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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.

 

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