I was just about to sell some of it too, to help cover some recent expenses.
Lots of little transactions are a pain, but I do believe you are required to track them in order to report your capital gains correctly. You only have capital gains when you sell, but you need to know your purchase prices and dates in order to compute it.
I used this website to analyze my CoinBase transactions: https://bitcoin.tax/
The site imports the transactions and computes your capital gains automatically. Then I entered my information into the IRS capital gains worksheet and reported the gains on my taxes.
Do the IRS and say Turkey's tax office tracks these as well? Assuming that you don't try to deposit the exchanged for bills in a bank.
Couldn't someone offer Bitcoin exchange in existing currency shops or the same service via Bitcoin ATMs? How would the IRS and its equivalents track that without requiring identification and registration before use? I suppose a small amount would be allowed for the tourist aspect but then you could use a group of friends or employees to wash small amounts. If you require ID for that, including tourists, then you can track it.
Without capital gains, if Bitcoin had ~0% inflation and the US got back up to 5%-10% inflation, then Bitcoin would become a better store of value.
However, with capital gains, the US would have to have significant inflation, around 20% or more, before Bitcoin would really be competitive. (I'm assuming there are significant transaction costs related to the low acceptance of Bitcoin)
In this manner, the US can (1) gain some additional tax revenue, and (2) prevent Bitcoin from becoming a competitor to the national currency, which every nation wants complete control over.
Just to be clear, I'm not agains taxes, because not paying taxes is like swatting an apartment, and generally taxes make sense to be paid, although most places also have several unfair tax codes, so I understand the common perception of taxes as "highway robbery".
(This is for the US.)
E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100: I have to pay tax on ($100-$1)
Neither. It's all specific lots (individual orders). How Coinbase chooses which bitcoin to sell will affect what tax you owe.
With a typical brokerage (e.g. Vanguard), you can configure individual securities to sell FIFO, lowest cost, avgcost, or specific lots. Not sure if Coinbase lets you do that.
Edit: From your example:
> E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100:
You could sell the last 10 BTC you bought, in which case you'd owe capital gains tax on the $50 appreciation, or you could sell the first 10 BTC you bought, in which case you'd owe capital gains tax on 9 * $5 + 1 * $9 (= $54, slightly more).
That's all that matters. Your gains (or losses) are $y - $x.
> it seems like there's nothing stopping someone from always taking the least expensive taxes first.
Yes. If you had some with gains and some with losses, you could even choose to sell those at a loss in order to offset other gains.
It's made filing really easy, well worth the small fee.
I just treated it like I bought it all at $0 / BTC. I was selling between $100 and $1000, with an average purchase price between $4 and $10, so the cost was basically minuscule.
It's kinda interesting because a lot of people will claim less than the levels that would normally trigger an audit (49% of household expenses towards rent, say) and then if they get audited upwards revise it to 75%. It's like a societal cheaper NASH equilibrium, since both the individual and the government gets penalised for being overzealous.