Is the same true for currency conversions? If I convert my Krone to Dollars and then back again when the exchange rate is more favourable, will I have to pay taxes?
Genuine question, I don't know how forex trades typically work.
The main point I understood was that when you deal with bitcoin (and I am not an accountant, and this fellow is not your accountant) there's a "realization" event where your asset is realized into a gain, I think it's called a capital gain, and like selling your business after putting your own capital into it for many years, that is the moment where you owe taxes.
It's not any point of withdrawal, since you might argue "it's not realized, it's just numbers on my screen until it hits my bank account" but this accountant would argue more conservatively that even if you are a US customer of Mt.Gox (and therefore can't get access to your USD without paying a bribe or taking a trip to Japan? I think that was the last story I heard, not claiming firsthand knowledge)...
If you pay $100 for 1BTC and sell it for $1250, and buy 1BTC at $850, you have $1250 of income and $950 of expense to offset.
You will not be able to claim only $400 of income and you may not be able to defer that tax payment (on $1250 minus whatever percent of $950 expenses you can claim against your business' net income.)
This is not exactly how forex works and I believe the US situation wrt. Bitcoin is exactly like the Norway situation given this news, from my limited understanding. Hopefully someone with more background will be able to give a better explanation that actually answers your question, and point out if I'm wrong on something.
Otherwise, you're claiming $1250 of income and $950 of expenses, and I would guess if you're lucky, you can write off 75% (wild guess) of that $950 so you pay tax on $538, even though your real gain is only $200.
If your tax rate is 33%...
After paying taxes on $538, you profit $22 from the sale and pay $178 in taxes. UNLESS you can structure the timing of the exchanges (hold the asset long enough) to frame the activity as a capital gain with a cost basis of $950, in which case you made out a little better.
This example may be too small to be real, but I think I have it right. If the gain happened while holding the asset over a longer period of time (how long?) then it's capital asset and capital gains tax. You might not pay 33% in taxes and you also might not be able to deduct 75% of your expenses.
I also have no idea what you're talking about when you say that you get to "write off 75%" if you're lucky. That would be incredibly unlucky (you want to write off assets/income, not liabilities/expenses, for purposes of determining taxable income).
I am really a person who has never claimed any income outside of what has come in a biweekly paycheck from an employer who does withholding for me, so it's clear, I have no idea what I'm talking about and I'm repeating things I've heard from people smarter than me.
In your example, you have $1250 of realized gain and $1150 of recognized gain (i.e., taxable income) from the sale of your old bitcoin, and $850 of basis in your new bitcoin.
So if you were a miner and you spent $600 on hardware
Which brought you 6BTC... and you cashed out 0.6BTC as $700, and bought more hardware with 0.8BTC, which so far nets you $0 (hasn't arrived yet)
Hopefully you'll indulge my line of inquiry...
You don't owe taxes on the remaining 4.6BTC because you have no realized gain from that asset, you paid taxes on the money you used to buy the first batch of hardware (say it all came from your employer and they did withholding, so you've paid those taxes)
So that leaves you with $1300 of "realized" income and a cost basis of... which of either $600 or $1300? Not sure which because in this slightly different case you haven't actually bought and sold the bitcoins, and your hardware could belong to your ongoing mining operation, right?
$700 is the cash value of the 0.6BTC sold. $870 is the cash value of the 0.8BTC order for more hardware at the time the order was placed.
So you've got 4.4BTC in assets as unrealized gains, $1570 (700+870) in realized gains, and $1470 in mining expenses.
Does that mean you owe taxes on $100 in recognized gains, and the rest are unrealized assets that are not taxed until they are sold?
I think I understand. That sounds a lot more favorable to the miner than the speculative buyer, but it seems to be correct.
I imagine the answer is yes, I know you have to in Sweden. In Sweden the taxes rules are basically the same whether you trade in forex, stocks or derivatives.