Quote from: bayamos on April 03, 2013, 05:12:23 PM

Assuming one does pay taxes when buying USD with BTC, would EACH conversion of BTC -> USD incur capital gains? That is, if BTC are modeled after forex or securities in tax terms.. don't you have to set aside something for taxes each time you realize a gain?

The reason I ask is because I see a lot of people mentioning market day trading, "selling high buying low" every day. Similarly, I hear about people having bots that perform arbitrage between exchanges where the "profit" is larger than the fees incurred.

However, usually I do the math, and if short-term capital gains are considered, most of the above transactions that happen in regular volatility and not BIG volatility actually lose money or barely break even. As an example:

Spend $10,000 on BTC at $100, get 99.4 coins after mtgox fees.
Later that day, sell 99.4 coins at $120, get $11856 after mtgox fees.
This is a capital gain of $1856, set aside a third for taxes. You now have $11237 in fiat.
Later that day, buy back in at $112. You get... 99.4 coins back.
All you have accomplished is a) making some money for the IRS and none for yourself b) resetting the timer for long-term capital gains tax rates.

Am I missing something, or is the above interpretation accurate? Is the takeaway just that a lot of US-based traders don't plan on paying taxes or haven't looked into them enough?

In the US, If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200.00. If the gain is more than $200.00, report it as a capital gain. Capital gains are reported on Schedule D, Capital Gains and Losses, and line 13 of the Form 1040, U.S. Individual Income Tax Return (2005). For more information, please refer to Publication 525, Taxable and Nontaxable Income.