10 ms·

Primer on Bitcoin Taxation

127 points by georgecmu 13y ago

lucb1e 13y ago
Additional info for people from the Netherlands: Owning Bitcoin and trading in Bitcoin for anything (goods or other currency) are legal as far as we know. Unless you own a business dealing with Bitcoin, all you need to do to be legal is add the profits that you make to your income. That's all. I'm not sure about the tax rules when you have a business in Bitcoin, but it's still legal to do anything with it.
- derefr 13y ago
  Is BTC just sitting around in your account, gaining in valuation relative to the euro, considered "profit?"
  - harshreality 13y ago
    If so, how does that work? If I exchange USD for Euros, and the dollar weakens against the euro, am I taxed? Is it an issue of intent? If I exchange for investment purposes, it's taxed, but for practical purposes, it's not?
    - stan503 13y ago
      The article mentions there is a $200 exemption for personal transactions. However this only applies to personal transactions, not investments. This also appears to not yet apply to Bitcoin, only "recognized" currencies like the Euro.
    - Guvante 13y ago
      Bitcoin is considered a property since it is not specifically categorized otherwise, so it works a little different than currencies. But answering that question is very complex for business, you probably don't need to worry about small gains as a person.
    - PeterisP 13y ago
      If you buy a (large enough) amount of some currency; later sell it, and the difference makes you a profit - then it's taxable income. Intent doesn't matter as such - if you do it for 'practical purposes', then you most likely don't realize the gains (don't trade USD->EUR->USD, but do USD->EUR->buy stuff in Europe) or have very small volume (lots USD->lots EUR->go on trip->convert a bit EUR back to USD).
  - arasmussen 13y ago
    This is super interesting to me. If you exchange your money from one currency to another (USD, Euro, etc.) and profit from doing this, do you need to pay taxes? If not, is BTC treated as a currency, or as a security (eg. FB, TSLA) where you would obviously have to pay capital gains taxes.
  - Hermel 13y ago
    I don't know about the Netherlands, but in most countries, capital gains of private citizens are taxed when realized. I.e. if you hold a stock worth 100€ in 2009, 150€ in 2010 and 110€ in 2011, and then in 2012 you sell it for 120€, there is a capital gain of 20€ in 2012, but none in the other years.
    - lucb1e 13y ago
      This is what I meant. Well explained!
    - Houshalter 13y ago
      This seems odd as you haven't actually gained anything, the market's relative values of different things has just changed. As opposed to like actually making money from getting dividends from the stock.
      - grey-area 13y ago
        Same rules apply if you sold your stock - you'll be taxed on the capital gain.
300bps 13y ago
I'm willing to bet the compliance rate on bitcoin taxation is going to be slightly lower than the compliance rate on people who buy gold coins at X and sell them at > X. Section 9006 of the Affordable Care Act (ObamaCare) almost partially closed this loophole but it was repealed.
- Karunamon 13y ago
  I'm not so sure.. when you consider the ways that exist of converting BTC into your local currency, most of them have reporting rules for transactions and aggregates over a certain amount. I really wish the IRS would concern itself with USD only.. BTC is going to be a nightmare to tax, let alone enforce. Hoping people are conscientious, here. The recent hearing about Bitcoin was positive, it does not need the association of being a tax cheat's friend to ruin it!
  - 300bps 13y ago
    when you consider the ways that exist of converting BTC into your local currency, most of them have reporting rules for transactions and aggregates over a certain amount I've bought most of my bitcoins from Craigslist handing cash to local bitcoin sellers. Many people use https://localbitcoins.com/ https://localbitcoins.com/ There are definitely at least a few ways to buy and sell bitcoin without leaving a paper trail.
    - otoburb 13y ago
      Wouldn't that would work against you unless you cash out your gains slowly to avoid being flagged? I mean, if you have no proof of the OTC transaction, then on whichever amount the government tried to contest they may try to tax you on the full value of the coins at time of sale versus only taxing you on the (presumably positive) price delta.
    - PeterisP 13y ago
      If bitcoin becomes a large enough issue for IRS, then there's definitely at least a few ways for them to proceed. For example, they can subpoena localbitoins.com and such sites for all their user info, and do a full tax audit on them - after all, in taxes generally it's your problem to provide a paper trail for your taxable income/expenses, and if you can't do it, it only hurts you. For example, if you buy 1 bitcoin for $500 and sell for $800, you pay taxes on the $300 difference; but if you have no trail whatsoever for the $500 transaction, then tough luck, you'll be taxed on the whole $800. Oh, and that assumes that you did 'tax yourself' by properly declaring it; if you want them to tax you, then expect that to be tripled as a penalty; and if you're using any 'coin mixing' services then that smells like tax fraud which would move the pain from a few dollars to risk of prison. I'm not a tax lawyer, but you might need one.
gamblor956 13y ago
I just wrote an article about US tax implications regarding Bitcoin holdings (not transactions! transactions are easy, and well-covered on the Bitcoin wiki). Unfortunately it needs to wind its way through the editorial/fact-/cite-checking process, so it will be some time next year before it makes it into print. If you have questions about US compliance obligations regarding Bitcoins held in non-US wallets (meaning every major exchange, such as BTCChina, BitStamp, MtGov, and BTC-e), feel free to ask and I'll try to respond over the course of the next day or two.
- eof 13y ago
  1) If I held xxx bitcoins in a foreign exchange, having bouhgt y% of those xxx coins there; and transfered z% of the coins there; then later turned into cash w% of those coins and withdrew it to my USA bank account; then transfered the remaining xxx-w% coins to my local wallet; what do i do about taxes. 2 ) additionally, of those xxx-w%; i lost a password protecting all of the coins and paid 10% of xxx-w% (measured in bitcoins) for someone to crack the wallet passphrase, then what do i do about taxes? 3) then, my computer got hacked and someone stole the remaining bitcoins leaving me with 0 on my local machine and n (where n is << xxx-w%) in a different, us based wallet, then what do i do about taxes? to be clear, i have 3 questions what happens if 1) happens. what happens if 1) THEN 2) happens. what happens if 1) THEN 2) THEN 3) happens? edit: the z% of coins transferred into the foreign exchange came from services rendered at a fair market value of `d`
  - Guvante 13y ago
    I am not a tax expert, so take this with a grain of salt, but I believe these are accurate answers. 1. Once you mix your coins the value of a coin from your perspective becomes the average cost of a coin. So if you paid $1 for a coin and $100 for another coin, put both into something that made the distinction impossible, and then sold a coin for $150, you would have to pay taxes on $150 - ($100 + $1)/2 or $99.5 of income. Note that turning into non-Bitcoin is the event, type of Bitcoin does not matter, but anything but a Bitcoin does. 2. Technically you would have an income on your gains of xxx-w%. I don't know offhand if you could write off the expense, but I doubt it. 3. You are talking about bitcoins being bitcoins, so no taxable event. Whether it counts as an expense for writing off purposes is another point I don't know. This would likely be a loss so could be deducted. Your edit: Assuming you account for the value of the bitcoins gained at the time you gained them as income (which you should have) then you can consider that as the cost of the bitcoins. If you never counted the value of the bitcoins when you gained them then your cost basis is $0, so the entire value of the cash out is income. There may also be penalties involved in that but they likely won't care for small amounts of original value.
stan503 13y ago
What is someone were to trade one cryptocurrency for another? For example, if I bought Litecoins with Bitcoins, and later sold for a gain in Bitcoins, how would I be taxed? From the article it seems I would only be taxed until I ultimately realized my gains in USD. Would I have to maintain a record of all my "altcoin" transactions in this case?
- IgorPartola 13y ago
  By transitive property, the only transactions that should count are ones that convert USD to anything, and ones that convert anything to USD. So if you invest $10 in BTC, then do some magical trading and take out $1000, then you gained $990. I have no idea how this actually works, or if you could say that you mined the $990 and broke even on the $10, or if you have to provide a paper trail for every single cryptocurrency transaction that led you to posses the money, but this is definitely going to get hairy...
  - jstalin 13y ago
    "By transitive property, the only transactions that should count are ones that convert USD to anything, and ones that convert anything to USD." According to US tax law, any accession to wealth is taxable when the gain is realized (yes, there are exceptions to timing and basis). So, if you mined a BTC and spent $1 doing it, then used that 1 BTC to purchase some LTC when the value of the BTC was $100, you gained $99 at the time you traded it for LTC. That gain is realized at the time of the exchange and taxable at that time.
  - modeless 13y ago
    Applying math analogies to tax law is not valid and I'm pretty sure your conclusion is incorrect. Exchanging one cryptocurrency for another would probably be considered a barter transaction, and you would be required to report capital gains as if you had exchanged into USD first and performed the transaction with USD, even if that's not what you did.
- gamblor956 13y ago
  In certain circumstances, that could be treated as a "like-kind exchange" governed by Sec. 1031 which is not subject to taxation until the property received in exchange is sold (see http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031. http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Se...). However, if that doesn't apply, you should generally owe taxes on any gain resulting from the conversion. Based on the types of properties excluded from like-kind exchange treatment, you should probably have taxable gain (or loss!) from the exchange.
to3m 13y ago
Primer on Bitcoin Taxation in America...
hitchhiker999 13y ago
Hmm, really? To effectively enforce this (in a BTC only world), they would need to constantly be de-anonymising the blockchain. That would require dark-pools to be illegal (in the long run), which would require a unified world government. It's either that, or simply expect people to hand them money on good faith.
- maxerickson 13y ago
  If you ever find yourself in the nirvana of a BTC only world, expect the tax regime to be structured differently.
  - PeterisP 13y ago
    There are many historical examples on how to do effective taxation without looking at your transactions. For example, a classic approach is simply to assign you a flat tax amount per year, and periodically visit you to check "how you're living" to reassess how much you'll have to pay. It's generally worse than the current approach (less accurate, even more prone to corruption), but it works sufficiently well, and would work even in bitcoin-only world.
- Locke1689 13y ago
  I'm surprised that people can be this naive. They don't need to actually trace your money, they just need to know if you have more money than you reported as income. This is called "tax evasion" and the IRS catches people doing much more complicated things than bitcoin every day.
- _delirium 13y ago
  The linked article is almost exclusively about a non-BTC-only-world, though. The two main issues it tackles: 1) tax consequences of selling bitcoins for USD; and 2) reporting requirements for holding bitcoins in a foreign exchange.
- PeterisP 13y ago
  The same way as enforcing for cash - you collect most of it on good faith, and for the 'bad faith' cases you try to catch some % of violators and punish them harshly enough so that the rational choice is to declare truthfully upfront.
Mankhool 13y ago
A Canadian Government Fact Sheet http://www.cra-arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng.html?rss http://www.cra-arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng...
- otoburb 13y ago
  Canadian governmental guidance is just as vague (for a layman) as IRS guidance. Broadly speaking, the government issued a statement saying that digital currencies are taxable. Exactly how they're going to be characterized (income vs. capital gains) is the key question for many people. Reading both the digital currency fact sheet linked and the referenced Canada Income Tax Act[1] doesn't give a clear indication of how bitcoins will be characterized. Back taxes, penalties and accrued interest are nasty surprises to be receiving down the road. Whether the amounts in question are modest or large, it's never fun to be on the receiving end. Unfortunately, I speak from experience. The age-old issue is brought to the forefront here where taxdollars pay for income tax agencies to pursue you and prove your innocence. Given that audits are supposedly a small percentage of the overall tax-filing population, once you are selected or flagged, the onus is on the filer to substantiate all claims and characterizations, and hope that the tax agencies concur. [1] http://www.cra-arc.gc.ca/E/pub/tp/it479r/README.html http://www.cra-arc.gc.ca/E/pub/tp/it479r/README.html
deleted 13y ago
[deleted]
loveNotWar 13y ago
Just a note for those that don't feel like "good guys" funding wars and spying and perhaps don't believe the systems of "democracy" give them much choice. Tax collectors have a very difficult time keeping up with such advances; in the case of BTC the small timers won't receive more than random scrutiny and the big timers have many tools to protect themselves. Given the difficulties inherent in taking everyone's money worldwide tax collectors rely on proven tactics such as example making of the famous and releasing inflated information about their abilities. The accountancy and legal professions are understandably partners in this effort. This community is exceptionally intelligent but also quite risk averse so non-complicit folk should try not to take scary anecdotes over the reality of the advantages bitcoin holders with regard to taxes.
- gamblor956 13y ago
  I've pointed this out before in other discussions, but my contacts in the IRS freaking love Bitcoin because it makes their job so much easier. Tracking Bitcoins may be difficult, but it's a cakewalk compared to tracking physical cash transactions. Taxes have always been based on voluntary compliance and disclosure in the US because that is the "freest" way to handle tax collection. If a significant number of people choose to be non-compliant in Bitcoin, the IRS will simply create a Bitcoin collection task force, modeled after its current Small Business Owner task force (SBO's are remarkably bad at complying with taxes). Because they won't find everyone, they'll throw the book at the few they do find, to increase the compliance rate without actually having to resort to more draconian measures that would truly impair freedom.
jokoon 13y ago
Yeah, experts can talk about taxing bitcoin, and not talk about taxing high frequency trading. I hate to sound like a rebel, but sometimes I just don't like how some people lurk around an issue they can be experts about while dismissing political ones. Ivory tower crap.
- gamblor956 13y ago
  Bitcoin taxation is not ivory tower crap, it's a mostly straight-forward application of existing laws to a somewhat novel concept. In a nutshell, it's a living demonstration of the evolution of the law that many legal practitioners are excited to be a part of. (Unlike litigation-related legal fields, tax law in general is not exciting. Moreover, tax law usually changes in response to statutory and regulatory changes, so getting to be part of an actual organic change to tax law is a rare experience.) OTOH, talking about taxing high frequency trading is ivory tower crap, because current law doesn't impose any such taxes. Thus, any discussion would be merely theoretical and academic.
  - jokoon 13y ago
    > because current law doesn't impose any such taxes. that's what I'm talking about dummy.

127 points by georgecmu 13y ago

Additional info for people from the Netherlands: Owning Bitcoin and trading in Bitcoin for anything (goods or other currency) are legal as far as we know. Unless you own a business dealing with Bitcoin, all you need to do to be legal is add the profits that you make to your income. That's all. I'm not sure about the tax rules when you have a business in Bitcoin, but it's still legal to do anything with it.

derefr 13y ago
Is BTC just sitting around in your account, gaining in valuation relative to the euro, considered "profit?"
- harshreality 13y ago
  If so, how does that work? If I exchange USD for Euros, and the dollar weakens against the euro, am I taxed? Is it an issue of intent? If I exchange for investment purposes, it's taxed, but for practical purposes, it's not?
  - stan503 13y ago
    The article mentions there is a $200 exemption for personal transactions. However this only applies to personal transactions, not investments. This also appears to not yet apply to Bitcoin, only "recognized" currencies like the Euro.
  - Guvante 13y ago
    Bitcoin is considered a property since it is not specifically categorized otherwise, so it works a little different than currencies. But answering that question is very complex for business, you probably don't need to worry about small gains as a person.
  - PeterisP 13y ago
    If you buy a (large enough) amount of some currency; later sell it, and the difference makes you a profit - then it's taxable income. Intent doesn't matter as such - if you do it for 'practical purposes', then you most likely don't realize the gains (don't trade USD->EUR->USD, but do USD->EUR->buy stuff in Europe) or have very small volume (lots USD->lots EUR->go on trip->convert a bit EUR back to USD).
- arasmussen 13y ago
  This is super interesting to me. If you exchange your money from one currency to another (USD, Euro, etc.) and profit from doing this, do you need to pay taxes? If not, is BTC treated as a currency, or as a security (eg. FB, TSLA) where you would obviously have to pay capital gains taxes.
- Hermel 13y ago
  I don't know about the Netherlands, but in most countries, capital gains of private citizens are taxed when realized. I.e. if you hold a stock worth 100€ in 2009, 150€ in 2010 and 110€ in 2011, and then in 2012 you sell it for 120€, there is a capital gain of 20€ in 2012, but none in the other years.
  - lucb1e 13y ago
    This is what I meant. Well explained!
  - Houshalter 13y ago
    This seems odd as you haven't actually gained anything, the market's relative values of different things has just changed. As opposed to like actually making money from getting dividends from the stock.
    - grey-area 13y ago
      Same rules apply if you sold your stock - you'll be taxed on the capital gain.

300bps 13y ago

I'm willing to bet the compliance rate on bitcoin taxation is going to be slightly lower than the compliance rate on people who buy gold coins at X and sell them at > X. Section 9006 of the Affordable Care Act (ObamaCare) almost partially closed this loophole but it was repealed.

Karunamon 13y ago
I'm not so sure.. when you consider the ways that exist of converting BTC into your local currency, most of them have reporting rules for transactions and aggregates over a certain amount. I really wish the IRS would concern itself with USD only.. BTC is going to be a nightmare to tax, let alone enforce. Hoping people are conscientious, here. The recent hearing about Bitcoin was positive, it does not need the association of being a tax cheat's friend to ruin it!
- 300bps 13y ago
  when you consider the ways that exist of converting BTC into your local currency, most of them have reporting rules for transactions and aggregates over a certain amount I've bought most of my bitcoins from Craigslist handing cash to local bitcoin sellers. Many people use https://localbitcoins.com/ https://localbitcoins.com/ There are definitely at least a few ways to buy and sell bitcoin without leaving a paper trail.
  - otoburb 13y ago
    Wouldn't that would work against you unless you cash out your gains slowly to avoid being flagged? I mean, if you have no proof of the OTC transaction, then on whichever amount the government tried to contest they may try to tax you on the full value of the coins at time of sale versus only taxing you on the (presumably positive) price delta.
  - PeterisP 13y ago
    If bitcoin becomes a large enough issue for IRS, then there's definitely at least a few ways for them to proceed. For example, they can subpoena localbitoins.com and such sites for all their user info, and do a full tax audit on them - after all, in taxes generally it's your problem to provide a paper trail for your taxable income/expenses, and if you can't do it, it only hurts you. For example, if you buy 1 bitcoin for $500 and sell for $800, you pay taxes on the $300 difference; but if you have no trail whatsoever for the $500 transaction, then tough luck, you'll be taxed on the whole $800. Oh, and that assumes that you did 'tax yourself' by properly declaring it; if you want them to tax you, then expect that to be tripled as a penalty; and if you're using any 'coin mixing' services then that smells like tax fraud which would move the pain from a few dollars to risk of prison. I'm not a tax lawyer, but you might need one.

gamblor956 13y ago

I just wrote an article about US tax implications regarding Bitcoin holdings (not transactions! transactions are easy, and well-covered on the Bitcoin wiki). Unfortunately it needs to wind its way through the editorial/fact-/cite-checking process, so it will be some time next year before it makes it into print. If you have questions about US compliance obligations regarding Bitcoins held in non-US wallets (meaning every major exchange, such as BTCChina, BitStamp, MtGov, and BTC-e), feel free to ask and I'll try to respond over the course of the next day or two.

eof 13y ago
1) If I held xxx bitcoins in a foreign exchange, having bouhgt y% of those xxx coins there; and transfered z% of the coins there; then later turned into cash w% of those coins and withdrew it to my USA bank account; then transfered the remaining xxx-w% coins to my local wallet; what do i do about taxes. 2 ) additionally, of those xxx-w%; i lost a password protecting all of the coins and paid 10% of xxx-w% (measured in bitcoins) for someone to crack the wallet passphrase, then what do i do about taxes? 3) then, my computer got hacked and someone stole the remaining bitcoins leaving me with 0 on my local machine and n (where n is << xxx-w%) in a different, us based wallet, then what do i do about taxes? to be clear, i have 3 questions what happens if 1) happens. what happens if 1) THEN 2) happens. what happens if 1) THEN 2) THEN 3) happens? edit: the z% of coins transferred into the foreign exchange came from services rendered at a fair market value of `d`
- Guvante 13y ago
  I am not a tax expert, so take this with a grain of salt, but I believe these are accurate answers. 1. Once you mix your coins the value of a coin from your perspective becomes the average cost of a coin. So if you paid $1 for a coin and $100 for another coin, put both into something that made the distinction impossible, and then sold a coin for $150, you would have to pay taxes on $150 - ($100 + $1)/2 or $99.5 of income. Note that turning into non-Bitcoin is the event, type of Bitcoin does not matter, but anything but a Bitcoin does. 2. Technically you would have an income on your gains of xxx-w%. I don't know offhand if you could write off the expense, but I doubt it. 3. You are talking about bitcoins being bitcoins, so no taxable event. Whether it counts as an expense for writing off purposes is another point I don't know. This would likely be a loss so could be deducted. Your edit: Assuming you account for the value of the bitcoins gained at the time you gained them as income (which you should have) then you can consider that as the cost of the bitcoins. If you never counted the value of the bitcoins when you gained them then your cost basis is $0, so the entire value of the cash out is income. There may also be penalties involved in that but they likely won't care for small amounts of original value.

stan503 13y ago

What is someone were to trade one cryptocurrency for another? For example, if I bought Litecoins with Bitcoins, and later sold for a gain in Bitcoins, how would I be taxed? From the article it seems I would only be taxed until I ultimately realized my gains in USD. Would I have to maintain a record of all my "altcoin" transactions in this case?

IgorPartola 13y ago
By transitive property, the only transactions that should count are ones that convert USD to anything, and ones that convert anything to USD. So if you invest $10 in BTC, then do some magical trading and take out $1000, then you gained $990. I have no idea how this actually works, or if you could say that you mined the $990 and broke even on the $10, or if you have to provide a paper trail for every single cryptocurrency transaction that led you to posses the money, but this is definitely going to get hairy...
- jstalin 13y ago
  "By transitive property, the only transactions that should count are ones that convert USD to anything, and ones that convert anything to USD." According to US tax law, any accession to wealth is taxable when the gain is realized (yes, there are exceptions to timing and basis). So, if you mined a BTC and spent $1 doing it, then used that 1 BTC to purchase some LTC when the value of the BTC was $100, you gained $99 at the time you traded it for LTC. That gain is realized at the time of the exchange and taxable at that time.
- modeless 13y ago
  Applying math analogies to tax law is not valid and I'm pretty sure your conclusion is incorrect. Exchanging one cryptocurrency for another would probably be considered a barter transaction, and you would be required to report capital gains as if you had exchanged into USD first and performed the transaction with USD, even if that's not what you did.
gamblor956 13y ago
In certain circumstances, that could be treated as a "like-kind exchange" governed by Sec. 1031 which is not subject to taxation until the property received in exchange is sold (see http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031. http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Se...). However, if that doesn't apply, you should generally owe taxes on any gain resulting from the conversion. Based on the types of properties excluded from like-kind exchange treatment, you should probably have taxable gain (or loss!) from the exchange.

to3m 13y ago

Primer on Bitcoin Taxation in America...

hitchhiker999 13y ago

Hmm, really? To effectively enforce this (in a BTC only world), they would need to constantly be de-anonymising the blockchain. That would require dark-pools to be illegal (in the long run), which would require a unified world government. It's either that, or simply expect people to hand them money on good faith.

maxerickson 13y ago
If you ever find yourself in the nirvana of a BTC only world, expect the tax regime to be structured differently.
- PeterisP 13y ago
  There are many historical examples on how to do effective taxation without looking at your transactions. For example, a classic approach is simply to assign you a flat tax amount per year, and periodically visit you to check "how you're living" to reassess how much you'll have to pay. It's generally worse than the current approach (less accurate, even more prone to corruption), but it works sufficiently well, and would work even in bitcoin-only world.
Locke1689 13y ago
I'm surprised that people can be this naive. They don't need to actually trace your money, they just need to know if you have more money than you reported as income. This is called "tax evasion" and the IRS catches people doing much more complicated things than bitcoin every day.
_delirium 13y ago
The linked article is almost exclusively about a non-BTC-only-world, though. The two main issues it tackles: 1) tax consequences of selling bitcoins for USD; and 2) reporting requirements for holding bitcoins in a foreign exchange.
PeterisP 13y ago
The same way as enforcing for cash - you collect most of it on good faith, and for the 'bad faith' cases you try to catch some % of violators and punish them harshly enough so that the rational choice is to declare truthfully upfront.

Mankhool 13y ago

A Canadian Government Fact Sheet http://www.cra-arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng.html?rss http://www.cra-arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng...

otoburb 13y ago
Canadian governmental guidance is just as vague (for a layman) as IRS guidance. Broadly speaking, the government issued a statement saying that digital currencies are taxable. Exactly how they're going to be characterized (income vs. capital gains) is the key question for many people. Reading both the digital currency fact sheet linked and the referenced Canada Income Tax Act[1] doesn't give a clear indication of how bitcoins will be characterized. Back taxes, penalties and accrued interest are nasty surprises to be receiving down the road. Whether the amounts in question are modest or large, it's never fun to be on the receiving end. Unfortunately, I speak from experience. The age-old issue is brought to the forefront here where taxdollars pay for income tax agencies to pursue you and prove your innocence. Given that audits are supposedly a small percentage of the overall tax-filing population, once you are selected or flagged, the onus is on the filer to substantiate all claims and characterizations, and hope that the tax agencies concur. [1] http://www.cra-arc.gc.ca/E/pub/tp/it479r/README.html http://www.cra-arc.gc.ca/E/pub/tp/it479r/README.html

deleted 13y ago

[deleted]

loveNotWar 13y ago

Just a note for those that don't feel like "good guys" funding wars and spying and perhaps don't believe the systems of "democracy" give them much choice. Tax collectors have a very difficult time keeping up with such advances; in the case of BTC the small timers won't receive more than random scrutiny and the big timers have many tools to protect themselves. Given the difficulties inherent in taking everyone's money worldwide tax collectors rely on proven tactics such as example making of the famous and releasing inflated information about their abilities. The accountancy and legal professions are understandably partners in this effort. This community is exceptionally intelligent but also quite risk averse so non-complicit folk should try not to take scary anecdotes over the reality of the advantages bitcoin holders with regard to taxes.

gamblor956 13y ago
I've pointed this out before in other discussions, but my contacts in the IRS freaking love Bitcoin because it makes their job so much easier. Tracking Bitcoins may be difficult, but it's a cakewalk compared to tracking physical cash transactions. Taxes have always been based on voluntary compliance and disclosure in the US because that is the "freest" way to handle tax collection. If a significant number of people choose to be non-compliant in Bitcoin, the IRS will simply create a Bitcoin collection task force, modeled after its current Small Business Owner task force (SBO's are remarkably bad at complying with taxes). Because they won't find everyone, they'll throw the book at the few they do find, to increase the compliance rate without actually having to resort to more draconian measures that would truly impair freedom.

jokoon 13y ago

Yeah, experts can talk about taxing bitcoin, and not talk about taxing high frequency trading. I hate to sound like a rebel, but sometimes I just don't like how some people lurk around an issue they can be experts about while dismissing political ones. Ivory tower crap.

gamblor956 13y ago
Bitcoin taxation is not ivory tower crap, it's a mostly straight-forward application of existing laws to a somewhat novel concept. In a nutshell, it's a living demonstration of the evolution of the law that many legal practitioners are excited to be a part of. (Unlike litigation-related legal fields, tax law in general is not exciting. Moreover, tax law usually changes in response to statutory and regulatory changes, so getting to be part of an actual organic change to tax law is a rare experience.) OTOH, talking about taxing high frequency trading is ivory tower crap, because current law doesn't impose any such taxes. Thus, any discussion would be merely theoretical and academic.
- jokoon 13y ago
  > because current law doesn't impose any such taxes. that's what I'm talking about dummy.