Selling Bitcoin – Asking For A Friend
Let’s say you had a friend that wanted to transfer some bitcoin to you to sell on their behalf – what does this mean for your U.S. tax obligations?
|In general, the idea of giving property (stocks or other securities, bitcoin, or real property) to another individual temporarily is a bad idea. Beware of “income shifting”.|
Let’s examine the various types of transfers. Remember, virtual currency is treated as cash or capital in the US.
|Scenario: Individual A (Alison Altuve) wishes to transfer the title on her brokerage account to Individual B (Bruce Breckenridge). Alison then asks Bruce to sell the assets and give the proceeds back to Alison, less tax paid on capital gains.|
Payment for goods or services
When transferred between individuals as payment for goods or services, a W-2 or 1099-MISC would be generated just like it would be if payment in exchange for good or services was made with real currency.
Transfer with no interest = Gift. Not a good strategy
As mentioned, virtual currency held for investment is treated as capital asset (stocks, bonds). The transfer of capital assets between two individuals with no interest would be a gift, taxable to the donor and requiring the filing of Form 709 to report the gift (if over $14k). To avoid gift treatment this transfer must have a repayment condition. Gift is a gift only when it is unconditional and may not be taken back.
Whole Story at TFX.