10 ms·

What actually happens when you try to get out of bitcoin? Let's say I put in $5k a few years back which is now worth $100k. I have to go on the exchange and nom

What actually happens when you try to get out of bitcoin? Let's say I put in $5k a few years back which is now worth $100k. I have to go on the exchange and nominate a bank account then sell then they transfer say USD into my account? At this point is this "capital gains" taxable? Assuming I'm willing to pay the tax if it's due has anyone had trouble with authorities questioning your new cash pile say if before this you had no real money and lucked out on Bitcoin?

olegkikin 10y ago
The government doesn't give a shit, as long as it's legal and as long as you pay the taxes. Bitcoin isn't the only thing in the world that goes up and down in value, so it isn't new from the tax perspective.
- SomeStupidPoint 10y ago
  To be fair, the IRS doesn't care if it's legal, as long as you pay your taxes. There are rules about how you report your illegal gains (and deductions on them).
yason 10y ago
You have proof of this as the bitcoin transactions are public. The taxman can verify that you bought your coins five years ago and sold them this year. Multiply those by the BTC exchange rate five years ago and now, and it should be obvious that you put in 5k and got out 100k. You could've bought stock, or other currencies, but you bought BTC and it skyrocketed.
- lisper 10y ago
  > The taxman can verify that you bought your coins five years ago and sold them this year. How? The public block chain only contains records of how coins moved from one wallet to another. It doesn't have any information about who those wallets belonged to, or what the terms of the transaction were. Maybe the coins were sold for fiat currency, or maybe they were compensation for goods and services. There's no way to know just from the information in the blockchain. [EDIT] Let me make this more clear: it is easy to anonymize BTC. It is so easy that the technique even has a name (bitcoin tumbling) and companies that will do it for you as a service (e.g. https://bitlaunder.com https://bitlaunder.com). (I thought this was common knowledge around here.) In the face of these facts, how is the IRS going to enforce the tax code against a someone who tumbles their coins?
  - toomuchtodo 10y ago
    At some point the wallet will correlate with meat space.
    - deleted 10y ago
      [deleted]
    - lisper 10y ago
      Yes, but if you want to enforce the tax code against dishonest actors it is not enough to correlate "at some point". You have to correlate an entire sub-chain and show that all of the intermediate wallets were controlled by the same entity. (See the update to my OP.)
      - nightski 10y ago
        Actually don't rely on my advice but I am pretty sure if you can't prove when you originally bought it and for what price you have to pay capital gains on the FULL amount. The burden is on you not the IRS.
        twblalock 10y ago
        Yep. See the second page of the tax form instructions here: https://apps.irs.gov/app/vita/content/globalmedia/4491_capital_gain.pdf https://apps.irs.gov/app/vita/content/globalmedia/4491_capit... "If taxpayers cannot provide their basis in the property, the IRS will deem it to be zero." That means 100% of the sale price of an asset is treated as gains.
      - twblalock 10y ago
        > You have to correlate an entire sub-chain and show that all of the intermediate wallets were controlled by the same entity. That is not true. In fact, the IRS does not care about the vagaries of bitcoin wallets, or the blockchain. The IRS cares that you got money that you didn't have before.
  - beambot 10y ago
- amorphid 10y ago
  The tax man can verify that bought coins were bought and sold, but not who initiated the transaction. I can buy 5K worth of bitcoins, print them out on a sheet of paper, sell you the paper for 5K. When the bitcoins hit 100K, you sell them. You're the one with a 95K gain, not I.
ra 10y ago
Just keep the documentation for purchase and sale, and for any costs incurred while holding / transacting your BTC. Speak to a local tax advisor about CGT. 100k is a significant amount and I would advise you don't intentionally break the law "cashing out".
leakybit 10y ago
Or you could set up a corporate bank account in the Caymens and cash out via btc-e (which is Russian) and not pay any tax.
- djrogers 10y ago
  Yes, and get popped for tax evasion when you move that money back to a US bank to spend it. Although maybe not for 95K.
  - ryanlol 10y ago
    I guess the real question is: why on earth would you do that? IRS wont get you for using an offshore card to pay for... well, everything?
LeoPanthera 10y ago
A fresh Coinbase account will let you sell $15,000 a week, and I assume that this increases over time.
nemoniac 10y ago
That depends what country you're in. In my country there is no capital gains tax.

olegkikin 10y ago

The government doesn't give a shit, as long as it's legal and as long as you pay the taxes. Bitcoin isn't the only thing in the world that goes up and down in value, so it isn't new from the tax perspective.

SomeStupidPoint 10y ago
To be fair, the IRS doesn't care if it's legal, as long as you pay your taxes. There are rules about how you report your illegal gains (and deductions on them).

yason 10y ago

You have proof of this as the bitcoin transactions are public. The taxman can verify that you bought your coins five years ago and sold them this year. Multiply those by the BTC exchange rate five years ago and now, and it should be obvious that you put in 5k and got out 100k. You could've bought stock, or other currencies, but you bought BTC and it skyrocketed.

lisper 10y ago
> The taxman can verify that you bought your coins five years ago and sold them this year. How? The public block chain only contains records of how coins moved from one wallet to another. It doesn't have any information about who those wallets belonged to, or what the terms of the transaction were. Maybe the coins were sold for fiat currency, or maybe they were compensation for goods and services. There's no way to know just from the information in the blockchain. [EDIT] Let me make this more clear: it is easy to anonymize BTC. It is so easy that the technique even has a name (bitcoin tumbling) and companies that will do it for you as a service (e.g. https://bitlaunder.com https://bitlaunder.com). (I thought this was common knowledge around here.) In the face of these facts, how is the IRS going to enforce the tax code against a someone who tumbles their coins?
- toomuchtodo 10y ago
  At some point the wallet will correlate with meat space.
  - deleted 10y ago
    [deleted]
  - lisper 10y ago
    Yes, but if you want to enforce the tax code against dishonest actors it is not enough to correlate "at some point". You have to correlate an entire sub-chain and show that all of the intermediate wallets were controlled by the same entity. (See the update to my OP.)
    - nightski 10y ago
      Actually don't rely on my advice but I am pretty sure if you can't prove when you originally bought it and for what price you have to pay capital gains on the FULL amount. The burden is on you not the IRS.
      - twblalock 10y ago
        Yep. See the second page of the tax form instructions here: https://apps.irs.gov/app/vita/content/globalmedia/4491_capital_gain.pdf https://apps.irs.gov/app/vita/content/globalmedia/4491_capit... "If taxpayers cannot provide their basis in the property, the IRS will deem it to be zero." That means 100% of the sale price of an asset is treated as gains.
    - twblalock 10y ago
      > You have to correlate an entire sub-chain and show that all of the intermediate wallets were controlled by the same entity. That is not true. In fact, the IRS does not care about the vagaries of bitcoin wallets, or the blockchain. The IRS cares that you got money that you didn't have before.
- beambot 10y ago
amorphid 10y ago
The tax man can verify that bought coins were bought and sold, but not who initiated the transaction. I can buy 5K worth of bitcoins, print them out on a sheet of paper, sell you the paper for 5K. When the bitcoins hit 100K, you sell them. You're the one with a 95K gain, not I.

ra 10y ago

Just keep the documentation for purchase and sale, and for any costs incurred while holding / transacting your BTC. Speak to a local tax advisor about CGT. 100k is a significant amount and I would advise you don't intentionally break the law "cashing out".

leakybit 10y ago

Or you could set up a corporate bank account in the Caymens and cash out via btc-e (which is Russian) and not pay any tax.

djrogers 10y ago
Yes, and get popped for tax evasion when you move that money back to a US bank to spend it. Although maybe not for 95K.
- ryanlol 10y ago
  I guess the real question is: why on earth would you do that? IRS wont get you for using an offshore card to pay for... well, everything?

LeoPanthera 10y ago

A fresh Coinbase account will let you sell $15,000 a week, and I assume that this increases over time.

nemoniac 10y ago

That depends what country you're in. In my country there is no capital gains tax.