[arethuza]

Lets see if I understand this (I am not in the US) - the bitcoins count as an asset, you sell these bitcoins for dollars at MtGox and at this point the tax is due regardless of whether you actually get the dollars out of MtGox?

So any time between you selling bitcoins and actually getting the cleared funds out of an exchange leaves you with the risk of a fairly serious tax liability if the exchange can't actually give you the kind of currency you can pay tax bills with...

[I've had very close calls with seemingly small matters introducing potentially horrific tax liabilities so I am a bit oversensitive to these things!]

[patio11]

Bingo. Works the same way for shares. Unless you're investing in a tax-advantaged account, if you have a $10k basis in a stock/fund and liquidate it for $20k, you just realized a $10k gain regardless of what subsequently happens to that $20k. Park it at your brokerage, plow it into a new stock, withdraw it and buy a vat of chocolate to go skinny dipping in, the IRS doesn't care, but it will have its cut.

Poorly timed realizations of capital gains used to routinely bankrupt people in the startup community, which is why that 83(b) election paperwork is actually really important.

[mbesto]

> 83(b) election

Just a friendly reminder if someone is reading this - you have 30 days to claim 83(b) after you offer yourself shares in your business, otherwise you'll be in a heap of legal/tax issues that can be quite painful (i.e. cost a lot). Make sure you bring this up with your accountant/lawyer.

[steven2012]

It's not just that.

During the dotcom boom, many, many people faced tremendous tax liabilities because of ill-timed tax strategies. For example, they had stock options that were worth millions, but instead of selling them, they exercised them in order to hold them to get long term capital gains. So for example, they had options worth $10M, and they exercised them. They faced an immediate tax liability for $10M, but then the dotcom bust hit, and they lost all $10M, leaving them with $10M in taxes but nothing to pay it back with. I personally knew several coworkers that suffered this.

I believe it was only recently, over 10 years after the fact, that the IRS changed how they treated this so that people didn't go bankrupt from this.

[rayiner]

That's more or less the rule: the gain is taxed when it is "realized" which is roughly when it becomes "yours." It doesn't actually have to be cash in your hand (otherwise it would be quite easy to get around tax laws simply by trading assets on accounts without taking cash out). See: http://en.wikipedia.org/wiki/Realization_%28tax%29.

[arethuza]

That's pretty much the same as the UK (and presumably everywhere else).

Pretty ghastly situation to be in if you do end up with a tax liability because of something like this.