers so they get isolated from those issues. 

Offline EagleSteel

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Re: Bitcoin as per the IRS
« Reply #17 on: March 27, 2014, 07:50:40 AM »
Since Coinbase is US based, and has made a point of following regulations, you can expect them to fully embrace any reporting requirements this IRS decision will bring. For those just getting into crypto, I don't think you need to be too concerned at this stage about accounting for every millibit worth of capital gain realized with small transactions.

The people who need to be most aware of this are the ones who acquired coin when it was selling at single digit prices and are now thinking about paying off their mortgage with their gains after seeing it run up to three and four digits. I don't think it's realistic to think the IRS won't come poking around asking questions about large USD transactions suddenly popping up on their radar.

That's why I moved my Bitcoin to BTC-e. Plus I can trade Bitcoin for other currencies. Currently I have Litecoin. So when or if I decided to sell my bitcoin I would transfer it to my coinbase account and liquidate and send the cash to my checking account. Good luck to the IRS figuring out my true cost basis on that. I could tell them whatever I wanted.

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Re: Bitcoin as per the IRS
« Reply #18 on: March 27, 2014, 08:33:10 AM »
INEVITABLE MODERATOR REMINDER:

TERMS OF USE AND POLICIES:

1) Any and all illegal acts will not be allowed on this forum. Any advocation or talk of illegal activity will result in immediate termination of membership.

No more discussion about evading IRS rules, please.

Offline EagleSteel

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Re: Bitcoin as per the IRS
« Reply #19 on: March 27, 2014, 08:39:13 AM »
INEVITABLE MODERATOR REMINDER:

No more discussion about evading IRS rules, please.

Okay.....Sorry.   :-[

Offline Josh the Aspie

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Re: Bitcoin as per the IRS
« Reply #20 on: March 27, 2014, 09:03:42 AM »
For the record, I was not advocating breaking the law.  I just see no correlation between taxes, and honesty by either party involved in the transaction.  The government lies about everything else, why not taxes?  And disobeying the IRS on tax law does not make one dishonest, it just makes one disobedient.

Offline FreeLancer

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Re: Bitcoin as per the IRS
« Reply #21 on: March 27, 2014, 09:49:07 AM »
That's why I moved my Bitcoin to BTC-e. Plus I can trade Bitcoin for other currencies. Currently I have Litecoin. So when or if I decided to sell my bitcoin I would transfer it to my coinbase account and liquidate and send the cash to my checking account. Good luck to the IRS figuring out my true cost basis on that. I could tell them whatever I wanted.

As much as I like crypto currency, we need to be very aware that it is much easier to track ownership than is cash or PM. While it may be possible to absolutely conceal ownership, most of us should assume that every transaction could be traced back to us.

Offline EagleSteel

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Re: Bitcoin as per the IRS
« Reply #22 on: March 27, 2014, 12:32:28 PM »
As much as I like crypto currency, we need to be very aware that it is much easier to track ownership than is cash or PM. While it may be possible to absolutely conceal ownership, most of us should assume that every transaction could be traced back to us.

That is a very good point