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The naivitee, ignorance, and arrogance of this thread astounds me. The HN population (I include myself in this) seems to think everything is new, there are no

• baq 9y ago
  Am very grateful for this voice of reason and sanity.
• sandworm101 9y ago
  >> If you buy at price X and sell at price Y, guess what, you owe taxes on Y-X. I don't understand how this is news to anyone. First principal of TaxLaw: It is all income unless it isn't. It is always taxable unless you can find language in the code exempting it. I'd go a little further in saying that the taxable amount isn't "Y-X", ie the profit. The taxable amount is actually just Y, the sale price. Income is all money literally coming into you. You then need to find a deduction for X, the cost of purchasing the asset. Maybe you find one, or maybe you bought your bitcoins with cocaine and so owe on tax on the entire sale price. Or maybe you have already deducted that cost in a previous year and so cannot deduct it again now. Or maybe you traded your bitcoins for some other bitcoins last year, realized the gain then, and now have to start reviewing the like-kind exchange rules. (I'm in that 0,01% of people who actually enjoy tax law. It's actually very eloquent.)
  • tc313 9y ago
    Wouldn't you be able to deduct the cost of the cocaine? I'm not saying it'd be smart, just legal from a tax standpoint.
    • sandworm101 9y ago
      You could, and sometimes people do actually do this. But that means admitting to the cocaine. You would need to find a rare situation where the statute of limitations for the illegal goods issues has run, but you are still wanting the deduction. A few generations ago people did sometimes pay taxes on totally illegal income, albeit without itemizing where it came from. They did this so they couldn't be charged for tax evasion. They had paid, just with some paperwork errors not listing where it came from.
      • jstarfish 9y ago
        It's still possible (and advisable) to declare lump sums, but you lose the ability to take any deductions on non-itemized income. There is no obligation to admit to or report the source of said income.
      • prepend 9y ago
        The IRS cannot share information with law enforcement agencies without warrant. So it’s not like they would tell the DEA or FBI about your $1M cocaine cost of goods sold. Of course when you get busted for drugs, it’s pretty likely that your tax records will be gone through. I saw a documentary where sex workers had accountants and such and declared all their illegal income. It was pretty interesting. But prostitution isn’t as severely prosecuted as drugs.
        • sandworm101 9y ago
          Well, they should not. They are perfectly capable of doing so. Try telling them that your business building and selling pipebombs is paying well. Law enforcement will get wind.
• bmcusick 9y ago
  Yep. As I told people in the bitcoin space years ago, the Roman Empire and Ghengis Khan and Imperial Britain all existed with decentralized, fungible, untraceable money called "gold and silver coins". That didn't prevent the State from existing or collecting taxes or imprisoning people or enforcing its sundry laws. Bitcoin may change things, possibly a lot, and maybe for the better, but you have to be realistic about how much change is actually feasible. The current governments exercise a lot of power through the banking system because it's convenient. If Bitcoin (or some more private successor like Zcash) makes the whole finance sector "go dark", like "Tor for money", those governments will still be there doing their thing, just using slightly less convenient methods.
  • xiphias 9y ago
    Gold (used by rich people) wasn't inflated in the Roman empire, but silver was, this is how the empire collapsed. You just showed a counter-example :) https://mises.org/library/inflation-and-fall-roman-empire https://mises.org/library/inflation-and-fall-roman-empire
  • mempko 9y ago
    I like how you mention two technologies that governments created. 1. Gold and silver coins were created by governments. 2. Tor was created by the government. When you convert USD to bitcoin, that USD doesn't disappear, it still exists in the private sector economy. Nor does bitcoin increase the money supply of USD. That supply is controlled by the government. What happens when the IRS cannot tax the bitcoin transactions is that more USD remains in the private sector than normally would. This does not cause financial problems for the government (Since government makes USDs anyway). More USD in the private sector means at worse rising prices, and at best an economic boost.
• Kiro 9y ago
  > If you buy at price X and sell at price Y, guess what, you owe taxes on Y-X. This is easy when you buy Bitcoin, hodl and then sell but what if you convert it to altcoins, trade altcoins for altcoins and ultimately sell some altcoin for USD? How do you even keep track of your profits?
  • deleted 9y ago
    [deleted]
  • matwood 9y ago
    It's no different than buying the same stock at different prices, and then selling at other prices. Either the software has to keep track or you have to keep track manually.
  • loader 9y ago
    USD out minus USD in
    • deleted 9y ago
      [deleted]
    • loeg 9y ago
      Intermediate trades matter. For example, if you held some of the underlying assets for less than a year, and they appreciated, you would pay income rates on that gain.
  • steveplace 9y ago
    I'm sure there forex market rules that account for this. Like buying EUR/USD then going into EUR/AUD
  • sealthedeal 9y ago
    From tax a perspective, they dont care, its your responibility to keep track of your profit and loss. To me that sounds like naive investing, even though I do the same thing.
  • asciimo 9y ago
• SonicSoul 9y ago
  I really don't think its that simple. Do you get taxed when dollars deflate ? do you claim a loss when dollars inflate? nope you really don't have to go in and out of USD with crypto currency .. you never have to touch USD again. sure they can try auditing your assets vs your salary and come up with some bullshit number you will then have to fight, but there will be many ways to come up with how much you owe and what if you elect to get your salary in crypto currency? if that currency inflates what taxes are you paying? hmm lots of down votes. didn't think my statements were that offensive or ridiculous :) nor am i a "Bitconian" really own 0.2 of BTC. Simply trying to understand what IRS is doing here..
  • daveguy 9y ago
    You don't claim a loss when dollars inflate because dollars are the official currency of the US. Any other asset (BTC, fiat, etc) is assessed on it's value relative to USD. If you sell back to USD you owe on the difference -- whether you do it all at once or one purchase at a time. If you get paid in crypto then you owe income tax for its value at the time of salary payment. If your salary is specified in BTC you should be prepared to pay lots of tax when you are paid. If it is specified in USD but paid in BTC then accounting will be easier. I hope you have a good accountant and a good lawyer, especially if you are one of those the IRS is investigating.
  • ska 9y ago
    Here is something simple. You don't get to decide what BTC is for tax purposes. That is decided by whatever country or countries you are tax resident. If, for example, they decide your transactions are a deemed disposition an an asset, you owe capital gains tax on it. It really is that simple.
  • davidu 9y ago
    Forex traders do on their positions when they realize a gain or loss. So yes.
    • SonicSoul 9y ago
      ok im no accountant so maybe i just don't understand it the way i thought i did, but in this case FX traders are using a currency like an asset you buy and sell. but what if you earn money in that currency and never exchange it for any other currency just use it for life. the government would literately have to audit your savings account and proclaim that you owe X because your savings went up in value (and im not talking about interest paid by bank, i'm talking about just buying power of underlying currency). that is no different than owning a gold necklace and government taxing you on it because gold went up in price. I don't think this is happening right now
• ziikutv 9y ago
  A hero emerges. Thanks
• karmapolic 9y ago
  been there, seen it, done it all haven't you. A CS degree working in San Francisco a high probability you are amongst the smartest people in the world.
• ojr 9y ago
  cyptocurrency markets are more inefficient than traditional, so it has more profit opportunity, a larger spread between bid and ask price incentives people to arbitrage and engage in market making, I made a ethereum bot for an exchange and I have seen returns and my bot's code is not impressive as HFT bots that operate on the NYSE but it is a different game, if you don't like the game don't play
• Nokinside 9y ago
  >Case 3: money laundering and other types of financial crimes For those who think about anonymizing their bitcoin sources by running them trough mixer or using anonymous cryptocurrency, think it over twice and find out more about the cash seizure, detention and forfeiture laws. Money laundering laws are not a joke. They use reverse burden of proof. Your money can be seized and you must explain its origin or you lose it.
  • theseatoms 9y ago
    > They use reverse burden of proof. Your money can be seized and you must explain its origin or you lose it. Definitely something I'd like to see challenged in the court system.
    • prepend 9y ago
      It has been and upheld. Been established for quite a while. Here’s a US Supreme Court case from 1996 - https://en.wikipedia.org/wiki/Bennis_v._Michigan https://en.wikipedia.org/wiki/Bennis_v._Michigan
    • ChuckMcM 9y ago
      Sadly it has been challenged several times and found to be lawful. I would love to see Congress specifically outlaw such seizures and/or reverse the burden of proof.
• Clanan 9y ago
  Lately I think more and more threads would benefit from this posted at the top. This ignorant mindset is what develops after telling every well-off 20-something they'll "change the world!" by tossing out a few thousand lines of code.
• stult 9y ago
  >Moving money is one of the oldest human endeavors and unlike a lot of topics in software development, it's an old profession with a huge body of accumulated domain knowledge. We shouldn't be so quick to dismiss it. I would say that, like many fields, the existing domain knowledge in the relevant professions (accounting, finance) is incredible. But CS and the sort of expertise common in the Bay Area does have a lot to contribute to the tools used in those professions. I'm a lawyer and a developer working at a large public account firm, and my experience has been that the profession has a lot of experience recognizing the myriad ways to identify, measure, and disguise value via financial transactions, but very little expertise in using computers to do so. Yeah, you're not gonna fool us by withdrawing $100k from your account and hiding it under your mattress or in a crypto wallet. Everyone in the field knows to look at the economic substance of a transaction over its nominal form. But most of us can't figure out how to open a CSV file that's too big for Excel, so there's plenty of room to help us with managing lots of data and extracting useful information from it. >Case 3: money laundering and other types of financial crimes. There are entire companies who build software to detect money laundering. It's a well-understood problem. I would disagree with you here. Money laundering is an extremely challenging problem, not least of all because money launderers are extraordinarily inventive and constantly shifting tactics. It's a lot like infosec. No matter how advanced your defenses are, a ton of hackers are always looking for a way through and any sufficiently complex system is impossible to secure 100%.
  • rrdharan 9y ago
    Not the OP you responded to but there's an important distinction between "well-understood problem" and "solved problem" and I believe this specific choice of words was deliberate.
    • stult 9y ago
      Ok, that's a fair hair to split, but I would also disagree with your more explicit characterization. I think the recent disclosures via the Panama and Paradise Papers demonstrates that the extent and nature of money laundering remains poorly understood by regulators, academics, and the public at large, though perhaps there are insiders (meaning actual money launderers) with deep insight into the activity. We may know a lot about some basic red flags, common motivations for money laundering, common funding sources, which banking markets are grey or black, etc., but that doesn't mean we understand anything about how it is actually being conducted on a day to day basis. If we did, it wouldn't be so pervasive.
• pikchurn 9y ago
  That's not what people are objecting to in this case. This is not a family law judge subpoenaing coinbase for records. I've actual been an expert witness on such a court case and where Coinbase complied and gave the transaction history, for the record. This is not the FBI or some regulator's enforcement arm investigating money laundering and having a court order requesting details of specific accounts. I'm sure they comply there too. Nor is the IRS requesting information on specific people they think failed to report their taxes. That too would be understandable. This is a fishing expedition. The IRS is requesting coinbase to turn over all personal information of all accounts and the entire transaction histories, with no specific basis given. This is the financial privacy equivalent of court-order wiretapping vs dragnet surveillance. It is entirely reasonable to be angry about this. Case in point: I bought and sold bitcoin on Coinbase at that time, as part of my non-registered sole proprietorship consulting business--I was paid by my clients in bitcoin, and purchased some on behalf of my father. As per the advice received by my accountant at that time, prior to publication of any IRS rules regarding bitcoin, I merely reported aggregate values of my own sales, not individual trades, on my Schedule C business income part of my personal 1040. Even in light of later advice published by the IRS, it's not clear that this was the incorrect way to file since it business income is handled differently. So I paid my taxes, legitimately, but there's no mention of bitcoin, or the individual trades that were made to cash out that bitcoin on Coinbase. But, it now seems that the IRS is going to get a data dump that has my name and a bunch of bitcoin trades from years ago, and have no way of knowing that I already paid taxes on them. And, bad on me, I'm not sure I have sufficient record to prove my story, or if I do it will take a lot of unpaid work to put together. So I'm either going to get hit with an excessively large tax bill, or deal with a lot of pain and suffering and personal cost fighting this in tax court, losing a ton of my time for having done nothing wrong. Fuck that. That's why we have due process and don't allow law enforcement fishing expeditions. False positives have a cost.
  • flamedoge 9y ago
    I get you and there is harm to be done from this, but did anyone expect otherwise? I mean if all the trades are done through the exchanges like coinbase, what did anyone think, that IRS wouldn't go after the exchanges?
  • 9y ago
• rdiddly 9y ago
  "just because you have a CS degree and work in San Francisco, don't think you're the smartest person in the world." That's right, because everybody knows _I'M_ the smartest person in the world! Nobutseriously. I've never been able to articulate why I was skeptical about Bitcoin as a "currency" per se, but I think you've done it. The money problems Bitcoin claims to uniquely solve, it either doesn't really solve, or it's a solution you can easily get some other way, or it was a security-through-obscurity type of thing where agencies of oversight were ignoring it/ignorant of it -- which meant if it ever went mainstream they would catch up... and now they have. Sadly I don't think there's any escape from authoritah. That's not to say the blockchain idea isn't useful... just not as money.
• proc0 9y ago
  The whole point of crypto is to circumvent the system. You just described problems that exist because there is a centralized system defining them: money-laundering, which by definition is circumventing the government, tax avoidance (same), and other loop holes that are basically a way to do what you want with your money, instead of having to share or pay something to a central authority for whatever reason. Taxes are good, but I think that the "centralized" solution for taxing, (having a separate process, that is all defined and enforced by government) is a terrible solution that has proven ineffective, unfair, and inaccurate. Public commons like taxes need to have an equivalent smart contract and once you have mass acceptance of these tokens, people will have no choice but to pay taxes with any and every transaction, and all of the pain the current centralized IRS feels crypto has, will be irrelevant.
  • bdamm 9y ago
    So what, solve it by creating a sales tax on the blockchain? I can't imagine that would be adopted - how would you prove that any taxes on any one transaction is due to a specific authority?
    • proc0 9y ago
      Another smart contract? I'm speculating many decades from now if everything goes well. Anything financially centralized should now be able to have a decentralized counterpart.
• stale2002 9y ago
  Coinbase is a centralized exchange. People's money was ALWAYS at risk. This is a very different security model than that provided by the underlining base layer of many cryto currencies.
• bitmapbrother 9y ago
  >Case 3: money laundering and other types of financial crimes. There are entire companies who build software to detect money laundering. It's a well-understood problem. If the Panama papers have taught us anything it's that there are better places to hide money and legally avoid paying taxes on it than bitcoin.