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Buying with BTC is a breathe of fresh air, huh? How about when taxes are due? If you're a US taxpayer, you are required to report the profit/loss of every sing

Buying with BTC is a breathe of fresh air, huh? How about when taxes are due? If you're a US taxpayer, you are required to report the profit/loss of every single purchase made with bitcoin. Which means that you need to dutifully look up and record the current price of bitcoin every time you make a purchase, so you can properly report the fair market value, and then copy that information over to Schedule D in the proper format. And according to the tax rules, if you've made several purchases of bitcoins over time, then you have to separate the purchases into lots. So if you bought 0.3 bitcoin on Mar 1st and 0.2 bitcoin on Mar 31st, and you bought a video card for 0.4 bitcoin on May 2nd, then you have to decide from which of the previous lot(s) you want to take bitcoins on to report the profit/loss at the time when you bought the video card. For each separate lot, a separate line needs to be created (or you may put VARIOUS, and figure the correct gain/loss and just add that to the form, its up to you) Of course, if its been more than a year between the time you made some of those purchases, you need to separate out the gain/loss into long-term vs short term gains. And then, if you decide to refill your bitcoin account within 30 days before or after a purchase, and the bitcoin price went down from the time you bought it until the time you made your purchase, then wash sale rules come into play. In those cases, you need to report the sale, and then further mark it as a wash sale, reverting the loss on the form. Then those bitcoins that you sold and rebought have to be put back into your lots of bitcoins to use for further purchases, adding together to the final sale in the future the total loss and gain made by all the wash sales those bitcoins may be a part of (all while respecting the long term/short term gain split). --- Yea, what a dream! :/

freework 11y ago
There is no law that says you have to record every transaction. On your tax form, there is a field where you put in the total amount gained or lost over the entire year. For 2014 I lost money, so in my tax form, I didn't put anything. For 2015 I will probably break even across all buys/sells. Maybe for 2016 the price will rise and I'll end up making a net profit after adding up buy and sell spreads. You don't have to be exact, you just have to give it a goo guess. If you guess too large, you pay more in taxes, if you guess too low, you pay less in taxes, but run the risk of getting in trouble if audited. I guess if you wanted to get brownie points with your accountant, you can record all transactions, but if you don't you certainly aren't breaking any laws.
- reddytowns 11y ago
  Uh, sure... a field on your tax form... that you can't even be bothered to give the form and line number of. Sounds trustworthy.
Pyxl101 11y ago
Sounds like something that's very easy for a machine to calculate.
xorcist 11y ago
That's not unique to Bitcoin though, is it? I have a box of foreign money at home which I use every time I am abroad. I bet most people have something like it. If I were to trust you on this, I'd have to record the price of that currency with every cup of coffee in every airport I buy. In practice nobody has done that, ever. I'd say that's safe. Should I suddenly pay cash for new sports cars or houses out of my little box that would be different of course. I doubt the difference between a cup of coffee and a sports car is really encoded in law, but the difference is there and should you find yourself in a grey area (old used car perhaps?) there are people specializing in this very matter that can help.
- Rmilb 11y ago
  >I have a box of foreign money at home which I use every time I am abroad. I bet most people have something like it. If I were to trust you on this, I'd have to record the price of that currency with every cup of coffee in every airport I buy. In practice nobody has done that, ever. I'd say that's safe. This is not true.In the US there is a tax exemption for small denomination purchases in foreign currency's(I think $200) [1]. I can't find a source right now... *Edit updating citation: User icebraining cited this source in this discussion. 1. https://www.law.cornell.edu/uscode/text/26/988 https://www.law.cornell.edu/uscode/text/26/988
- grandsham 11y ago
  well, for one, the IRS doesn't treat bitcoin as a currency, but as a commodity. While some foreign currency transactions fall under the regime of capital gains, a transaction resulting in the gain/loss of less than $200 are specifically excluded from capital gains [1]. Note that this relates specifically to changes in value of the US currency in relation to the commodity or foreign currency. In this sense there is a difference between a sports car and a cup of coffee encoded in law. If the euro you bought for $1 is suddenly worth $1.02, and you buy a 1 euro coffee, you'll only realize $0.02 in gains, and not hit the $200 threshold. If you buy a 100,000 euro sports car, you will realize a $2000 gain, and have to report that on your taxes. Since bitcoin is a commodity, it doesn't matter if the value moves 2 cents or 2 dollars or 2 million dollars, all gains are capital gains. So if you buy a coffee with euros you specifically don't need to report that, but with bitcoin you do. Whether the IRS is going to notice that you don't record every single capital gain arising from a bitcoin transaction is another question, but there is a major difference between foreign currencies and bitcoin as far as the IRS goes. [1]http://www.maximadvisors.com/2013/12/us-taxation-of-foreign-currency-gains-or-losses/ http://www.maximadvisors.com/2013/12/us-taxation-of-foreign-...
CyberDildonics 11y ago
All of this can be done easily with software. Would you happen to have a link to where you got this information yourself?
- reddytowns 11y ago
  I actually called the IRS and asked them. They told me to treat it just as securities, which has all these rules attached to them.

freework 11y ago

There is no law that says you have to record every transaction. On your tax form, there is a field where you put in the total amount gained or lost over the entire year. For 2014 I lost money, so in my tax form, I didn't put anything. For 2015 I will probably break even across all buys/sells. Maybe for 2016 the price will rise and I'll end up making a net profit after adding up buy and sell spreads. You don't have to be exact, you just have to give it a goo guess. If you guess too large, you pay more in taxes, if you guess too low, you pay less in taxes, but run the risk of getting in trouble if audited. I guess if you wanted to get brownie points with your accountant, you can record all transactions, but if you don't you certainly aren't breaking any laws.

reddytowns 11y ago
Uh, sure... a field on your tax form... that you can't even be bothered to give the form and line number of. Sounds trustworthy.

Pyxl101 11y ago

Sounds like something that's very easy for a machine to calculate.

xorcist 11y ago

That's not unique to Bitcoin though, is it? I have a box of foreign money at home which I use every time I am abroad. I bet most people have something like it. If I were to trust you on this, I'd have to record the price of that currency with every cup of coffee in every airport I buy. In practice nobody has done that, ever. I'd say that's safe. Should I suddenly pay cash for new sports cars or houses out of my little box that would be different of course. I doubt the difference between a cup of coffee and a sports car is really encoded in law, but the difference is there and should you find yourself in a grey area (old used car perhaps?) there are people specializing in this very matter that can help.

Rmilb 11y ago
>I have a box of foreign money at home which I use every time I am abroad. I bet most people have something like it. If I were to trust you on this, I'd have to record the price of that currency with every cup of coffee in every airport I buy. In practice nobody has done that, ever. I'd say that's safe. This is not true.In the US there is a tax exemption for small denomination purchases in foreign currency's(I think $200) [1]. I can't find a source right now... *Edit updating citation: User icebraining cited this source in this discussion. 1. https://www.law.cornell.edu/uscode/text/26/988 https://www.law.cornell.edu/uscode/text/26/988
grandsham 11y ago
well, for one, the IRS doesn't treat bitcoin as a currency, but as a commodity. While some foreign currency transactions fall under the regime of capital gains, a transaction resulting in the gain/loss of less than $200 are specifically excluded from capital gains [1]. Note that this relates specifically to changes in value of the US currency in relation to the commodity or foreign currency. In this sense there is a difference between a sports car and a cup of coffee encoded in law. If the euro you bought for $1 is suddenly worth $1.02, and you buy a 1 euro coffee, you'll only realize $0.02 in gains, and not hit the $200 threshold. If you buy a 100,000 euro sports car, you will realize a $2000 gain, and have to report that on your taxes. Since bitcoin is a commodity, it doesn't matter if the value moves 2 cents or 2 dollars or 2 million dollars, all gains are capital gains. So if you buy a coffee with euros you specifically don't need to report that, but with bitcoin you do. Whether the IRS is going to notice that you don't record every single capital gain arising from a bitcoin transaction is another question, but there is a major difference between foreign currencies and bitcoin as far as the IRS goes. [1]http://www.maximadvisors.com/2013/12/us-taxation-of-foreign-currency-gains-or-losses/ http://www.maximadvisors.com/2013/12/us-taxation-of-foreign-...

CyberDildonics 11y ago

All of this can be done easily with software. Would you happen to have a link to where you got this information yourself?

reddytowns 11y ago
I actually called the IRS and asked them. They told me to treat it just as securities, which has all these rules attached to them.