Bonus, in bitcoin

[crit]

Spouse is receiving a bonus paid in units of a cryptocurrency. Company "may" be paying the taxes on the bonus. What are the questions I need to get answered, as the finance person in the house?

I am already asking: How are they reporting the bonus to IRS -- W2? In units of dollars (would have to be)?

I know we need to figure out how to track the basis -- what is acceptable as a record? We anticipate trading much of this currency for US dollars. Then the gateway that does the trade reports a sale, and we need to report gain/loss, just as if for stocks/funds? I assume the gateway won't be issuing a 1099b.

This is a bit confusing to me, so any pointers towards what I should be asking so that I can correctly deal with our taxes on the bonus and the eventual sale of the currency, are appreciated. I am well aware that cryptocurrencies are smelling like tulips right about now.

[TomatoTomahto]

I'm curious about the replies. As far as I know, if you got paid in Euros, for example, and the dollar value of the bonus were to change, you wouldn't report that as a capital gain/loss. Why would bitcoin be different?

[crit]

I think the gain/loss comes if we sell (convert) it to USD at a different conversion rate than it was given to us.

It's really not clear to me, though; from a bit of reading, it sounds like the IRS views these currencies as property, which is why I'd expect to have to report gain/loss. Bitcoin's FAQ says: In March 2014, the IRS published a notice clarifying that all crypto-currencies should be treated as property for tax purposes. Therefore any gains from exchanging such property would be considered capital income, and taxed as capital gains.

Capital gains, like stocks and shares, are reported on your 1040 tax form as part of Schedule D. However, unlike stocks and shares, we don't have a broker that works out all the figures and provides us with a 1099 form. Current Bitcoin exchanges, such as Coinbase and Circle, do not report account information to the IRS and so you are left to calculate and report these figures yourself.

So here we'd have one lot, and will sell at various prices.

[PVW]

IRS considers Virtual Currencies as property.

https://www.irs.gov/uac/newsroom/irs-vi ... y-guidance

[crit]

Thanks PVW, that IRS notice is helpful.

So Company will have to report it in USD on the W2.
I'll make sure to keep some record of the value of what we receive on the date we receive it, for gain/loss reporting when we sell it, and I expect I'll be manually entering the basis and gain/loss.

[Pajamas]

The bitcoin-dollar exchange rate is very volatile. You might want to coordinate with the employer the timing of the receipt of the bonus and conversion to U.S. dollars in some way as to eliminate any gain or loss.

[avalpert]

Spouse is receiving a bonus paid in units of a cryptocurrency. Company "may" be paying the taxes on the bonus. What are the questions I need to get answered, as the finance person in the house?

I think you need to make sure they are properly reporting it, and withholding/paying FICA taxes. This also should be a big red flag - a company that 'may' be paying her in a legal manner means they 'may not' be.

Why are they paying her bonus this way?

[mayday23]

Unless she's in an industry that deals with cyrpocurrency,this is crazy shady.

bitcoin fluctuations are crazy these days, by the same someone gets paid in bitcoins, signs up for an account and authorizes it, then cashes it out to their local currency, there could be a 5%-15% swing in the currency.

[alex_686]

So Company will have to report it in USD on the W2.

Will or should? I would double check that your W2 actually has the value of the bitcoin recorded properly. There is a correlation between people who use bitcoins and tax dodging.

[crit]

We speculate that the reasoning is to give spouse "skin in the game" of the company's product, which is related. Company is very up-and-up (and salary is in USD, properly reported, etc), we are not anticipating bad behaviour at all.

I just want to make sure I'm asking the right questions to take care of the situation.

[Raabe34]

Depending on the size/type of company, my gut says is that they are trying avoid taxation in sort by doing this. If your spouse likes the job tread lightly through this.

[123]

My concern would be that the employer(or some executive at the firm) is using bitcoin to profit at the expense of employees. What do they base the exchange rate on for reporting on pay stub/W-2? The bitcoin rate should be based on the conversion rate on the actual disbursement date (this would be hard to do).

I would suspect that if the employee is in California it is not legal to be paid in bitcoin because it cannot be converted to cash/USD without a fee. Other states may have similar regulations.

[ianferrel]

Unless she's in an industry that deals with cyrpocurrency,this is crazy shady.

Agreed. What is going on here? Be very suspicious.

[crit]

Without going into detail, the company has very, very compelling reasons to stay on the legal and documented side of things, so we do not expect that this is shady.

[alex_686]

Unless she's in an industry that deals with cyrpocurrency,this is crazy shady.

Agreed. What is going on here? Be very suspicious.

It might be shady or it might be suspicious, but Crit has said this is legit. Crazy suspiciously shady does not automatically mean it is illegal. In my opinion the reasons given don't make a lot of sense but that is my opinion. I know people on the other side of the fence. Let us take Crit at their word.

I would recommend being cautious. This is not plain vanilla land so double check everything. Double check the W-2 to make sure the bonus is being recorded correctly. If not you have options. You could go to the company. Or you could go to the IRS - they have forms to report income that the company did not declare.

[Admiral]

Does anyone know: How would a US company even report this payment on a standard W2... which is denominated in dollars? Since the conversion rate varies, even reporting the US dollar value of the bonus would be difficult.

Just wondering how this is handled by companies and by the IRS. If nothing else I would imagine that this would be a red flag on a tax return, shady or not, legal or illegal.

[alex_686]

Just wondering how this is handled by companies and by the IRS. If nothing else I would imagine that this would be a red flag on a tax return, shady or not, legal or illegal.

Not a red flag, but a yellow. Employees gets lots of non-cash compensation. Gift cards and stock options are the most common example. A employer needs to estimate the value of the compensation. Methods and models must be saved. Inputs to the model must be at arms lengths distance. There are various Bitcoin exchanges out there that translate Bitcoin to dollars. While not prefect I would guess that these would qualify under IRS regs.

[Valuethinker]

Spouse is receiving a bonus paid in units of a cryptocurrency. Company "may" be paying the taxes on the bonus. What are the questions I need to get answered, as the finance person in the house?

I am already asking: How are they reporting the bonus to IRS -- W2? In units of dollars (would have to be)?

I know we need to figure out how to track the basis -- what is acceptable as a record? We anticipate trading much of this currency for US dollars. Then the gateway that does the trade reports a sale, and we need to report gain/loss, just as if for stocks/funds? I assume the gateway won't be issuing a 1099b.

This is a bit confusing to me, so any pointers towards what I should be asking so that I can correctly deal with our taxes on the bonus and the eventual sale of the currency, are appreciated. I am well aware that cryptocurrencies are smelling like tulips right about now.

As per others, something of a red flag (yellow flag?) that they are so doing.

I can't think why a legit business would do this? Possibles:

- business is based in some country where exchange controls prevail, this is a way of doing this

- business gets a lot of revenue in Bitcoins, but, then, they should just convert this right away into dollars? That said, this is at least one possible explanation-- they have bitcoins due to some part of their business, and this is a way of "spending" them

I would convert ASAP into USD. There are a lot of risks in holding Bitcoins (and if you wanted to do that, it would be better to "invest" in them separately).

[PVW]

Overstock has paid bitcoin bonuses to their employees.
http://www.ibtimes.co.uk/bitcoin-friend ... es-1459424

[ianferrel]

Overstock has paid bitcoin bonuses to their employees.
http://www.ibtimes.co.uk/bitcoin-friend ... es-1459424

Have they? I can find a number of news stories from a few years ago that they were planning to do so. Zero stories that they actually did so.

[Thesaints]

A company could pay you "in kind". They would have to report FMV of assets. In the case of bitcoins that means the exchange rate to USD at the time the employee gains control. It is up to them (and you) to document the particular exchange rate used to the IRS's satisfaction.
In fact, using the term "exchange rate" is not totally proper; "price" would be better and getting bitcoins or a 3-day vacation in Cancun as a bonus are treated the same way.

[jeffyscott]

If only there were something that anyone could exchange for anything they might want at any time they want...

This is like people on craigslist who offer trades and I want to say: "here's an idea, find someone who wants to give you money for that thing and then you can give that money to me for my thing".

We speculate that the reasoning is to give spouse "skin in the game" of the company's product, which is related.

What'll they do if you immediately exchange this skin for cash?