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What are the tax implications of playing with Bitcoins? (disclaimer: I have no desire to do so, just wondering about it). Say I bought some BTC a couple of yea

What are the tax implications of playing with Bitcoins? (disclaimer: I have no desire to do so, just wondering about it). Say I bought some BTC a couple of years ago, and now sell them at some exchange like Coinbase or Coinmate or whatever. Do these exchanges report 1099s to the IRS? If not, how will the IRS ever find out? (I'm not proposing cheating on taxes either, but just curious about what goes on). What if you just keep the gains and keep quiet?

stevenj 9y ago
You have to pay taxes on any income you earn whether it's through trading bitcoin, selling drugs, or working at Google.
wyldfire 9y ago
> What are the tax implications of playing with Bitcoins? In the US, presumably? It's ever-so-slightly different from other investments. AFAIK it's a real grey area regarding mining. If you mined the coins, maybe those were taxable income then (offset by big capital expenses?), at the market value at that time. I think that's where the differences might end. Now that you have them, plain old capital gains tax likely applies. > how will the IRS ever find out? ... What if you just keep the gains and keep quiet? You end up accepting some risk that you don't end up being investigated. Very much of the taxes that you pay that are not part of withholding operate this way. Be honest and have nothing to fear or risk an audit.
iak8god 9y ago
> Do these exchanges report 1099s to the IRS? Not usually: "With the exception of some business accounts, Coinbase does not provide 1099 forms. Coinbase does however provide a specialized Cost Basis for Taxes report which will help with filing your taxes." [1] After this hypothetical transaction you will likely owe capital gains tax. It would be hard to hide any significant amount from the IRS if you actually want to convert it to USD, for example by transferring to a bank account [2]. Regardless, the IRS is definitely paying attention and going after back taxes on large exchange accounts [3]. [1] https://support.coinbase.com/customer/en/portal/articles/1496488-taxes-faq?b_id=13521 https://support.coinbase.com/customer/en/portal/articles/149... [2] https://pocketsense.com/deposits-reported-irs-7557.html https://pocketsense.com/deposits-reported-irs-7557.html [3] http://fortune.com/2017/11/29/irs-coinbase/ http://fortune.com/2017/11/29/irs-coinbase/
- tc313 9y ago
  I always thought the $10,000 reporting rule was for physical cash deposits. Is it also triggered when you, say, transfer $10,000 from your online brokerage account to your checking account?
  - PeterisP 9y ago
    I believe that this doesn't trigger a mandatory report, however, it would be reasonable to expect that the IRS will ask every major bank for large incoming transactions from e.g. Coinbase, audit every one of those who hasn't listed any capital gains on their tax report, and charge the appropriate taxes+fines. Of course, they don't have to do this now, they'll start next year after everyone has filed their taxes, but they can review it a few years later if they wish.
PeterisP 9y ago
"What if you just keep the gains and keep quiet?" You risk paying much more than the usual tax if you get caught, and that's if you simply "forget to declare". If it looks like that you've taken explicit steps to hide those gains, then criminal charges may get pressed. IIRC they get some 2000 criminal convictions a year for tax evasion.

stevenj 9y ago

You have to pay taxes on any income you earn whether it's through trading bitcoin, selling drugs, or working at Google.

wyldfire 9y ago

> What are the tax implications of playing with Bitcoins? In the US, presumably? It's ever-so-slightly different from other investments. AFAIK it's a real grey area regarding mining. If you mined the coins, maybe those were taxable income then (offset by big capital expenses?), at the market value at that time. I think that's where the differences might end. Now that you have them, plain old capital gains tax likely applies. > how will the IRS ever find out? ... What if you just keep the gains and keep quiet? You end up accepting some risk that you don't end up being investigated. Very much of the taxes that you pay that are not part of withholding operate this way. Be honest and have nothing to fear or risk an audit.

iak8god 9y ago

> Do these exchanges report 1099s to the IRS? Not usually: "With the exception of some business accounts, Coinbase does not provide 1099 forms. Coinbase does however provide a specialized Cost Basis for Taxes report which will help with filing your taxes." [1] After this hypothetical transaction you will likely owe capital gains tax. It would be hard to hide any significant amount from the IRS if you actually want to convert it to USD, for example by transferring to a bank account [2]. Regardless, the IRS is definitely paying attention and going after back taxes on large exchange accounts [3]. [1] https://support.coinbase.com/customer/en/portal/articles/1496488-taxes-faq?b_id=13521 https://support.coinbase.com/customer/en/portal/articles/149... [2] https://pocketsense.com/deposits-reported-irs-7557.html https://pocketsense.com/deposits-reported-irs-7557.html [3] http://fortune.com/2017/11/29/irs-coinbase/ http://fortune.com/2017/11/29/irs-coinbase/

tc313 9y ago
I always thought the $10,000 reporting rule was for physical cash deposits. Is it also triggered when you, say, transfer $10,000 from your online brokerage account to your checking account?
- PeterisP 9y ago
  I believe that this doesn't trigger a mandatory report, however, it would be reasonable to expect that the IRS will ask every major bank for large incoming transactions from e.g. Coinbase, audit every one of those who hasn't listed any capital gains on their tax report, and charge the appropriate taxes+fines. Of course, they don't have to do this now, they'll start next year after everyone has filed their taxes, but they can review it a few years later if they wish.

PeterisP 9y ago

"What if you just keep the gains and keep quiet?" You risk paying much more than the usual tax if you get caught, and that's if you simply "forget to declare". If it looks like that you've taken explicit steps to hide those gains, then criminal charges may get pressed. IIRC they get some 2000 criminal convictions a year for tax evasion.