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BitCoin Mining, Other Virtual Activity Taxable Under US Law
chicksdaddy writes "Beware you barons of BitCoin – you World of Warcraft one-percenters: the long arm of the Internal Revenue Service may soon be reaching into your treasure hoard to extract Uncle Sam's fair share of your virtual wealth. A new Government Accountability Office (GAO) report on virtual economies finds that many types of transactions in virtual economies – including Bitcoin mining and virtual transactions that result in real-world profit – are likely taxable under current U.S. law, but that the IRS does a poor job of tracking such business activity and informing buyers and sellers of their duty to pay taxes on virtual earnings. The report, 'Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks' found that the growing use of virtual currencies like BitCoin and virtual game currencies warrants the U.S.'s tax collection agency to mitigate the risks. Those include efforts to educate taxpayers and the publication of basic tax reporting requirements for transactions using virtual currencies, The Security Ledger reports."
Why wouldn't it be taxed? There is no "on a computer" exemption to rules that we pay taxes on profitable activities...
When your purchases don't line up they sure can see it.
How about instead of being a leech you pay your taxes?
IANAA (I am not an accountant), but capital gains are only when you buy something and then sell it at a higher price. Buying a bunch of computer equipment and making money by selling it would be capital gains. Buying a bunch of computer equipment and making money by selling the bitcoins it mines is just regular income. You can (and should!), however, deduct the cost of the equipment, etc., as business expenses. The distinction is important because capital gains are taxed at a lower rate than regular income.
This is the IRS we're talking about. It's going to cost you SILVERS, my friend!
Get free satoshi (Bitcoin) and Dogecoins
Take a deep breath.
They only count as real money when you trade them for real money. Bitcoins are still not money, just an item you can sell like any other thing. If you make a profit selling them, like any other thing, you owe taxes.
Was that simple enough for you?