4 ms·

In the linked article, the IRS is quoted as saying they are treating BitCoin like property. Essentially, they are looking to tax people who made a profit from s

In the linked article, the IRS is quoted as saying they are treating BitCoin like property. Essentially, they are looking to tax people who made a profit from selling Bitcoins using Coinbase. They don't seem concerned with the currency aspect at all.

reddytowns 10y ago
The problem is that this is no dividing line. If after you receive bitcoin, the price of bitcoin goes up, and then you buy something with them, that is a taxable event.
smokeyj 10y ago
Say I buy two bitcoins, A and B, and combine them into a wallet C. Bitcoin A was purchased for $100 and Bitcoin B was purchased for $1000. If I sell half of wallet C for $500 - can I pick "which" bitcoin was sold? Because depending on which coin was sold the tax implication may change.
- olegkikin 10y ago
  I think you have to count the earliest purchase first for taxes. So you can't use the $500 base until you exhaust all of the $100 when counting buy-sell events.
- AtheistOfFail 10y ago
  I've always been told to cost average this. However, I've never had to sell a single Bitcoin.
- vessenes 10y ago
  While I'm not a CPA, I have spent many dollars and hours since 2011 on Bitcoin tax questions in the US, so here's my two cents: In general the US requires consistent treatment of inventory for earnings calculations. It's a little weird to have to worry about that as just a consumer, but if the coins are property and being held then sold, you probably should keep track of gains and losses. Now, you discuss the question of combining up your two inventories. There are basically four ways of accounting for inventory in US accounting: FIFO -- First in First Out LIFO -- Last in First Out AVCO -- Average Cost Specific Identification (I think that's the term) -- cost associated with a given item. It is generally fine with inventory to pick one of these methods and accrue gains / losses appropriately. So, FIFO: You show a gain of $400. (Note your next sale at $500 will net a loss of $500). LIFO: You show a loss of $500 (Note next sale will net a gain) AVCO: You show a loss of $50. Specific Identification: Depends on the coin. If you want to change your inventory accounting methods you definitely need to calculate out a charge (or credit) for the switch. In general, I have thought for some time choosing specific identification rules and instrumenting a wallet to spend in the most tax efficient way possible makes a lot of sense, but it's way down the stack of projects for me at least.
  - dragonwriter 10y ago
    > If you want to change your inventory accounting methods you definitely need to calculate out a charge (or credit) for the switch. I thought (and I could be wrong) that the normal thing to do with LIFO/FIFO as to track it as if specific lots were sold (even if those aren't the actual items sold), so that if you switched between them you just changed the order in which you were treating the remaining (accounting, rather than actual) lots as being sold, without the charge/credit you would have if you refigured past history of sales to meet the new accounting method.
    - briHass 10y ago
      That's how I do it with mutual fund shares, which would be a similar situation to Bitcoins due to it all technically being one "pot". If you use a tax-lot specific accounting method FIFO/LIFO/highest cost/other specific, you just need to track which "lots" you've already sold out of (fully or partially), and ensure that you don't sell something twice. Now, if you used average cost at some point, you're kinda screwed if you want to switch to specific lot.
eeeeeeeeeeeee 10y ago
How do you distinguish between someone buying something with Bitcoin and someone "trading" it? I only buy things with Bitcoin, I'm not doing currency trading (or at least, that was not my intention!). It seems like they could have isolated this request down to heavy buy/sell activity where it doesn't look like people are simply buying things. I'm fine with them going after people evading taxes, but this seems like a wide net to cast.
- pc86 10y ago
  I don't do anything with BTC, is there any visible difference between speculating and purchasing a product when looking at the block chain and/or the user's account? And I'm not sure how the IRS views this, but if you buy 1 BTC for $750, then its value increases to to $1000 for 1 BTC, and you buy $1000 worth of merchandise, isn't that taxable appreciation on the order of $250, because you're getting $1000 worth of goods for $750? I agree this is a wide net to cast and I hope this is appealed and overturned, but I just don't know from a technical or tax perspective if they can cast the net any narrower.

reddytowns 10y ago

The problem is that this is no dividing line. If after you receive bitcoin, the price of bitcoin goes up, and then you buy something with them, that is a taxable event.

smokeyj 10y ago

Say I buy two bitcoins, A and B, and combine them into a wallet C. Bitcoin A was purchased for $100 and Bitcoin B was purchased for $1000. If I sell half of wallet C for $500 - can I pick "which" bitcoin was sold? Because depending on which coin was sold the tax implication may change.

olegkikin 10y ago
I think you have to count the earliest purchase first for taxes. So you can't use the $500 base until you exhaust all of the $100 when counting buy-sell events.
AtheistOfFail 10y ago
I've always been told to cost average this. However, I've never had to sell a single Bitcoin.
vessenes 10y ago
While I'm not a CPA, I have spent many dollars and hours since 2011 on Bitcoin tax questions in the US, so here's my two cents: In general the US requires consistent treatment of inventory for earnings calculations. It's a little weird to have to worry about that as just a consumer, but if the coins are property and being held then sold, you probably should keep track of gains and losses. Now, you discuss the question of combining up your two inventories. There are basically four ways of accounting for inventory in US accounting: FIFO -- First in First Out LIFO -- Last in First Out AVCO -- Average Cost Specific Identification (I think that's the term) -- cost associated with a given item. It is generally fine with inventory to pick one of these methods and accrue gains / losses appropriately. So, FIFO: You show a gain of $400. (Note your next sale at $500 will net a loss of $500). LIFO: You show a loss of $500 (Note next sale will net a gain) AVCO: You show a loss of $50. Specific Identification: Depends on the coin. If you want to change your inventory accounting methods you definitely need to calculate out a charge (or credit) for the switch. In general, I have thought for some time choosing specific identification rules and instrumenting a wallet to spend in the most tax efficient way possible makes a lot of sense, but it's way down the stack of projects for me at least.
- dragonwriter 10y ago
  > If you want to change your inventory accounting methods you definitely need to calculate out a charge (or credit) for the switch. I thought (and I could be wrong) that the normal thing to do with LIFO/FIFO as to track it as if specific lots were sold (even if those aren't the actual items sold), so that if you switched between them you just changed the order in which you were treating the remaining (accounting, rather than actual) lots as being sold, without the charge/credit you would have if you refigured past history of sales to meet the new accounting method.
  - briHass 10y ago
    That's how I do it with mutual fund shares, which would be a similar situation to Bitcoins due to it all technically being one "pot". If you use a tax-lot specific accounting method FIFO/LIFO/highest cost/other specific, you just need to track which "lots" you've already sold out of (fully or partially), and ensure that you don't sell something twice. Now, if you used average cost at some point, you're kinda screwed if you want to switch to specific lot.

eeeeeeeeeeeee 10y ago

How do you distinguish between someone buying something with Bitcoin and someone "trading" it? I only buy things with Bitcoin, I'm not doing currency trading (or at least, that was not my intention!). It seems like they could have isolated this request down to heavy buy/sell activity where it doesn't look like people are simply buying things. I'm fine with them going after people evading taxes, but this seems like a wide net to cast.

pc86 10y ago
I don't do anything with BTC, is there any visible difference between speculating and purchasing a product when looking at the block chain and/or the user's account? And I'm not sure how the IRS views this, but if you buy 1 BTC for $750, then its value increases to to $1000 for 1 BTC, and you buy $1000 worth of merchandise, isn't that taxable appreciation on the order of $250, because you're getting $1000 worth of goods for $750? I agree this is a wide net to cast and I hope this is appealed and overturned, but I just don't know from a technical or tax perspective if they can cast the net any narrower.