
Primer on Bitcoin Taxation - georgecmu
http://www.bitcointax.info/
======
gamblor956
I just wrote an article about US tax implications regarding Bitcoin holdings
(not transactions! transactions are easy, and well-covered on the Bitcoin
wiki). Unfortunately it needs to wind its way through the
editorial/fact-/cite-checking process, so it will be some time next year
before it makes it into print.

If you have questions about _US compliance_ obligations regarding Bitcoins
held in non-US wallets (meaning every major exchange, such as BTCChina,
BitStamp, MtGov, and BTC-e), feel free to ask and I'll try to respond over the
course of the next day or two.

~~~
otoburb
>>I just wrote an article about US tax implications regarding Bitcoin holdings
(not transactions! transactions are easy, and well-covered on the Bitcoin
wiki).

The stated author of the article, Tyler S. Robbins, reached out to me to state
that you (@gamblor956) are not the author of the article linked by the
submitter. Evidently he's been downvoted trying to point this out.

Perhaps the unintentional implication inferred by most on this thread is that
that you personally wrote the linked article, when in fact you may be
referring to a different article you wrote about US tax implications that has
yet to be published (as you stated above).

Hope this clears things up for anybody else that may have unintentionally made
the same inference. I'm meeting Mr. Robbins on Monday to discuss some of the
issues he raised in his article.

EDIT: I see that he's put a warning at the top of article to clear up any
misunderstandings.

~~~
gamblor956
Ah yes when I posted my comment it was originally obvious that I wasn't
referring to the same post as the linked article. My article is for a print
tax publication targeted at tax advisors, and comes out next spring; Mr.
Robbins' article is clearly not intended for print and is aimed more toward
laymen.

Also, Mr. Robbins has updated the article since I posted my comment, so
generally all of the questions I have received would now be answered by his
article.

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lucb1e
Additional info for people from the Netherlands:

Owning Bitcoin and trading in Bitcoin for anything (goods or other currency)
are legal as far as we know. Unless you own a business dealing with Bitcoin,
all you need to do to be legal is add the profits that you make to your
income. That's all. I'm not sure about the tax rules when you have a business
in Bitcoin, but it's still legal to do anything with it.

~~~
derefr
Is BTC just sitting around in your account, gaining in valuation relative to
the euro, considered "profit?"

~~~
harshreality
If so, how does that work? If I exchange USD for Euros, and the dollar weakens
against the euro, am I taxed?

Is it an issue of intent? If I exchange for investment purposes, it's taxed,
but for practical purposes, it's not?

~~~
Guvante
Bitcoin is considered a property since it is not specifically categorized
otherwise, so it works a little different than currencies.

But answering that question is very complex for business, you probably don't
need to worry about small gains as a person.

------
300bps
I'm willing to bet the compliance rate on bitcoin taxation is going to be
slightly lower than the compliance rate on people who buy gold coins at X and
sell them at > X.

Section 9006 of the Affordable Care Act (ObamaCare) almost partially closed
this loophole but it was repealed.

~~~
Karunamon
I'm not so sure.. when you consider the ways that exist of converting BTC into
your local currency, most of them have reporting rules for transactions and
aggregates over a certain amount.

I really wish the IRS would concern itself with USD only.. BTC is going to be
a nightmare to tax, let alone enforce.

Hoping people are conscientious, here. The recent hearing about Bitcoin was
positive, it does not need the association of being a tax cheat's friend to
ruin it!

~~~
300bps
_when you consider the ways that exist of converting BTC into your local
currency, most of them have reporting rules for transactions and aggregates
over a certain amount_

I've bought most of my bitcoins from Craigslist handing cash to local bitcoin
sellers.

Many people use [https://localbitcoins.com/](https://localbitcoins.com/)

There are definitely at least a few ways to buy and sell bitcoin without
leaving a paper trail.

~~~
PeterisP
If bitcoin becomes a large enough issue for IRS, then there's definitely at
least a few ways for them to proceed.

For example, they can subpoena localbitoins.com and such sites for all their
user info, and do a full tax audit on them - after all, in taxes generally
it's your problem to provide a paper trail for your taxable income/expenses,
and if you can't do it, it only hurts you.

For example, if you buy 1 bitcoin for $500 and sell for $800, you pay taxes on
the $300 difference; but if you have no trail whatsoever for the $500
transaction, then tough luck, you'll be taxed on the whole $800. Oh, and that
assumes that you did 'tax yourself' by properly declaring it; if you want
_them_ to tax you, then expect that to be tripled as a penalty; and if you're
using any 'coin mixing' services then that smells like tax fraud which would
move the pain from a few dollars to risk of prison.

I'm not a tax lawyer, but you might need one.

------
to3m
Primer on Bitcoin Taxation _in America_...

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stan503
What is someone were to trade one cryptocurrency for another?

For example, if I bought Litecoins with Bitcoins, and later sold for a gain in
Bitcoins, how would I be taxed? From the article it seems I would only be
taxed until I ultimately realized my gains in USD. Would I have to maintain a
record of all my "altcoin" transactions in this case?

~~~
IgorPartola
By transitive property, the only transactions that should count are ones that
convert USD to anything, and ones that convert anything to USD. So if you
invest $10 in BTC, then do some magical trading and take out $1000, then you
gained $990. I have no idea how this actually works, or if you could say that
you mined the $990 and broke even on the $10, or if you have to provide a
paper trail for every single cryptocurrency transaction that led you to posses
the money, but this is definitely going to get hairy...

~~~
jstalin
"By transitive property, the only transactions that should count are ones that
convert USD to anything, and ones that convert anything to USD."

According to US tax law, any accession to wealth is taxable when the gain is
realized (yes, there are exceptions to timing and basis). So, if you mined a
BTC and spent $1 doing it, then used that 1 BTC to purchase some LTC when the
value of the BTC was $100, you gained $99 at the time you traded it for LTC.
That gain is realized at the time of the exchange and taxable at that time.

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hitchhiker999
Hmm, really? To effectively enforce this (in a BTC only world), they would
need to constantly be de-anonymising the blockchain. That would require dark-
pools to be illegal (in the long run), which would require a unified world
government.

It's either that, or simply expect people to hand them money on good faith.

~~~
maxerickson
If you ever find yourself in the nirvana of a BTC only world, expect the tax
regime to be structured differently.

~~~
PeterisP
There are many historical examples on how to do effective taxation without
looking at your transactions.

For example, a classic approach is simply to assign you a flat tax amount per
year, and periodically visit you to check "how you're living" to reassess how
much you'll have to pay.

It's generally worse than the current approach (less accurate, even more prone
to corruption), but it works sufficiently well, and would work even in
bitcoin-only world.

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loveNotWar
Just a note for those that don't feel like "good guys" funding wars and spying
and perhaps don't believe the systems of "democracy" give them much choice.

Tax collectors have a very difficult time keeping up with such advances; in
the case of BTC the small timers won't receive more than random scrutiny and
the big timers have many tools to protect themselves.

Given the difficulties inherent in taking everyone's money worldwide tax
collectors rely on proven tactics such as example making of the famous and
releasing inflated information about their abilities. The accountancy and
legal professions are understandably partners in this effort.

This community is exceptionally intelligent but also quite risk averse so non-
complicit folk should try not to take scary anecdotes over the reality of the
advantages bitcoin holders with regard to taxes.

~~~
gamblor956
I've pointed this out before in other discussions, but my contacts in the IRS
freaking _love_ Bitcoin because it makes their job so much easier. Tracking
Bitcoins may be difficult, but it's a cakewalk compared to tracking physical
cash transactions.

Taxes have always been based on voluntary compliance and disclosure in the US
because that is the "freest" way to handle tax collection. If a significant
number of people choose to be non-compliant in Bitcoin, the IRS will simply
create a Bitcoin collection task force, modeled after its current Small
Business Owner task force (SBO's are remarkably bad at complying with taxes).
Because they won't find everyone, they'll throw the book at the few they do
find, to increase the compliance rate without actually having to resort to
more draconian measures that would truly impair freedom.

------
Mankhool
A Canadian Government Fact Sheet [http://www.cra-
arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng...](http://www.cra-
arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng.html?rss)

~~~
otoburb
Canadian governmental guidance is just as vague (for a layman) as IRS
guidance. Broadly speaking, the government issued a statement saying that
digital currencies are taxable. Exactly how they're going to be characterized
(income vs. capital gains) is the key question for many people.

Reading both the digital currency fact sheet linked and the referenced Canada
Income Tax Act[1] doesn't give a clear indication of how bitcoins will be
characterized.

Back taxes, penalties and accrued interest are nasty surprises to be receiving
down the road. Whether the amounts in question are modest or large, it's never
fun to be on the receiving end. Unfortunately, I speak from experience. The
age-old issue is brought to the forefront here where taxdollars pay for income
tax agencies to pursue you and prove your innocence. Given that audits are
supposedly a small percentage of the overall tax-filing population, once you
are selected or flagged, the onus is on the filer to substantiate all claims
and characterizations, and hope that the tax agencies concur.

[1] [http://www.cra-arc.gc.ca/E/pub/tp/it479r/README.html](http://www.cra-
arc.gc.ca/E/pub/tp/it479r/README.html)

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jokoon
Yeah, experts can talk about taxing bitcoin, and not talk about taxing high
frequency trading.

I hate to sound like a rebel, but sometimes I just don't like how some people
lurk around an issue they can be experts about while dismissing political
ones. Ivory tower crap.

~~~
gamblor956
Bitcoin taxation is not ivory tower crap, it's a mostly straight-forward
application of existing laws to a somewhat novel concept. In a nutshell, it's
a living demonstration of the evolution of the law that many legal
practitioners are excited to be a part of. (Unlike litigation-related legal
fields, tax law in general is not exciting. Moreover, tax law usually changes
in response to statutory and regulatory changes, so getting to be part of an
actual organic change to tax law is a rare experience.)

OTOH, talking about taxing high frequency trading is ivory tower crap, because
current law doesn't impose any such taxes. Thus, any discussion would be
merely theoretical and academic.

~~~
jokoon
> because current law doesn't impose any such taxes.

that's what I'm talking about dummy.

