This is MR.SCL: asking this question. Please don't bash MS SCL.
Steve you at one time during the many discussions about how much taxes we would be paying on Currency Exchange, you indicated you would not be paying ordinary income, and if my not to good memory is right, you indicated you would not pay more than 20%.
I know the "experts" are saying it will be taxed at ordinary income. I would like to hear your thoughts on this if you care to share. If not I certainly understand.
Thank you for you all you do for the PD family and this wonderful website. My wife and I would be lost without this site. MR SCL (Bill)
Indraman: Unless the IRS publishes a new ruling specific to the RI/RV of IQD, it will be best to err on the side of paying taxes as income. I have followed this subject for years and heard the arguments for treating as income, treating as capital gain, and even the argument that this is a currency exchange.
Of all three, I believe the interpretation that this will be treated as income is the most probable.
Just recently the IRS ruled that Bitcoin was to be treated as Capital gain. If the IQD gets a similar ruling published like Bitcoin just did from the IRS then all of the confusion would be cleared up. Until then, I would treat this as ordinary income, JMHO. Indy
Grizzy: I tend to agree with the assumption of ordinary income also. As everyone situation is different Please do not try to handle this yourself, consult your Accountant, Attorney, and Investment Advisors.
I am playing with the Idea and checking in to the option of putting it all in a Trust of some kind Now Before iRV's. Maybe I have to much time on my hands but I am having fun trying to come up with as many options available as possible to PROTECT my good fortune NOT AVOID TAXES what I owe I plan to pay.
After all this is a great investment for all of and like any other GAIL you have to expect to pay your tax on it and it really doesn't matter how the Government decides to Tax it--------
YOU CAN BE SURE THEY WILL DEFINITELY TAX IT TO THEIR ADVANTAGE! So just plan to pay it and help all the people you can and invest wisley. God Bless Grizzy
Dave: I believe ExecConsult has requested the ruling that Grizzly speaks of. Also, there is a lot of good stuff on this in "Lowering Your Taxes."
This site is an amazing library of good information. Thanks, SteveI, and all the contributors! Correction: the ruling that Indy referenced, that came from the IRS about the bitcoin. Hopefully, we'll see one when the IQD rv's. blessings, dave
Jeffusa: This will certainly be the most important question after the RV. I have asked no less than 7 CPA's . One of them works for one of the largest accounting firms in Phoenix. She says per her firm it will be capital gains. WF wealth management team here in Colorado says ordinary income.
It seems the tax code can be read many ways.. (are you shocked) . Personally I will get several opinions before I chose how to cash in and go with the one that can back up thier reasoning in an IRS court.
Isn't going to be fun to have this problem.... :D If it is ordinary income, I would start looking for a income tax free state to move to... Jeff
Jerryskinz: Jeff, thanks for the info!! I too have had two different tax attorneys here in VA tell me two different things.
When I informed them what each had said, they both protested they were right but suggested if I go the Capital Gains route, to keep the extra money in an interest bearing account just in case the IRS decides its ordinary income. That way I do not overpay to begin with but if I need to pay, the money is there.
Scl: "So just plan to pay it and help all the people you can and invest wisely" Grizzy we plan on do the above for sure and WILL NOT NOT AVOID TAXES. We have also talked to our Tax Attorney and he is leaning to ordinary income, we just want to be as sure as we can. Bill
Kjwayne; Last year , my tax attorney/CPA ,did some reserch and said ,when this thing RV's or changes value, that it will be a Capital Gains issue of 20% plus 3.5% that he called ,OBAMA TAX, as found in the obamacare law,plus my state tax of 6%. Thats 29.30% tax for me in my situation.
I asked him about moving to Florida to drop the 6% state tax and he said fine. IF you live there for six months before you cash in. So ,I'll pay my 30% and start on my bucket list!
Greatrewards: The hitch in the confusion is when we state investment ~~ we did not purchase the dinar from an actual brokerage/forex firm, and to be eligible for cap gains, must be such, we purchased from dealer, just licensed to sell, same as airport or bank.
Purchasing from other than SEC regulate arena is the diff. Make sure your advisors KNOW where you purchased, and no a bank is not one of those
I have waited and searched many times for the IRS answer , letter ruling, but have not found one. Many have requested letter rulling from IRS, So, prior to my filing I will , again, request whether or not a letter ruling has been made. which one would think would be done by now ;-)
An. Also, I can't think of his name right now, the forex broker who posts here, think lives in Houston, ~~ his input as to how taxed was very good. Darn, can't think of his name currently ;-(
Exec Cons had an absolutely fantastic document that was presented.
GPCarter Posted Today, 09:38 PM Bitcoin received the treatment it did because the IRS does NOT refer to it as "currency". The IRS specifically calls Bitcoin "property".
As for currency trading, as a currency trader, my profits are treated as ordinary income because currency speculation is not technically viewed as an "investment" even though we might use that term. Contrary to popular opinion what we did was not invest but currency speculation.
We traded/exchanged one currency for another with the hopes that we would get a profit once we exchanged at a later date.
Here is some information I posted on this forum a long time ago. I won't list the asset management company that provided this because it might then look like I was advertising so please don't ask:
A basic understanding of currency exchange principles is critical for U.S. expatriates, international business people, and global investors.
U.S. tax liability is determined in U.S. dollars. Because currency values change relative to one another, many tax issues arise when currencies are bought and sold. Last month, we discussed general factors affecting relative currency values and currency exchange rates. This month we will look at general questions of currency exchange taxation:
If foreign currency is purchased and the value of that currency goes up prior to sale (you get more dollars back than you started with), is that gain taxed as a capital gain or as ordinary income?
If foreign earned income is exchanged for dollars (no gain on invested capital), how is that taxed? And, what if foreign earned-income is never exchanged for dollars, how is tax computed in that case?
Gain on Sale of Currency: Ordinary Income
Long-term capital gains income is usually taxed at a lower rate than ordinary income (which is taxed at an individual’s marginal tax rate). When foreign currency is purchased and later disposed of, as an investment or as a hedge, the gain or loss on the disposition (sale) of that foreign currency will be taxed as ordinary income.
This is distinct from the purchase and later sale of other investment assets, which typically get capital gains treatment. The reason for ordinary income treatment of currency transactions is that Congress views currency fluctuations as tied to interest rate changes. Thus, the fluctuations are taxed as if they were interest earned, as ordinary income.
Taxation of Foreign Currency Wages
If a U.S. citizen earns income (paid in foreign currency) for work performed for a foreign company, the income may be converted to U.S. dollars (often called “translation”).
The U.S. income tax rules would apply to the dollar amount calculated from the average annual exchange rate determined at the end of the year. In such cases, there is no gain or loss because there is no initial conversion from dollars and no purchase of assets, just translation of foreign currency income into U.S. dollars.
This end-of-year “translation” to U.S. dollars occurs whether or not a U.S. citizen taxpayer has actually exchanged the foreign currency for dollars.
In other words, if a U.S. citizen is paid in foreign currency, and never converts that income into U.S. dollars, the U.S. dollar tax calculation will be based on the average, hypothetical, annual exchange rate.
Gain on Sale of Foreign Assets Purchased in Translated Foreign Currency
The next principle is easiest to explain with an example. Suppose a U.S. citizen converts $100k to Japanese yen so that he can buy a condo.
A few years later the citizen sells the condo for a gain. By that time the value of yen increased resulting in a gain (in dollars) upon conversion of the yen back into dollars. In such cases, each transaction is treated separately.
The gain on the sale of the condo (capital gains treatment) would get separate tax treatment from the gain on the currency (ordinary income treatment).
Personal Currency Transactions
Personal currency transactions (those not for business or investment purposes, as for a vacation) receive distinct tax treatment. Currency gains or losses less than $200 are de minimis and have no tax effect. If the gain is higher, then it is taxable as a capital gain (not as ordinary income, as above).
Losses on currency exchanges from non-profit-seeking endeavors are normally not deductible. Similarly, a currency gain on the sale of a personal residence (sold in foreign currency) in a foreign country is taxable, but a currency loss on the repayment of the mortgage would not be deductible.