Say Kraken and Bitstamp both issue colored coins for USD, called KrakenDollars and BitStampDollars. Then I find an colored coins exchange where I can trade between the two, and deposit some KrakenDollars. In the eyes of the IRS, these are still dollars I think. Then I start trading between KrakenDollars and BitStampDollars, and make a respectable profit. Then I put my KrakenDollars back into Kraken, and withdraw to my bank account. How on earth should that be taxed? I was just trading between dollars and dollars...
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1 Answer
You trade a bunch of stuff, you wind up with more dollars than you started with, you have a taxable profit.
answered Jul 5, 2014 at 19:11
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Don't you have to tax each trade based upon the price at the time and whether it's a short term or long term gain/loss? Jul 6, 2014 at 13:47
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@lurfjurv That's going to depend on your jurisdiction, but often no. That would be a like-kind exchange. Jul 6, 2014 at 23:20