Do bitcoin profits count for taxes if you only have usd on an exchange but haven't withdrawn? Bitcoin is very risky - I could make another trade tomorrow and lose it all or the exchanges could shut down and run away with the funds, get seized, or get hacked, and I could lose everything that way. This type of exchange risk isn't there in the stock market. The money I have on exchange is like imaginary cloud money goxbux disneydollars etc that could all be lost - I don't see it as real money that I've actually made yet. So I don't think taxes should need to be paid anyway until you actually withdraw USD back to a bank. What do you guys think?
In fact I lost money from BitFloor - can I deduct that?
All good questions. It would be much easier for everyone involved if the gov't just taxed fiat leaving the exchange. I wonder how on Earth people pay their taxes on automated trading algos? What a nightmare.
Also, what's to stop someone from saying:
- I lost my Bitcoin private keys, thus I have 100% losses.
- Those Bitcoins are not mine, I day traded them for a friend.
- The dollars on Bitstamp (for instance) aren't really dollars. They are (potential) claims against money in Bitstamp's bank account.
I think the bottom line is the IRS needs to make compliance easier in order to encourage compliance.
If it's true that coinbase.com and the exchanges don't report a 1099 to the IRS then the IRS won't know for the most part. The part that gets tricky is when you buy a Lambo or other extravagant items. In my case, I want to buy a house for the interest benefit. I have to show a certain amount of equity in order to qualify for a loan.
As far as losing private keys, you could certainly make the same point that a gambler makes when he says he may have won over $10,000 at one sitting (gets reported to the IRS) but then lost it at the tables the next couple days and thus owes nothing on the previous day's winnings.