I am not an accountant or tax advisor.

Lots of little transactions are a pain, but I do believe you are required to track them in order to report your capital gains correctly. You only have capital gains when you sell, but you need to know your purchase prices and dates in order to compute it.

I used this website to analyze my CoinBase transactions: https://bitcoin.tax/

The site imports the transactions and computes your capital gains automatically. Then I entered my information into the IRS capital gains worksheet and reported the gains on my taxes.

When I visited Istanbul, I passed through a district with an endless number of exchange shops, and it seemed like a place where you could easily wash money without any bank account involved. I believe Turkey isn't alone in having such a culture of buying/selling US dollars by tracking the USD rate.

Do the IRS and say Turkey's tax office tracks these as well? Assuming that you don't try to deposit the exchanged for bills in a bank.

Couldn't someone offer Bitcoin exchange in existing currency shops or the same service via Bitcoin ATMs? How would the IRS and its equivalents track that without requiring identification and registration before use? I suppose a small amount would be allowed for the tourist aspect but then you could use a group of friends or employees to wash small amounts. If you require ID for that, including tourists, then you can track it.

This is not tax advice but from what I've seen in news reports, the IRS has different rules for currency. The reason bitcoin users have to report every little gain/loss is that the IRS doesn't consider it currency.

And the main reason they don't consider it currency is to impose a tax that discourages its use.

Without capital gains, if Bitcoin had ~0% inflation and the US got back up to 5%-10% inflation, then Bitcoin would become a better store of value.

However, with capital gains, the US would have to have significant inflation, around 20% or more, before Bitcoin would really be competitive. (I'm assuming there are significant transaction costs related to the low acceptance of Bitcoin)

In this manner, the US can (1) gain some additional tax revenue, and (2) prevent Bitcoin from becoming a competitor to the national currency, which every nation wants complete control over.

I've been thinking about this and wondering how they could prevent people moving to a WeChat like app and doing all financial transactions within that. If you enable anonymity in that there's no need to identify your meat life persona with your WeChat profile, how would the control be retained? Short of illegalizing mobile devices that allow installing a banned app like WeChatAnonEdition and having traffic police carry inspection devices that would allow them to detect illegally open Android devices in a driver's pocket, I don't see how it can be prevented. If you sell and buy inside WeChatAnonEdition and also get your salary inside WeChatAnonEdition, there is no monitoring and control anymore.

Just to be clear, I'm not agains taxes, because not paying taxes is like swatting an apartment, and generally taxes make sense to be paid, although most places also have several unfair tax codes, so I understand the common perception of taxes as "highway robbery".

This is fantastic, thank you!

The note from the IRS about Bitcoin I read on CoinBase's site said it's similar to a security. So until you trade it out (sell it) you don't realize a gain. When you do your gains are considered similar to capital gains / capital losses (if you held for more than 1 year). Otherwise considered income.

Well again, I was about to sell some, and figuring out exactly how much I 'gained' from so many tiny buy transactions I imagine would be difficult (but might not be, I'm not sure).

It shouldn't be difficult, unless you don't have access to the proper information. The bitcoins you are selling need to be tied to specific bitcoins that were bought. Once you do that, then you have a cost basis for your sale. Subtract the amount you sold them for from your cost basis and that's your gains. If the source transaction was older than a year, it's capital gains. Otherwise, it's income.

(This is for the US.)

Is there a "first bought, first sold" clause in US tax law regarding securities, or is it the average purchase value of your total holdings during a sale that counts?

E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100: I have to pay tax on ($100-$1)

> Is there a "first bought, first sold" clause in US tax law regarding securities, or is it the average purchase value of your total holdings during a sale that counts?

Neither. It's all specific lots (individual orders). How Coinbase chooses which bitcoin to sell will affect what tax you owe.

With a typical brokerage (e.g. Vanguard), you can configure individual securities to sell FIFO, lowest cost, avgcost, or specific lots. Not sure if Coinbase lets you do that.

Edit: From your example:

> E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100:

You could sell the last 10 BTC you bought, in which case you'd owe capital gains tax on the $50 appreciation, or you could sell the first 10 BTC you bought, in which case you'd owe capital gains tax on 9 * $5 + 1 * $9 (= $54, slightly more).

How is anyone supposed to distinguish the first 10 BTC from the last 10 BTC when the underlying satoshis might not even be the same? e.g. I might transfer those 10 BTC to an online store (web wallet, other trading, whatever) but then transfer them back, except I'll likely get a different 10 BTC. Seems like all you can determine is that you once bought $x and once sold $y. Since you can also exchange btc for goods, or mine it (which I believe even the IRS has different rules for), you can't say with certainty whether it must be $y <= $x or $y >= $x. So when you sell 5 BTC, it's either mining income (or other income) or a capital gain, but it seems like there's nothing stopping someone from always taking the least expensive taxes first.

> Seems like all you can determine is that you once bought $x and once sold $y.

That's all that matters. Your gains (or losses) are $y - $x.

> it seems like there's nothing stopping someone from always taking the least expensive taxes first.

Yes. If you had some with gains and some with losses, you could even choose to sell those at a loss in order to offset other gains.

You can decide how you want to do cost basis, but once you've decided for one security, you have to continue using that until it's gone. You can do first in, first out, last in, first out, or average price. I believe the default is average.

Under their tools menu, they have a report that calculates it for you.

For the past two tax seasons I've used app.libratax.com to automatically calculate the amount I owe to the IRS. It also exports a list of the relevant transactions to itemize when you file.

It's made filing really easy, well worth the small fee.

I had the same problem with the Canadian equiv (CRA).

I just treated it like I bought it all at $0 / BTC. I was selling between $100 and $1000, with an average purchase price between $4 and $10, so the cost was basically minuscule.

I would personally be wary of a $0 purchase price since that seems more like a gift to someone reviewing it.

In Canada you just file capital gains or expenses for anything under how much your expense / gain was. If you get reviewed or audited you can revise your documents and you'll get more back.

It's kinda interesting because a lot of people will claim less than the levels that would normally trigger an audit (49% of household expenses towards rent, say) and then if they get audited upwards revise it to 75%. It's like a societal cheaper NASH equilibrium, since both the individual and the government gets penalised for being overzealous.

But you wont get penalized for overpaying tax right?

It's no different than any other stock or ETF.