5 ms·

I buy a small amount (about $20 worth) every paycheck, so I'm really not sure how to even report that reasonably. With such a volatile price, I don't really kno

I buy a small amount (about $20 worth) every paycheck, so I'm really not sure how to even report that reasonably. With such a volatile price, I don't really know how much it's gone up or down without some serious calculations. I'm not really sure what to do about that. I was just about to sell some of it too, to help cover some recent expenses.

tedd4u 10y ago
The note from the IRS about Bitcoin I read on CoinBase's site said it's similar to a security. So until you trade it out (sell it) you don't realize a gain. When you do your gains are considered similar to capital gains / capital losses (if you held for more than 1 year). Otherwise considered income.
- cableshaft 10y ago
  Well again, I was about to sell some, and figuring out exactly how much I 'gained' from so many tiny buy transactions I imagine would be difficult (but might not be, I'm not sure).
  - jdmichal 10y ago
    It shouldn't be difficult, unless you don't have access to the proper information. The bitcoins you are selling need to be tied to specific bitcoins that were bought. Once you do that, then you have a cost basis for your sale. Subtract the amount you sold them for from your cost basis and that's your gains. If the source transaction was older than a year, it's capital gains. Otherwise, it's income. (This is for the US.)
    - marvin 10y ago
      Is there a "first bought, first sold" clause in US tax law regarding securities, or is it the average purchase value of your total holdings during a sale that counts? E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100: I have to pay tax on ($100-$1)
      - st3v3r 10y ago
        You can decide how you want to do cost basis, but once you've decided for one security, you have to continue using that until it's gone. You can do first in, first out, last in, first out, or average price. I believe the default is average.
      - loeg 10y ago
        > Is there a "first bought, first sold" clause in US tax law regarding securities, or is it the average purchase value of your total holdings during a sale that counts? Neither. It's all specific lots (individual orders). How Coinbase chooses which bitcoin to sell will affect what tax you owe. With a typical brokerage (e.g. Vanguard), you can configure individual securities to sell FIFO, lowest cost, avgcost, or specific lots. Not sure if Coinbase lets you do that. Edit: From your example: > E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100: You could sell the last 10 BTC you bought, in which case you'd owe capital gains tax on the $50 appreciation, or you could sell the first 10 BTC you bought, in which case you'd owe capital gains tax on 9 * $5 + 1 * $9 (= $54, slightly more).
        greendragon 10y ago
        How is anyone supposed to distinguish the first 10 BTC from the last 10 BTC when the underlying satoshis might not even be the same? e.g. I might transfer those 10 BTC to an online store (web wallet, other trading, whatever) but then transfer them back, except I'll likely get a different 10 BTC. Seems like all you can determine is that you once bought $x and once sold $y. Since you can also exchange btc for goods, or mine it (which I believe even the IRS has different rules for), you can't say with certainty whether it must be $y <= $x or $y >= $x. So when you sell 5 BTC, it's either mining income (or other income) or a capital gain, but it seems like there's nothing stopping someone from always taking the least expensive taxes first.
        jdmichal 10y ago
        > Seems like all you can determine is that you once bought $x and once sold $y. That's all that matters. Your gains (or losses) are $y - $x. > it seems like there's nothing stopping someone from always taking the least expensive taxes first. Yes. If you had some with gains and some with losses, you could even choose to sell those at a loss in order to offset other gains.
  - empath75 10y ago
    Under their tools menu, they have a report that calculates it for you.
  - chejazi 10y ago
    For the past two tax seasons I've used app.libratax.com to automatically calculate the amount I owe to the IRS. It also exports a list of the relevant transactions to itemize when you file. It's made filing really easy, well worth the small fee.
  - deleted 10y ago
    [deleted]
3pt14159 10y ago
I had the same problem with the Canadian equiv (CRA). I just treated it like I bought it all at $0 / BTC. I was selling between $100 and $1000, with an average purchase price between $4 and $10, so the cost was basically minuscule.
- smackfu 10y ago
  I would personally be wary of a $0 purchase price since that seems more like a gift to someone reviewing it.
  - 3pt14159 10y ago
    In Canada you just file capital gains or expenses for anything under how much your expense / gain was. If you get reviewed or audited you can revise your documents and you'll get more back. It's kinda interesting because a lot of people will claim less than the levels that would normally trigger an audit (49% of household expenses towards rent, say) and then if they get audited upwards revise it to 75%. It's like a societal cheaper NASH equilibrium, since both the individual and the government gets penalised for being overzealous.
  - mahyarm 10y ago
    But you wont get penalized for overpaying tax right?
emddudley 10y ago
I am not an accountant or tax advisor. Lots of little transactions are a pain, but I do believe you are required to track them in order to report your capital gains correctly. You only have capital gains when you sell, but you need to know your purchase prices and dates in order to compute it. I used this website to analyze my CoinBase transactions: https://bitcoin.tax/ https://bitcoin.tax/ The site imports the transactions and computes your capital gains automatically. Then I entered my information into the IRS capital gains worksheet and reported the gains on my taxes.
- hak8or 10y ago
  This is fantastic, thank you!
- dbl9 10y ago
  When I visited Istanbul, I passed through a district with an endless number of exchange shops, and it seemed like a place where you could easily wash money without any bank account involved. I believe Turkey isn't alone in having such a culture of buying/selling US dollars by tracking the USD rate. Do the IRS and say Turkey's tax office tracks these as well? Assuming that you don't try to deposit the exchanged for bills in a bank. Couldn't someone offer Bitcoin exchange in existing currency shops or the same service via Bitcoin ATMs? How would the IRS and its equivalents track that without requiring identification and registration before use? I suppose a small amount would be allowed for the tourist aspect but then you could use a group of friends or employees to wash small amounts. If you require ID for that, including tourists, then you can track it.
  - DennisP 10y ago
    This is not tax advice but from what I've seen in news reports, the IRS has different rules for currency. The reason bitcoin users have to report every little gain/loss is that the IRS doesn't consider it currency.
    - trendia 10y ago
      And the main reason they don't consider it currency is to impose a tax that discourages its use. Without capital gains, if Bitcoin had ~0% inflation and the US got back up to 5%-10% inflation, then Bitcoin would become a better store of value. However, with capital gains, the US would have to have significant inflation, around 20% or more, before Bitcoin would really be competitive. (I'm assuming there are significant transaction costs related to the low acceptance of Bitcoin) In this manner, the US can (1) gain some additional tax revenue, and (2) prevent Bitcoin from becoming a competitor to the national currency, which every nation wants complete control over.
st3v3r 10y ago
It's no different than any other stock or ETF.

tedd4u 10y ago

The note from the IRS about Bitcoin I read on CoinBase's site said it's similar to a security. So until you trade it out (sell it) you don't realize a gain. When you do your gains are considered similar to capital gains / capital losses (if you held for more than 1 year). Otherwise considered income.

cableshaft 10y ago
Well again, I was about to sell some, and figuring out exactly how much I 'gained' from so many tiny buy transactions I imagine would be difficult (but might not be, I'm not sure).
- jdmichal 10y ago
  It shouldn't be difficult, unless you don't have access to the proper information. The bitcoins you are selling need to be tied to specific bitcoins that were bought. Once you do that, then you have a cost basis for your sale. Subtract the amount you sold them for from your cost basis and that's your gains. If the source transaction was older than a year, it's capital gains. Otherwise, it's income. (This is for the US.)
  - marvin 10y ago
    Is there a "first bought, first sold" clause in US tax law regarding securities, or is it the average purchase value of your total holdings during a sale that counts? E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100: I have to pay tax on ($100-$1)
    - st3v3r 10y ago
      You can decide how you want to do cost basis, but once you've decided for one security, you have to continue using that until it's gone. You can do first in, first out, last in, first out, or average price. I believe the default is average.
    - loeg 10y ago
      > Is there a "first bought, first sold" clause in US tax law regarding securities, or is it the average purchase value of your total holdings during a sale that counts? Neither. It's all specific lots (individual orders). How Coinbase chooses which bitcoin to sell will affect what tax you owe. With a typical brokerage (e.g. Vanguard), you can configure individual securities to sell FIFO, lowest cost, avgcost, or specific lots. Not sure if Coinbase lets you do that. Edit: From your example: > E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100: You could sell the last 10 BTC you bought, in which case you'd owe capital gains tax on the $50 appreciation, or you could sell the first 10 BTC you bought, in which case you'd owe capital gains tax on 9 * $5 + 1 * $9 (= $54, slightly more).
      - greendragon 10y ago
        How is anyone supposed to distinguish the first 10 BTC from the last 10 BTC when the underlying satoshis might not even be the same? e.g. I might transfer those 10 BTC to an online store (web wallet, other trading, whatever) but then transfer them back, except I'll likely get a different 10 BTC. Seems like all you can determine is that you once bought $x and once sold $y. Since you can also exchange btc for goods, or mine it (which I believe even the IRS has different rules for), you can't say with certainty whether it must be $y <= $x or $y >= $x. So when you sell 5 BTC, it's either mining income (or other income) or a capital gain, but it seems like there's nothing stopping someone from always taking the least expensive taxes first.
        jdmichal 10y ago
        > Seems like all you can determine is that you once bought $x and once sold $y. That's all that matters. Your gains (or losses) are $y - $x. > it seems like there's nothing stopping someone from always taking the least expensive taxes first. Yes. If you had some with gains and some with losses, you could even choose to sell those at a loss in order to offset other gains.
- empath75 10y ago
  Under their tools menu, they have a report that calculates it for you.
- chejazi 10y ago
  For the past two tax seasons I've used app.libratax.com to automatically calculate the amount I owe to the IRS. It also exports a list of the relevant transactions to itemize when you file. It's made filing really easy, well worth the small fee.
- deleted 10y ago
  [deleted]

3pt14159 10y ago

I had the same problem with the Canadian equiv (CRA). I just treated it like I bought it all at $0 / BTC. I was selling between $100 and $1000, with an average purchase price between $4 and $10, so the cost was basically minuscule.

smackfu 10y ago
I would personally be wary of a $0 purchase price since that seems more like a gift to someone reviewing it.
- 3pt14159 10y ago
  In Canada you just file capital gains or expenses for anything under how much your expense / gain was. If you get reviewed or audited you can revise your documents and you'll get more back. It's kinda interesting because a lot of people will claim less than the levels that would normally trigger an audit (49% of household expenses towards rent, say) and then if they get audited upwards revise it to 75%. It's like a societal cheaper NASH equilibrium, since both the individual and the government gets penalised for being overzealous.
- mahyarm 10y ago
  But you wont get penalized for overpaying tax right?

emddudley 10y ago

I am not an accountant or tax advisor. Lots of little transactions are a pain, but I do believe you are required to track them in order to report your capital gains correctly. You only have capital gains when you sell, but you need to know your purchase prices and dates in order to compute it. I used this website to analyze my CoinBase transactions: https://bitcoin.tax/ https://bitcoin.tax/ The site imports the transactions and computes your capital gains automatically. Then I entered my information into the IRS capital gains worksheet and reported the gains on my taxes.

hak8or 10y ago
This is fantastic, thank you!
dbl9 10y ago
When I visited Istanbul, I passed through a district with an endless number of exchange shops, and it seemed like a place where you could easily wash money without any bank account involved. I believe Turkey isn't alone in having such a culture of buying/selling US dollars by tracking the USD rate. Do the IRS and say Turkey's tax office tracks these as well? Assuming that you don't try to deposit the exchanged for bills in a bank. Couldn't someone offer Bitcoin exchange in existing currency shops or the same service via Bitcoin ATMs? How would the IRS and its equivalents track that without requiring identification and registration before use? I suppose a small amount would be allowed for the tourist aspect but then you could use a group of friends or employees to wash small amounts. If you require ID for that, including tourists, then you can track it.
- DennisP 10y ago
  This is not tax advice but from what I've seen in news reports, the IRS has different rules for currency. The reason bitcoin users have to report every little gain/loss is that the IRS doesn't consider it currency.
  - trendia 10y ago
    And the main reason they don't consider it currency is to impose a tax that discourages its use. Without capital gains, if Bitcoin had ~0% inflation and the US got back up to 5%-10% inflation, then Bitcoin would become a better store of value. However, with capital gains, the US would have to have significant inflation, around 20% or more, before Bitcoin would really be competitive. (I'm assuming there are significant transaction costs related to the low acceptance of Bitcoin) In this manner, the US can (1) gain some additional tax revenue, and (2) prevent Bitcoin from becoming a competitor to the national currency, which every nation wants complete control over.

st3v3r 10y ago

It's no different than any other stock or ETF.