Taxability of Ethereum transactions

jph108jph108 Member Posts: 7
Dear Ethereum organizers,

As has been adequately covered in another post on this forum (see below), in the U.S. the IRS has ruled that Bitcoin is taxable as property, and so any Bitcoin based transaction is subject to capital gains tax. So this means purchases paid for in Bitcoin will need to be reported at tax time every year. Has the Ethereum organization received any advice regarding whether or how operation of Ethereum will fit in with this tax ruling when Ether is used in the operation of the the network (as opposed to being traded on exchanges, etc)?

Major IRS Ruling Today (March 25): https://forum.ethereum.org/discussion/comment/4794/#Comment_4794

Comments

  • JasperJasper Eindhoven, the NetherlandsMember Posts: 514 ✭✭✭
    edited August 2014
    It is not up to us to do your adminstration. But yeah, you could do it with a contract. Note that you need a mechanism to change that contract, because the rulings/laws may change too. I think it might be better to do it manually though.
  • avsaavsa Member Posts: 68 ✭✭
    Ethereum foundation is a Swiss non profit and with developers from Canada, London, Netherlands and others. I believe it's up to each citizen to figure out how to pay his respective country taxes, not the foundation's..
  • jph108jph108 Member Posts: 7
    edited August 2014
    Thanks Jasper for your comment. Let me rephrase the question because I don't think it was clearly stated enough :-). What I'm trying to get at is, for U.S. tax purposes it might be interesting to see what can be done to find ways to aggregate the charges for a lot of small transactions into one big one, to minimize the administrative overhead. Maybe an escrow contract can be created where a user puts a budgeted amount for multiple executions of some jobs into escrow. Once the all the jobs are completed, that's the time he is effectively 'billed' for one large amount, instead of 100 small ones. That would make tax compliance a lot easier (and be built as a contract).

    I'm just curious to see what others' thoughts are - I think this is an issue that will come up for users and miners.
    Post edited by jph108 on
  • maidenlakemaidenlake Member Posts: 44 ✭✭
    edited August 2014
    I wonder, too, how ether will be valued when it is utilized to operate the network. It may be that the value of ether at the time of use would be utilized to figure a capital gain or loss. Does that sound feasible, though complicated to keep up with? 'Complicated' is most definitely appealing to the IRS. LOL The link below is to a business which keeps up with your transactions for you for tax return purposes. They only have access to your transaction information which they import to their software. I have not utilized their services but may try it out this year. Maybe they will add ether and import the value of ether at the time of use, or better yet, perhaps someone will create a DApp on Ethereum to do this. Any takers?

    Hope this is helpful.

    https://bitcointaxes.info/

    Supports taxes for US, Canada, Australia, Germany, Sweden and UK

    Import your trading history to view your Bitcoin positions, capital gains and tax liability.
    Import trade data
    BTC and alt-coins
    Calculates gains
    FIFO, Average, LIFO
    Export results
    Ending balances
    Post edited by maidenlake on
  • jph108jph108 Member Posts: 7
    edited August 2014
    Thanks maidenlake, that looks like a useful site. I have used their contact page to ask them if they have plans to support Ethereum. Something like that is certainly needed for exchange-based trading. It might also be useful to have a way to analyze transactions on the Ethereum block chain to automatically figure out what your basis was for any given transaction. That's quite a complicated problem.
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