7 ms·

I'm sure there's a lot to know about this topic, but it's odd to me that they'd treat a "currency" as an appreciating asset. If I'm given a dollar (or peso) as

I'm sure there's a lot to know about this topic, but it's odd to me that they'd treat a "currency" as an appreciating asset. If I'm given a dollar (or peso) as change, and if between the time I receive the dollar and the time I spend it the currency purchasing power increases, I do not pay taxes on that gain. I can just buy more stuff with that dollar (including other currencies). In this instance, where it's increasingly true that bitcoin can be used as currency to purchase goods and services, it's odd to me that those are realizing events that require you calculate gain. I get it that shares of stock work that way, but I can't buy a hamburger with shares of stock.

mikeash 7y ago
Regular foreign currency also gets taxed if you make a profit trading it.
- hcurtiss 7y ago
  Fair enough, but if I convert a bunch of dollars to pesos and then the value of a peso increases and it allows me to buy a nicer car (in pesos) than I could have when I received the peso, is that taxable? If it is, is the dollar the only exception to this rule? Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars.
  - arcticbull 7y ago
    Yes, because you as a US person track your gains/losses relative to the USD so if you buy Pesos and the value of the Peso changes relative to the US Dollar over the time period you held them that is in fact a capital gain and reportable to the IRS for tax purposes. Every country that taxes capital gains operates the same way to the best of my knowledge. > Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars. Increased purchasing power of the cash relative to their home currency is what's taxable, and reportable at disposition.
    - hcurtiss 7y ago
      This is helpful. Thank you. The whole thing is a little odd to me. I'm used to thinking about paying taxes on marginal increase in value, and I had never considered that to be defined exclusively in dollars. I suppose it is. If I buy for $10 and sell for $20, I pay taxes on $10 even if the value of the dollar dropped by half in the intervening period.
      - EGreg 7y ago
        Basically inflation is taxed. However, few people report trinkets. Inflation in a certain sector (whether due to speculative bubbles or not) is taxable. The real question is — what if there is huge volatility and it goes down after it went up? Surely you don’t pay taxes on just the hands you win in a casino without deducting the losses first? But when does a casino session end with markets? another BIG question I have is, do you really now have to pay for EVERY TRADE of one cryptocurrency to another? What if you have a capital loss and gain etc.?
        PeterisP 7y ago
        If you have a capital gain on one transaction and a loss on other, in general the net gain is taxed, and usually losses in one tax period can be used to offset gains in other periods - there are all kinds of accounting rules on how to properly document the transactions and these gains. In general, everything you worry about in this post isn't new, it's been argued and resolved decades ago, you "just" have to follow all the regulations. Or, alternatively, chartered accountants make a living by following the details of these regulations so that their clients don't have to.
    - philsnow 7y ago
      Wait, the gain relative to USD is only reportable when you sell the pesos (to convert them back to USD, or to CHF or BTC or whatever). Is using a currency to purchase a good a "sale"? Would you incur capital gains tax on the USD-converted value of the car you had bought using the pesos?
      - 7y ago
  - icebraining 7y ago
    If the USD you own becomes more valuable, then the same nominal amount you're paying will also be a bigger payment in real terms.
  - mullen 7y ago
    Your point is moot, buying and selling Bitcoin is not like buying and selling currency. The IRS classifies it like buying and selling gold, which you pay taxes on when you make a profit.
mieseratte 7y ago
> but I can't buy a hamburger with shares of stock. Sure you can, you just have to convince someone it's worth the hassle. That it is atypical doesn't mean you can't.
- jtbayly 7y ago
  If you do, how do you figure out if the investment appreciated or depreciated? I mean, if I use BTC as a currency to buy things, I don't understand how I would evaluate every purchase at the end of the year to figure out whether I owe capital gains.
  - AlexandrB 7y ago
    This is why most people don’t buy hamburgers with securities and why you’re gonna have a bad time come tax season.
  - zielmicha 7y ago
    You can imagine you are converting BTC to dollars right before purchase. If you had 1 BTC worth $1000 at the beginning of the year and then 6 months later (when it was worth $1500) bought something with it - you earned $500 in capital gains. (Not saying this is the current law, but that method seems to make sense)
  - PeterisP 7y ago
    It's certainly possible - one way would be to do like some people who do some casual stock trading where you record all the transactions in an excel sheet with the amounts and dates, and then submit the appropriate reporting to IRS. Similar measures apply if you do significant amounts of barter; e.g. if you as a farmer trade a truckload of produce for an old vehicle without any cash involved, then you may have (all kinds of legal caveats apply) to appraise the transaction at some dollar value and justify that appraisal. For bitcoin it's a bit simpler than barter since just taking daily reference prices from a major exchange is an objectively reasonable method of pricing. It's not that hard, but takes some work and skill - it may be prudent to hire a certified accountant to do that for you properly. In any case, the fact that in some circumstances the reporting is labor-intensive, or expensive, or unclear isn't a valid excuse to not do it. You can ask IRS or a CPA for assistance, and if you do your best then even if IRS eventually disagrees with something, then it's going to just be a correction (which may go in both directions).
nradov 7y ago
From a legal standpoint, it's a commodity not a currency. And US citizens who trade foreign currencies are subject to tax on their gains.
- nostrademons 7y ago
  From a legal standpoint, it's muddled. The CFTC claims jurisdiction over Bitcoin and Ethereum as commodities. The IRS claims that cryptocurrency is "property" and doesn't elaborate further, except to say that it falls under existing capital gains rules. The SEC claims that most other tokens are securities and fall under its jurisdiction, but does not claim jurisdiction over Bitcoin and Ethereum because the CFTC has already claimed it, but also claims that Ethereum "was a security" but is no longer, and sets out a process for adjudicating similar claims that other cryptocurrencies might've been securities when launched but are not anymore. The SEC's jurisdiction is being challenged in court by Kik, claiming that its Kin token is a utility token and should be considered a product feature, exempt from regulation at all. Bipartisan H.R. 2144 (the "Token Taxonomy Act") [1] is currently making its way through Congress and explicitly exempts cryptocurrencies from securities regulation and crypto/crypto transactions from taxation. Pretty much the only thing that all branches of government agree on is that cryptocurrencies are not currency. It's hard to see how they could declare otherwise, given that the U.S. Constitution grants the government the sole power to coin money, but there's a growing international economy that exists outside the nation-state framework and disagrees. [1] https://www.congress.gov/bill/116th-congress/house-bill/2144/text https://www.congress.gov/bill/116th-congress/house-bill/2144...
  - ska 7y ago
    From a tax perspective it isn’t muddy though, the IRS opinion is the only one you need to understand. It may change over time, but that doesn’t affect your tax liability today.
  - nybble41 7y ago
    > given that the U.S. Constitution grants the government the sole power to coin money Not true. It grants Congress the power to coin money (Article I §8 ¶5), and prohibits the states from doing the same (§10 ¶1), but it says nothing about private citizens. Coins can legally exist which were not created by Congress or by any state. Arcade tokens would be one obvious example. In any case "to coin money" refers specifically to making coins, as in physically stamping them out of metal. Whether or not they're treated as "currency" in a legal sense, cryptocurrencies are obviously not physical coins so rules about coining money do not apply. From a tax perspective, the special treatment applied to foreign currencies is a result of specific treaty obligations. It only applies to small amounts of income—under $200 IIRC—and is meant to avoid the need to report small fluctuations in value when you hold foreign currencies temporarily for travel. In other respects the rules are the same as for cryptocurrencies, or really any other kind of property apart from USD. It's not surprising that the currency rules are not applied to something like Bitcoin which we have no treaties about and whose use is not strongly correlated with travel outside the country.
ABeeSea 7y ago
Making money from currency exchange rates is absolutely taxable. https://www.investopedia.com/articles/forex/09/forex-taxation-basics.asp https://www.investopedia.com/articles/forex/09/forex-taxatio...
acjohnson55 7y ago
You do owe taxes on gains from currency exchange rates: https://smallbusiness.chron.com/foreign-currency-exchange-tax-issues-77894.html https://smallbusiness.chron.com/foreign-currency-exchange-ta...
jedberg 7y ago
This is the IRS's way of saying that it isn't a currency. It's the government's way of saying that only the US government makes valid currency in the US, and everything else is an investment. They even treat foreign currency that way now. If you buy a bunch of Euros and then convert back to dollars later, you're supposed to pay tax on the gain.
- Gibbon1 7y ago
  Yeah the IRS is treating it as unsecured paper. Which is essentially what it is.
deleted 7y ago
[deleted]
umvi 7y ago
I'm pretty sure if you make a business out of switching currencies, you have to pay taxes on your profits. 1. Buy Euros with dollars 2. Value of dollar drops 3. Buy back more dollars than you started with 4. Pay taxes on your gains
lizknope 7y ago
How practical is bitcoin as a currency for day to day use. I thought the transaction time was 10 to 30 minutes. I get frustrated at the checkout counter when my credit card takes longer than 10 seconds. 10 to 30 minutes seems a lot closer to how long it takes for a stock sale to go through on E-Trade so I can see why the IRS would classify it more like a stock than currency.
- icebraining 7y ago
  All cryptocurrencies get treated the same, regardless of whether a transaction takes 10 minutes or 10 milliseconds.
- Jach 7y ago
  Ignoring the periods in the past with very high transaction fees and network congestion, for the most part it's been as practical as a card and often faster since I can just use my phone to scan a QR code and click a verify button. We can also ignore the lightning network in the calculation of practicality. Normally if I send you a payment you'll see the notification of a pending transaction with the amount on your side pretty much immediately. There is a risk that I could after walking off with the goods create a new transaction with a higher fee (especially if the replace-by-fee flag was part of the original send, and one might want to be more cautious if that was the case) to send them to myself instead, though even if I try it's not guaranteed to succeed. If you wait around for on average ten minutes (could in actuality be a few seconds, could be more than ten minutes) for the transaction to get one confirmation in a block you can be a lot more certain no shenanigans will occur. Most merchants will use a third party system that will take on this risk for you. I don't know if third party systems like Stripe do the same for credit cards, but credit cards have the same risk profile. (I can call up my card company and claim a fraudulent charge after getting the goods. They'll then in turn not honor the charge. It takes something like 180 days before a CC charge becomes much harder for the payer to dispute, vs. bitcoin's 10 minutes for very hard and 60 minutes for basically impossible. Seems like an ok tradeoff to me.)
  - navigatesol 7y ago
    >for the most part it's been as practical as a card and often faster Have you ever used a card? If you think that opening your phone, scanning a QR and then hitting "verify" is faster than a tap or swipe of your credit card, I'm not sure what to tell you. Best case scenario, they're about the same. >I can call up my card company and claim a fraudulent charge after getting the goods And they'll investigate and determine you committed fraud, and you'll be fined or go to prison. What's the equivalent with Bitcoin?
msbarnett 7y ago
If you exchange your money for a foreign currency, and that foreign currency appreciates in value vs the US Dollar such that you realize a profit, that’s absolutely taxable profit.
arcticbull 7y ago
1 USD always equals 1 USD and you pay taxes on gains relative to the USD as a US person. It's not possible for your USD to be an appreciating asset relative to the USD and that's how capital gains are defined. However, if you go to a store in America (and hypothetically) they give you change in Euros, then you take that to another store, and redeem the Euros there, you do in fact owe taxes on the increase in value of the Euro relative to the US dollar over that time period spanning those two transactions.
- impostir 7y ago
  At one point in time and at one location. At different places in the US, 1 USD can purchase more or less. So on the internet, the purchasing power of the dollar is fairly nebulous. So, I agree, but with more nitpickiness.
  - arcticbull 7y ago
    Yeah, capital gains are not adjusted for purchasing power parity within a country otherwise it'd be difficult to do business in both high and low PPP regions like SF vs the midwest.
  - paulddraper 7y ago
    Again, you don't pay taxes in terms of purchasing power. You pay taxes in terms of USD.
- msandford 7y ago
  So that's why we can't ever have some deflation here in the modern US, it would reduce tax revenue! I always wondered about that. In this light it makes perfect sense.
  - adamson 7y ago
    I’m not aware of any evidence that that’s actually the motivation behind preventing deflation. Just about every economist will tell you that deflation is undesirable because it incentives hoarding accumulated currency rather than investing it in productive capital because of the decreasing value of production relative to currency.
deleted 7y ago
[deleted]
kazinator 7y ago
Come on; if you do Forex trading, you will pay taxes on your gains. If you earn a dollar for your labor, and then hold on to it while its purchasing power increases before making a purchase, that increase is not taxable of course. It's not even quantifiable. Purchasing power can increase faster relative to a specific commodity that gets cheaper faster than other goods. If you buy a currency and sell it later at a profit, that is taxable. What is taxable, in a nutshell, is the result of any non-exempt activity that causes you to hold an increased numeric amount of your native currency. Increased purchasing power isn't taxed because it doesn't entail any numeric increase in the money.
- Rychard 7y ago
  Where can I obtain these magical dollars whose purchasing power increases over time? The purchasing power of all my dollars seems to go down the longer I hold onto them.
  - thomaslangston 7y ago
    At one time (maybe still), purchasing power for computer components went up much faster than inflation. If your goal was to buy a faster processor, then waiting effectively generated a rate of return based on falling prices.
  - pault 7y ago
    If the dollars depreciated then you wouldn't owe taxes on them and it wouldn't be a good metaphor.
  - kazinator 7y ago
    > Where can I obtain these magical dollars whose purchasing power increases over time? In the enchanted land of the grandparent comment. :)
  - mokus 7y ago
    That’s not relevant to the point you’re responding to - the point is, if the purchasing power of your dollars went up (and assuming it’s your native currency), you don’t get taxed on it because the number of dollars you hold did not change as a result. If you are holding a different currency, it’s value goes up, and you convert it back to spend, you made capital gains and it will be taxed even though that foreign currency is not an “investment” instrument.
mindfulgeek 7y ago
There is some discussion of changing cryptocurrency to be treated like currency instead of property. When that happens, it will behave like you are describing. https://www.wsj.com/articles/lawmakers-push-for-new-bitcoin-rules-11562405401 https://www.wsj.com/articles/lawmakers-push-for-new-bitcoin-...

mikeash 7y ago

Regular foreign currency also gets taxed if you make a profit trading it.

hcurtiss 7y ago
Fair enough, but if I convert a bunch of dollars to pesos and then the value of a peso increases and it allows me to buy a nicer car (in pesos) than I could have when I received the peso, is that taxable? If it is, is the dollar the only exception to this rule? Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars.
- arcticbull 7y ago
  Yes, because you as a US person track your gains/losses relative to the USD so if you buy Pesos and the value of the Peso changes relative to the US Dollar over the time period you held them that is in fact a capital gain and reportable to the IRS for tax purposes. Every country that taxes capital gains operates the same way to the best of my knowledge. > Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars. Increased purchasing power of the cash relative to their home currency is what's taxable, and reportable at disposition.
  - hcurtiss 7y ago
    This is helpful. Thank you. The whole thing is a little odd to me. I'm used to thinking about paying taxes on marginal increase in value, and I had never considered that to be defined exclusively in dollars. I suppose it is. If I buy for $10 and sell for $20, I pay taxes on $10 even if the value of the dollar dropped by half in the intervening period.
    - EGreg 7y ago
      Basically inflation is taxed. However, few people report trinkets. Inflation in a certain sector (whether due to speculative bubbles or not) is taxable. The real question is — what if there is huge volatility and it goes down after it went up? Surely you don’t pay taxes on just the hands you win in a casino without deducting the losses first? But when does a casino session end with markets? another BIG question I have is, do you really now have to pay for EVERY TRADE of one cryptocurrency to another? What if you have a capital loss and gain etc.?
      - PeterisP 7y ago
        If you have a capital gain on one transaction and a loss on other, in general the net gain is taxed, and usually losses in one tax period can be used to offset gains in other periods - there are all kinds of accounting rules on how to properly document the transactions and these gains. In general, everything you worry about in this post isn't new, it's been argued and resolved decades ago, you "just" have to follow all the regulations. Or, alternatively, chartered accountants make a living by following the details of these regulations so that their clients don't have to.
  - philsnow 7y ago
    Wait, the gain relative to USD is only reportable when you sell the pesos (to convert them back to USD, or to CHF or BTC or whatever). Is using a currency to purchase a good a "sale"? Would you incur capital gains tax on the USD-converted value of the car you had bought using the pesos?
    - 7y ago
- icebraining 7y ago
  If the USD you own becomes more valuable, then the same nominal amount you're paying will also be a bigger payment in real terms.
- mullen 7y ago
  Your point is moot, buying and selling Bitcoin is not like buying and selling currency. The IRS classifies it like buying and selling gold, which you pay taxes on when you make a profit.

mieseratte 7y ago

> but I can't buy a hamburger with shares of stock. Sure you can, you just have to convince someone it's worth the hassle. That it is atypical doesn't mean you can't.

jtbayly 7y ago
If you do, how do you figure out if the investment appreciated or depreciated? I mean, if I use BTC as a currency to buy things, I don't understand how I would evaluate every purchase at the end of the year to figure out whether I owe capital gains.
- AlexandrB 7y ago
  This is why most people don’t buy hamburgers with securities and why you’re gonna have a bad time come tax season.
- zielmicha 7y ago
  You can imagine you are converting BTC to dollars right before purchase. If you had 1 BTC worth $1000 at the beginning of the year and then 6 months later (when it was worth $1500) bought something with it - you earned $500 in capital gains. (Not saying this is the current law, but that method seems to make sense)
- PeterisP 7y ago
  It's certainly possible - one way would be to do like some people who do some casual stock trading where you record all the transactions in an excel sheet with the amounts and dates, and then submit the appropriate reporting to IRS. Similar measures apply if you do significant amounts of barter; e.g. if you as a farmer trade a truckload of produce for an old vehicle without any cash involved, then you may have (all kinds of legal caveats apply) to appraise the transaction at some dollar value and justify that appraisal. For bitcoin it's a bit simpler than barter since just taking daily reference prices from a major exchange is an objectively reasonable method of pricing. It's not that hard, but takes some work and skill - it may be prudent to hire a certified accountant to do that for you properly. In any case, the fact that in some circumstances the reporting is labor-intensive, or expensive, or unclear isn't a valid excuse to not do it. You can ask IRS or a CPA for assistance, and if you do your best then even if IRS eventually disagrees with something, then it's going to just be a correction (which may go in both directions).

nradov 7y ago

From a legal standpoint, it's a commodity not a currency. And US citizens who trade foreign currencies are subject to tax on their gains.

nostrademons 7y ago
From a legal standpoint, it's muddled. The CFTC claims jurisdiction over Bitcoin and Ethereum as commodities. The IRS claims that cryptocurrency is "property" and doesn't elaborate further, except to say that it falls under existing capital gains rules. The SEC claims that most other tokens are securities and fall under its jurisdiction, but does not claim jurisdiction over Bitcoin and Ethereum because the CFTC has already claimed it, but also claims that Ethereum "was a security" but is no longer, and sets out a process for adjudicating similar claims that other cryptocurrencies might've been securities when launched but are not anymore. The SEC's jurisdiction is being challenged in court by Kik, claiming that its Kin token is a utility token and should be considered a product feature, exempt from regulation at all. Bipartisan H.R. 2144 (the "Token Taxonomy Act") [1] is currently making its way through Congress and explicitly exempts cryptocurrencies from securities regulation and crypto/crypto transactions from taxation. Pretty much the only thing that all branches of government agree on is that cryptocurrencies are not currency. It's hard to see how they could declare otherwise, given that the U.S. Constitution grants the government the sole power to coin money, but there's a growing international economy that exists outside the nation-state framework and disagrees. [1] https://www.congress.gov/bill/116th-congress/house-bill/2144/text https://www.congress.gov/bill/116th-congress/house-bill/2144...
- ska 7y ago
  From a tax perspective it isn’t muddy though, the IRS opinion is the only one you need to understand. It may change over time, but that doesn’t affect your tax liability today.
- nybble41 7y ago
  > given that the U.S. Constitution grants the government the sole power to coin money Not true. It grants Congress the power to coin money (Article I §8 ¶5), and prohibits the states from doing the same (§10 ¶1), but it says nothing about private citizens. Coins can legally exist which were not created by Congress or by any state. Arcade tokens would be one obvious example. In any case "to coin money" refers specifically to making coins, as in physically stamping them out of metal. Whether or not they're treated as "currency" in a legal sense, cryptocurrencies are obviously not physical coins so rules about coining money do not apply. From a tax perspective, the special treatment applied to foreign currencies is a result of specific treaty obligations. It only applies to small amounts of income—under $200 IIRC—and is meant to avoid the need to report small fluctuations in value when you hold foreign currencies temporarily for travel. In other respects the rules are the same as for cryptocurrencies, or really any other kind of property apart from USD. It's not surprising that the currency rules are not applied to something like Bitcoin which we have no treaties about and whose use is not strongly correlated with travel outside the country.

ABeeSea 7y ago

Making money from currency exchange rates is absolutely taxable. https://www.investopedia.com/articles/forex/09/forex-taxation-basics.asp https://www.investopedia.com/articles/forex/09/forex-taxatio...

acjohnson55 7y ago

You do owe taxes on gains from currency exchange rates: https://smallbusiness.chron.com/foreign-currency-exchange-tax-issues-77894.html https://smallbusiness.chron.com/foreign-currency-exchange-ta...

jedberg 7y ago

This is the IRS's way of saying that it isn't a currency. It's the government's way of saying that only the US government makes valid currency in the US, and everything else is an investment. They even treat foreign currency that way now. If you buy a bunch of Euros and then convert back to dollars later, you're supposed to pay tax on the gain.

Gibbon1 7y ago
Yeah the IRS is treating it as unsecured paper. Which is essentially what it is.

deleted 7y ago

[deleted]

umvi 7y ago

I'm pretty sure if you make a business out of switching currencies, you have to pay taxes on your profits. 1. Buy Euros with dollars 2. Value of dollar drops 3. Buy back more dollars than you started with 4. Pay taxes on your gains

lizknope 7y ago

How practical is bitcoin as a currency for day to day use. I thought the transaction time was 10 to 30 minutes. I get frustrated at the checkout counter when my credit card takes longer than 10 seconds. 10 to 30 minutes seems a lot closer to how long it takes for a stock sale to go through on E-Trade so I can see why the IRS would classify it more like a stock than currency.

icebraining 7y ago
All cryptocurrencies get treated the same, regardless of whether a transaction takes 10 minutes or 10 milliseconds.
Jach 7y ago
Ignoring the periods in the past with very high transaction fees and network congestion, for the most part it's been as practical as a card and often faster since I can just use my phone to scan a QR code and click a verify button. We can also ignore the lightning network in the calculation of practicality. Normally if I send you a payment you'll see the notification of a pending transaction with the amount on your side pretty much immediately. There is a risk that I could after walking off with the goods create a new transaction with a higher fee (especially if the replace-by-fee flag was part of the original send, and one might want to be more cautious if that was the case) to send them to myself instead, though even if I try it's not guaranteed to succeed. If you wait around for on average ten minutes (could in actuality be a few seconds, could be more than ten minutes) for the transaction to get one confirmation in a block you can be a lot more certain no shenanigans will occur. Most merchants will use a third party system that will take on this risk for you. I don't know if third party systems like Stripe do the same for credit cards, but credit cards have the same risk profile. (I can call up my card company and claim a fraudulent charge after getting the goods. They'll then in turn not honor the charge. It takes something like 180 days before a CC charge becomes much harder for the payer to dispute, vs. bitcoin's 10 minutes for very hard and 60 minutes for basically impossible. Seems like an ok tradeoff to me.)
- navigatesol 7y ago
  >for the most part it's been as practical as a card and often faster Have you ever used a card? If you think that opening your phone, scanning a QR and then hitting "verify" is faster than a tap or swipe of your credit card, I'm not sure what to tell you. Best case scenario, they're about the same. >I can call up my card company and claim a fraudulent charge after getting the goods And they'll investigate and determine you committed fraud, and you'll be fined or go to prison. What's the equivalent with Bitcoin?

msbarnett 7y ago

If you exchange your money for a foreign currency, and that foreign currency appreciates in value vs the US Dollar such that you realize a profit, that’s absolutely taxable profit.

arcticbull 7y ago

1 USD always equals 1 USD and you pay taxes on gains relative to the USD as a US person. It's not possible for your USD to be an appreciating asset relative to the USD and that's how capital gains are defined. However, if you go to a store in America (and hypothetically) they give you change in Euros, then you take that to another store, and redeem the Euros there, you do in fact owe taxes on the increase in value of the Euro relative to the US dollar over that time period spanning those two transactions.

impostir 7y ago
At one point in time and at one location. At different places in the US, 1 USD can purchase more or less. So on the internet, the purchasing power of the dollar is fairly nebulous. So, I agree, but with more nitpickiness.
- arcticbull 7y ago
  Yeah, capital gains are not adjusted for purchasing power parity within a country otherwise it'd be difficult to do business in both high and low PPP regions like SF vs the midwest.
- paulddraper 7y ago
  Again, you don't pay taxes in terms of purchasing power. You pay taxes in terms of USD.
msandford 7y ago
So that's why we can't ever have some deflation here in the modern US, it would reduce tax revenue! I always wondered about that. In this light it makes perfect sense.
- adamson 7y ago
  I’m not aware of any evidence that that’s actually the motivation behind preventing deflation. Just about every economist will tell you that deflation is undesirable because it incentives hoarding accumulated currency rather than investing it in productive capital because of the decreasing value of production relative to currency.

deleted 7y ago

[deleted]

kazinator 7y ago

Come on; if you do Forex trading, you will pay taxes on your gains. If you earn a dollar for your labor, and then hold on to it while its purchasing power increases before making a purchase, that increase is not taxable of course. It's not even quantifiable. Purchasing power can increase faster relative to a specific commodity that gets cheaper faster than other goods. If you buy a currency and sell it later at a profit, that is taxable. What is taxable, in a nutshell, is the result of any non-exempt activity that causes you to hold an increased numeric amount of your native currency. Increased purchasing power isn't taxed because it doesn't entail any numeric increase in the money.

Rychard 7y ago
Where can I obtain these magical dollars whose purchasing power increases over time? The purchasing power of all my dollars seems to go down the longer I hold onto them.
- thomaslangston 7y ago
  At one time (maybe still), purchasing power for computer components went up much faster than inflation. If your goal was to buy a faster processor, then waiting effectively generated a rate of return based on falling prices.
- pault 7y ago
  If the dollars depreciated then you wouldn't owe taxes on them and it wouldn't be a good metaphor.
- kazinator 7y ago
  > Where can I obtain these magical dollars whose purchasing power increases over time? In the enchanted land of the grandparent comment. :)
- mokus 7y ago
  That’s not relevant to the point you’re responding to - the point is, if the purchasing power of your dollars went up (and assuming it’s your native currency), you don’t get taxed on it because the number of dollars you hold did not change as a result. If you are holding a different currency, it’s value goes up, and you convert it back to spend, you made capital gains and it will be taxed even though that foreign currency is not an “investment” instrument.

mindfulgeek 7y ago

There is some discussion of changing cryptocurrency to be treated like currency instead of property. When that happens, it will behave like you are describing. https://www.wsj.com/articles/lawmakers-push-for-new-bitcoin-rules-11562405401 https://www.wsj.com/articles/lawmakers-push-for-new-bitcoin-...