is it possible to stay "above board" with bitcoins? i.e., pay capital gains tax when you cash out, or in someway pay taxes on your bitcoin income?
If you treat Bitcoins as currency you would need to state the value of your Bitcoin income on your tax statement. However, when doing so you would need to convert the Bitcoin value to your government's local currency, so that taxes can be calculated. The problem here is that the Bitcoin market is still relatively small and that you have no guarantee that you can sell a given amount of Bitcoins at a given price. E.g., you may have earned 100.000 BTC in a given year. However, when you try to sell all of them on the Bitcoin exchange markets at the same time, it may be possible that you crash the market. So you would need to pay taxes in your governments currency for something that you cannot sell at the estimated price.
On the other side, you could only declare income resulting from selling Bitcoins for a "real" currency. However, I'm not sure if your government will allow this, as this would allow for "creative" tax statements. E.g., as a freelancer you could charge your clients in Bitcoins, but then only convert Bitcoins to a "real" currency if you need to buy something that cannot be bought for Bitcoins. So if you would have charged your client in USD, you would have had to pay a large amount of taxes in a given year. However, by using Bitcoins, you can delay the payment of those taxes.
1. If you mine a bit coin yourself, there are no tax consequences at that time. Your basis in that bitcoin is $0, or perhaps the cost of generating the bitcoin.
2. If you exchange that bitcoin for dollars, you realize a gain of the difference between the number of dollars received and your basis.
3. If you exchange that bitcoin for goods, you realize the difference between the market value of the goods and your basis, and your basis carries over to the goods.
In other words, it will likely be treated like any other barter transaction in which goods that are not like kind goods are traded.
Bitcoin is novel in how they are generated, and how transactions are tracked and verified, but it is not novel outside of those areas. Trading bitcoins for goods is not really any different than trading, say, shares of Apple stock for goods, or trading first edition books of 19th century literature for goods. The tax system knows how to deal with these situations (and to prevent their abuse).
In your example you would of course pay tax from $15.
I can give you a counter-example, why I think that taxes shouldn't apply to generated coins: Let's say you programm an application (or paint a picture, etc.) and it is easy to estimate the market value. Do you need to pay taxes for your application (or the picture) as long as you don't sell it? IMO it's the same with generated Bitcoins.