Hi everybody i really hope someone could help me out with this situation. I know that i have to pay taxes once i cashout my bitcoin (shame i have to do so, I'd rather buy stuff with bitcoin) but do they tax just the capital gain or the whole price of bitcoin? Ex. I bought 1 BTC priced at $400 then i sell said BTC at $450, Do i pay tax on the whole $450 or just the $50 profit i earned?
Also what about mining? like if i mined 1 BTC that was worth $450 the day i mined it, and and then sell it at $490 do i pay the whole $490 as income tax and then another tax for the $40 profit as capital gain?
Someone please help me out as i am confused with all this nonsense.
Mining. This is plain income and the value of the Bitcoins on that day. So if you mined 1 BTC when it was worth $450 (or whatever daily price chart you use) income. That is just added to your normal income totals and so taxed at your ordinary rate.
If you are a business, or file as self-employed, you can deduct expenses related to your mining activities for that year.
Capital Gains. Whenever you sell or spend a Bitcoin, you need to calculate the difference between what you sold/spent it for and how much you bought it for. That difference is your gain or loss and is taxable as capital gains. If you owned the coins for more than a year, it would be long-term gains, and has a reduced tax rate of 0% or 15% depending on your other income. However, if you've only owned it for a year or less, then the gain is treated as normal income and taxed at your standard income rate.
So if you mined a coin and sold it, e.g. mined 1 BTC when $450, and sold it for $490. First, you'll delcare the $450 as income and pay taxes on that (e.g. 25% or your rate). Then the $40 is capital gains and you'll pay taxes on that. Again, the rate depends on how long you've owned the coin and what other income you have.
Have a look at
https://bitcointaxes.info for more information and to work out capital gain taxes.