How to Pay Taxes on Bitcoin Without Paying Taxes on Bitcoin

I have a number of bitcoins. I’m not writing that word anywhere on my tax return and I recommend you don’t either.

Filing taxes is complicated. File incorrectly and you could be subject to an audit or other inconveniences. Bitcoin is a new and uniquely complicated tax problem. Unless you have personal expertise in the field it is probably not a good idea to go off and file for yourself, but that is not my concern.

Bitcoin is complex to file correctly. Depending on how it is obtained, stored, used, and/or sold, it may need to be filed as income, capital gains, or a combination. I recommend you use TurboTax to handle this because it offers audit insurance. File your bitcoin as either miscellaneous income or capital gains.

If you have the choice, go for capital gains (ehem…or losses as the case may be). It’s a lower rate. If you want a very low rate and you’re a touch brave, try filing as an OTC forex trader.

Yes, I will be paying taxes on my bitcoin, but I will put that word nowhere on any form. Perhaps I will call it gains from commodity trading, foreign currency trading, trading stocks (I did trade btc-denominated stocks), income from lending to friends, income from peer to peer lending (I did use btcjam.com), income from a garage sale, or even a gift from a friend. Or something else. But I won’t call it bitcoin.

Why am I freaking out about putting the word bitcoin, or digital currency, or crypto-anything on my tax return? For the same reason I won’t be reporting donations to a number of charities and political organizations. I’m worried about IRS targeting, plain and simple.

Are you?

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1 thought on “How to Pay Taxes on Bitcoin Without Paying Taxes on Bitcoin”

  1. Paying tax on Bitcoin is wise if have cashed out. lots of them in your your account.

    Are they declared as income or savings? Canada, we consider them legally as Pokemon trading cars. It’s a hobby trading coins.

    The Bank of Canadaw learns about Bitcoin Just two weeks ago. A few new rules for exchanges.

    Now they forced some restrictions on BTC.
    The maximum daily withdrawls are $1000 per day. Pus everthing recorded now too.

    No more totally anonymous deposits. Although they may still offer their ‘cash in envelop’ to them and your accoun
    But if If you bought Bitcoins from an exchange and then shopped at a marketplace website and spent them all.
    Do I have to pay tax on my purchased from a marketplace?

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