4 ms·

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 wal

by 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.

by smokeyj 10y ago

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.