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Question by someone who is new to Bitcoin. Bitcoin mining is considered taxable income in the US. However, if it's given as a gift, then should it be taxable under US law?

Tygra War
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This is probably better for Money.SE as it doesn't really have anything to do with Bitcoin; it would be the same for any sort of income.

However, my understanding of tax law with respect to gifts is roughly this:

  • Money, goods or services that you earn from working, business or investing are taxable income to you.

  • If you decide to give some of that money to someone else, that's your business; but you still earned it, and it's still your taxable income. Giving it away doesn't change your taxes at all. The IRS doesn't really care whether you gave it to your friend or used it to buy 300 pounds of jellybeans.

  • Within certain limits, the gift is not taxable income to your friend (who didn't earn it). However, above those limits, it can be subject to gift tax. I think beyond $13,000 per year, you have to start keeping track of such gifts; gift tax does not actually kick in until a larger number, but it counts gifts spread across several years.

  • The one major exception is if you give the money to a registered charitable organization. Then you can deduct the gift from your income, again up to certain limits (usually 50% of your income).

Disclaimer: If you want tax advice, talk to a professional who's qualified to give it. I'm not.

Nate Eldredge
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  • Because it's all about that Basis, 'bout that Basis, no Trouble...

    Yeah it's pretty clear the IRS wants its due, but I can give it, spend it like I'm supposed to do, 'cause I got that Bitcoin that all the feds chase, and all the right coins in all the right places...

     – Scrybe Dec 11 '14 at 06:14
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    This is definitely helpful to know for my purposes. Although I am more likely to receive Bitcoin than give it. Thank you! – Tygra War Dec 11 '14 at 21:31
  • I think you can buy Bitcoin, hold it for a year, and then give it someone without having to pay any tax on the increase in value (if any) because you never materialized that increase in value. This won't work if you received the Bitcoins as compensation, of course, because that receipt is a taxable gain. – David Schwartz Nov 25 '15 at 12:01
  • @DavidSchwartz: I guess the question is, when you give it to your friend, what does their basis become? If it is the same as your basis, then they will owe capital gains tax if they sell it for more than you paid, and the IRS gets the same money in the long run. But if their basis is the market value at the time of the gift (i.e. a "step-up") then the two of you come out ahead. I know that there is a provision for a basis step-up when assets are inherited, but I don't know about ordinary gifts. – Nate Eldredge Nov 25 '15 at 18:54
  • @DavidSchwartz: Yeah, according to https://www.firstrepublic.com/community/life-and-money/wealth-transfer/gifting-to-family-members-pitfalls-and-benefits, there is no step-up for ordinary gifts. So when you give your bitcoins away, you have to tell the recipient what your basis was (i.e. how much you paid for them), and it will be their responsibility to pay capital gains tax (or claim a capital loss) if and when they sell them for more (or less) than what you originally paid. – Nate Eldredge Nov 25 '15 at 21:07
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    This may not apply if you give the bitcoins to a registered non-profit charity, since they won't have to pay capital gains tax. But they might still need to know the basis for record-keeping purposes. – Nate Eldredge Nov 25 '15 at 21:08
  • @NateEldredge I'm pretty sure that rule doesn't apply to a pure commodity. This isn't a stock, a debt instrument, real property, or any of the things covered by that rule. I believe the same rules would apply as when a farmer gifts crops to family members. (Does that make the recipient's basis zero?) – David Schwartz Nov 25 '15 at 23:04
  • @DavidSchwartz: I don't think there's a difference between bitcoins and any other capital asset here. I'm now looking at IRS Pub 551, section "Property Received as a Gift". Note that it talks in general about "property" which Bitcoins certainly are. And it restates the rule: if you give property that has appreciated, the recipient's basis equals the donor's adjusted basis. (There is a different rule if value at the time of donation is less than the donor's basis.) – Nate Eldredge Nov 26 '15 at 01:12
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if giving Bitcoin as a gift - it would depend who the recipient is and how they claim it. Basically if they are reporting it as income, or taxable benefit then there should be taxes.

Lisa Cheng
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    Your point seems to be closely related to what Nate already told us in his more comprehensive answer. Perhaps you could expand your answer a bit to make it more useful? – Murch Dec 12 '14 at 15:46
  • essentially, if Bitcoin was given to an organization who decided to claim it as income - then it would be taxable. – Lisa Cheng Dec 17 '14 at 00:14
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as of dec. 07 2017, not taxable if you are the receiver, taxable if you are the giver .

however, since technology is outpacing traditional governance , here are the best ways for both the sender and receiver not to get taxed (also, how to get rid of tax by sending a gift to your own self) :

1.) buy a truly anonymous coin in bulk (ex. monero, zcash, electroneum, vertcoin, etc) , declare a capital loss,create a lost/stolen report (monero and electroneum is not app dependent, buy private key dependent , just tell them you lost the paper copy and have not created a virtual copy and can't memorize over 30 wallet characters) send that to another anonymous coin wallet that you own (it is untraceable at this point), send it to your friend as a gift, no tax on both of you.

2.) to get rid of tax yet earn bitcoin in secret : buy anonymous coin, declare a capital loss, create a lost/stolen report, send it to another anonymous coin wallet that you own, convert it to an unknown bitcoin wallet (make sure that it is not a wallet provided by an exchange, or ever been used in an exchange) , wait for those bitcoins to grow, then send it as a gift to another bitcoin wallet of yours that is connected to an exchange. discard or don't use the unknown wallet, create a new one if you plan on repeating this method.

3.) improved version of method #2 : instead of declaring it as a gift, wait for the atomic swap . it will convert your monero to bitcoin without going thru the blockchain. it's like buying monero, declare loss, lost/stolen report, atomic swap (yes, after the lost/stolen report, they can still check the blockchain for any movements and if the US government starts to be too strict about it calling you a liar, then atomic swap will keep the moneros moving, but without any trace at all) to bitcoin, send as if it was wrongly sent by someone to you as a gift (you know, like leaving a short message like "happy bday pedro! i give you these bitcoins as gifts!" even though you don;t know any pedro) , then it's non-taxable anymore

jer cuarteros
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  • The question was not about tax evasion, and what you have described is likely not legal in many jurisdictions. – chytrik Dec 10 '17 at 08:15