How are Share Awards and Sales Treated?
You likely received the shares as ordinary income for services of $10k, since they withheld taxes at granting.  Separately, you likely had a short term capital loss on sale of $2k, since your holding period seems to have been under one year. Stock awards by employers are treated and taxed as salary. I.e.: you pay ordinary rate income tax, FICA taxes, State taxes etc. The fact that you got your salary in shares and not cash is irrelevant for tax purposes. Once you got the shares and paid your taxes on them, the treatment is the same as if you got the salary and immediately bought the shares. Holding period for capital gains tax purposes starts at the time you paid your taxes on the award, which is the time at which you get full ownership (i.e.: vesting time, for the restricted stocks). When you sell these stocks - you treat the sale as any other stock sale: you check the holding period for capital gains tax rates, and you do not pay (or get refund) any FICA taxes on the sales transaction. So bottom line: You got $10K salary and you bought $10K worth of company stock, and you sold it at $8K half a year later. You have $10K wages income and $2K short term capital loss.
"In 2014 the IRS announced that it published guidance in Notice 2014-21. In that notice, the answer to the first question describes the general tax treatment of virtual currency: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. As it's property like any other, capital gains if and when you sell are taxed. As with any capital gains, you're taxed on the ""profit"" you made, that is the ""proceeds"" (how much you got when you sold) minus your ""basis"" (how much you paid to get the property that you sold). Until you sell, it's just an asset (like a house, or a share of stock, or a rare collectible card) that doesn't require any reporting. If your initial cryptocurrency acquisition was through mining, then this section of that Notice applies: Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income. That is to say, when it was mined the market value of the amount generated should have been included in income (probably on either Line 21 Other Income, or on Schedule C if it's from your own business). At that point, the market value would also qualify as your basis. Though I doubt there'd be a whole lot of enforcement action for not amending your 2011 return to include $0.75. (Technically if you find a dollar bill on the street it should be included in income, but usually the government cares about bigger fish than that.) It sounds like your basis is close enough to zero that it's not worth trying to calculate a more accurate value. Since your basis couldn't be less than zero, there's no way that using zero as your basis would cause you to pay less tax than you ought, so the government won't have any objections to it.  One thing to be careful of is to document that your holdings qualify for long-term capital gains treatment (held longer than a year) if applicable. Also, as you're trading in multiple cryptocurrencies, each transaction may count as a ""sale"" of one kind followed by a ""purchase"" of the other kind, much like if you traded your Apple stock for Google stock. It's possible that ""1031 like kind exchange"" rules apply, and in June 2016 the American Institute of CPAs sent a letter asking about it (among other things), but as far as I know there's been no official IRS guidance on the matter. There are also some related questions here; see ""Do altcoin trades count as like-kind exchanges?"" and ""Assuming 1031 Doesn't Apply To Cryptocurrency Trading"". But if in fact those exchange rules do not apply and it is just considered a sale followed by a purchase, then you would need to report each exchange as a sale with that asset's basis (probably $0 for the initial one), and proceeds of the fair market value at the time, and then that same value would be the basis of the new asset you're purchasing. Using a $0 basis is how I treat my bitcoin sales, though I haven't dealt with other cryptocurrencies. As long as all the USD income is being reported when you get USD, I find it unlikely you'll run into a lot of trouble, even if you technically were supposed to report the individual transactions when they happened. Though, I'm not in charge of IRS enforcement, and I'm not aware of any high-profile cases, so it's hard to know anything for sure. Obviously, if there's a lot of money involved, you may want to involve a professional rather than random strangers on the Internet. You could also try contacting the IRS directly, as believe-it-or-not, their job is in fact helping you to comply with the tax laws correctly. Also, there are phone numbers at the end of Notice 2014-21 of people which might be able to provide further guidance, including this statement: The principal author of this notice is Keith A. Aqui of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information about income tax issues addressed in this notice, please contact Mr. Aqui at (202) 317-4718" Perhaps an example will help make it more clear. Any given year:  Revenue:  200K, profit 60K You get 40K in profit, plus any salary, he gets 20K Next year you attract the attention of a competitor and they offer and you accept to sell.  You would get 100% of the proceeds. This is kind of a bad deal for him as you could easily play accounting tricks to diminish the company's profits and reduce his pay.  For the given example, you could pay yourself a 60K bonus and reduce the profit to zero and eliminate his compensation.  There should probably be a revenue metric included in his compensation. Edit: It is really nice to hear you have a desire to treat this person fairly.  Honesty in business is necessary for long term success.  I would simply make his salary dependent upon the revenue he generates.  For example, lets say you can make a widget for 4 and you expect to sell them for 10.  Your profit would be 6, and with the suggested split he would receive $2, you $4. Instead I would have him receive like 15% of the revenue generated This allows for some discounts for bulk items and covers the cost of processing sales.  It also allows him to share revenue with his staff.   Alternatively you could also do a split.  Perhaps 7.5% of revenue and 10% of profit. "The only ""authoritative document"" issued by the IRS to date relating to Cryptocurrencies is Notice 2014-21. It has this to say as the first Q&A: Q-1: How is virtual currency treated for federal tax purposes?   A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. That is to say, it should be treated as property like any other asset. Basis reporting the same as any other property would apply, as described in IRS documentation like Publication 550, Investment Income and Expenses and Publication 551, Basis of Assets. You should be able to use the same basis tracking method as you would use for any other capital asset like stocks or bonds. Per Publication 550 ""How To Figure Gain or Loss"", You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Gain. If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Loss. If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss.  That is, the assumption with property is that you would be using specific identification. There are specific rules for mutual funds to allow for using average cost or defaulting to FIFO, but for general ""property"", including individual stocks and bonds, there is just Specific Identification or FIFO (and FIFO is just making an assumption about what you're choosing to sell first in the absence of any further information). You don't need to track exactly ""which Bitcoin"" was sold in terms of exactly how the transactions are on the Bitcoin ledger, it's just that you bought x bitcoins on date d, and when you sell a lot of up to x bitcoins you specify in your own records that the sale was of those specific bitcoins that you bought on date d and report it on your tax forms accordingly and keep track of how much of that lot is remaining. It works just like with stocks, where once you buy a share of XYZ Corp on one date and two shares on another date, you don't need to track the movement of stock certificates and ensure that you sell that exact certificate, you just identify which purchase lot is being sold at the time of sale." Losings tens of millions of dollars but winning a bunch of awards - I'll leave it to others here to decide if that would make them feel that they are running a company that could really be called successful. I'd rather make even a few *thousand* dollars in profit, from scratch, while losing every possible award category my product could be eligible for. "they are purchasing the company"" is this correct? Yes this is correct. If I purchase a ""company"" here in Australia, I also purchase its assets and liabilities Yes that is correct. How can it be NIL? How can it be legal? The value of shares [or shareholders] is Assets - liabilities. Generally a healthy company has Assets that are greater than its liabilities and hence the company has value and shareholders have value of the shares. In case of TEN; the company has more liabilities; even after all assets are sold off; there is not enough money left out to pay all the creditors. Hence the company is in Administration. i.e. it is now being managed by Regulated Australian authority. The job of the administrator is to find out suitable buyers so that most of the creditors are paid off and if there is surplus pay off the shareholder or arrive at a suitable deal. In case of TEN; the liabilities are so large that no one is ready to buy the company and the deal of CBS will also mean nothing gets paid to existing shareholders as the value is negative [as the company is separate legal entity, they can't recover the negative from shareholders]. Even the current creditors may not be paid in full and may get a pro-rated due and may lose some money." Yes. Instead of paying a cash dividend to shareholders, the company grants existing shareholders new shares at a previously determined price. I'm sorry, but scrip issues are free (for all ordinary shareholders) and are in proportion to existing share holding. No payment is required from shareholders. So instead of having 10 $1 shares, the shareholder (if accepts) now could have 20 50p shares, if it was a one-for-one scrip issue. This investment strategy may have tax advantages. In some countries, income received from dividends is taxed as income, whereas profits on share trades are capital gains. If you have already exceeded your tax-free income limit for the year, but not your capital gains tax allowance, it may be preferable to make a dealing profit rather than an investment income. These arrangements are called a bed-and-breakfast. The tax is only payable on the gain you make  i.e the difference between the price you paid and the price you sold at. In your cse no tax is payable if you sell at the same price you bought at