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The 10,000 bitcoins that seven years ago famously paid for the delivery of two Papa John's pizzas would be worth more than $74 million today.
The exploding value of the cryptocurrency since its first real-world transaction in 2010 is one reason the U.S. Internal Revenue Service is pushing to see records on thousands of users of Coinbase Inc., one of the biggest U.S. online exchanges. The company's digital currency platform allows gains to be converted into old-fashioned dollars in transactions that the IRS alleges are going unreported.
Coinbase and industry trade groups are fighting back in court, claiming the government's concerns about tax fraud are unfounded and that its sweeping demand for information is a threat to privacy.
(Score: 1, Informative) by Anonymous Coward on Monday November 13 2017, @01:44AM (2 children)
Late to this thread, but no one has mentioned that if your son earned more than $600 (in the USA), a 1099-MISC income tax reporting form should be filed with the IRS by the payer (your brother). Then, the payee (your son) needs to file a tax return (probably there will be no taxes due, if that was his only income).
If the income (above $600) was not reported, both sides of the transaction are potentially in trouble...
(Score: 0) by Anonymous Coward on Monday November 13 2017, @09:06AM (1 child)
Unless this was work for hire (a contract job). Then the receiving party needs to report this income and pay (if applicable) any VAT for the services rendered.
Just like with any contractor you hire, you do not need to report anything to anyone even if you pay them $100k to build a house for you. It's the contractor's duty to file and remit all necessary taxes. The problem is payments in Bitcoins are MUCH more complicated from taxation standpoint because of capital gains issue. This is especially a problem if you do it not in the same year as incurring the expenses. But that's a problem where you dig your own holes for yourself.
(Score: 2, Interesting) by j-beda on Monday November 13 2017, @02:43PM
That's how it SHOULD work, but that isn't how it DOES work in the USA. At least not always.
If you hire a nanny, you need to treat them as an employee and file all sorts of paperwork - even if they want to treat the whole thing as a contracting situation. Unless they work for a corporation in which case you contract with the corporation and they deal with all the paperwork.
If you run a business of almost any type, includige self-employment, and contract to an non-corporate entity to do business related work over $600 (including mowing the lawn), then you need to file 1099 stuff. If you are not a business but contract someone to do the same lawn care, you PROBABLY don't have to file a 1099, but doing so might be a good idea.
"Small landlords" often do not need to file 1099s for people they hire, but "large" ones do. Clarity is hard to come by on these things. From the kid's point of view, it doesn't matter if a 1099 was issued or not, they need to report the income, and the result is the same if they got a 1099 or if they did not get one. From the payer's point of view, unless they are claiming the expense as some sort of deduction from income it probably doesn't matter one bit, since the IRS is never going to find out about it and the resulting tax liability does not change either way.
If you are on the other end, and perform work for someone, whether or not you get issued a 1099, you should certainly report the income (self-employed income, subject to extra self-employed taxes similar to the employer taxes that get paid for "regular" employment income).
In this case, if the kid was payed $2000 US dollar value (in whatever form, bitcoin, gold, euros, etc.), the kid should report that as self-employed income, deducting whatever legitimate expenses he might have incurred (advertising, bus fare to get to the job, equipment maintenance, whatever), and then paying the outstanding value.
Then, whenever he transfers the bitcoins into US dollars, he should report the difference between the sale price and the $2000 initial value as cap. gains, and pay the appropriate cap. gains tax which is significantly lower than the tax rate that working people pay on their income. Becasue we need to encourage the wealthy to remain wealthy I suppose, and if we taxed investment income the same as regular income nobody would ever invest their money, instead they would just put it into a silo like Scrooge McDuck and swim in it I guess. But I digress.
Of course, I'm not an accountant or tax lawyer or anyone "qualified" to speak on these issues, so this is not tax, business, or legal advice.