Buying bitcoins and taxes

I'm young (over 21) and I was wondering if somebody could tell me more about the situation with bitcoins and taxes. I purchased a several hundred dollars of bitcoins through Coinbase this year and spent them on the darknetmarkets. I will be filing taxes with the help my parents this year. Do I have anything to worry about?


Comments


[3 Points] None:

no, you aren't depositing anything back into your bank account ........


[2 Points] bitcointaxes:

Selling, spending or trading crypto-currencies is a tax event, for which you have to calculate any capital gains (or losses). Those gains or losses are reported on Schedule D of your 1040.

If you owned the coins for a year or less, you'll be taxed on your profits as if there were income, i.e. your normal tax rate. If you held them for longer than a year, they become "long-term" gains and have a discounted tax rate, typically 0% or 15% depending on your other income.

If you have made a loss, you can include this as it can be used to reduce any other gains during the year (e.g. stocks) or up to $3,000 income per year, and so reduce your tax bill. Any remaining losses are carried forward into next year.

In order to calculate any gains or losses you need to know how much you bought the coins for and how much you got when you sold/spent/traded them. Each trade is included and the difference, less any costs (fees), is your gain or loss.

To know if it's a long-term gain or short-term, you need to keep records of when you received the coins and when you spent them.

Trading between coins (e.g. DRK-BTC) is most likely a tax event. Whilst it could be seen as a like-kind exchange and so instead transfer the cost basis, the IRS hasn't clarified this one way or the other. However, their March 2014 statement worded it as any exchange of "property" as being a tax event, which would include alt-coins.

Spending is treated like selling/trading, and you use the value as the fair value of your purchase. For example, if you bought a gift card for $100 with Bitcoin, you effectively "sold" those Bitcoin for $100.

These are the rules. What you file is between you, your tax forms and the IRS.

I created https://bitcoin.tax with more information and to help calculate capital gains.


[1 Points] This_Is_That_Moment:

Be sure to note to your parents that you have bought a crypto currency for totally legit, legal reasons :).

But honestly are you serious? No.


[1 Points] ThaGreatest1:

Saw my thread huh?


[1 Points] iLoveDNM:

The only reason you would even mention bitcoins to the IRS is if you received a payout of at least 600, as you were spending them the IRS doesn't care. Unless you tried to claim them as a deduction, which dont do that.

Don't even mention the bitcoins at all, to anybody,


[1 Points] rappercake:

The IRS is generally more interested in unexplainable money coming in than clean money going out. I personally wouldn't go through the trouble.

If the money comes from a reputable source and you pay the taxes on it then you can spend it however, they don't really care about that nearly as much as if you're cashing out a bunch of BTC into your account and not reporting it I'd imagine.