Quote:
Originally Posted by 5Bet4Fun
Trying to get a grasp of BTC and the tax implications (particularly on a site like SWC where you're not just depositing using the digital currency.
Hypothetical situation: Buy 1 BTC and deposit @ value of $500. Cash out 4 bitcoins and convert to USD for $2400 ($600 value).
I understand there would be a capital gain generated on the original 1 BTC for $100. The 3 BTCs won would be poker winnings and taxable. Is the value of these winnings determined at the time of withdrawal? At the exact time of winning?
This seems to be the complex part. If it's at the time of winning (which is how normal poker winnings are taxed). That would imply the poker player is responsible for tracking the value of the BTC at the end of every session.
Anyone have some experience with this? Just looking to further my understanding of the tax implications.
There are four Bitcoin transactions. Additionally, whatever you win on a poker site is income regardless of whether or not you cash out. The $2,400 you withdraw does not mean you have $2,400 of income. You have to separately determine what you won or lost on the site. (In your hypothetical, it appears you won $1,800.)
Your first Bitcoin transaction is the purchase of one Bitcoin for $600. The second is the effective sale of one Bitcoin for $600 (when you deposit the Bitcoin, you have "sold" it). That transaction must be reported on your Schedule D (capital gains and losses).
When you cash out you
at that moment have purchased four Bitcoins for $2,400. When you sell those Bitcoins, you have another Schedule D transaction that must be reported. Yes, your two Bitcoin sales in your hypothetical net $0,
but they still both must be reported.
Note that you only report
realized capital gains and losses on Schedule D. So assume you cash out on December 30 to Bitcoins but don't convert the Bitcoins to USD until January. That sale would be reported on the following year's tax return.
-- Russ Fox