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So long as this is the case how can it possibly make sense to use bitcoin to actually transact e.g. fulfill the vision of bitcoin as "digital money" if every ti

So long as this is the case how can it possibly make sense to use bitcoin to actually transact e.g. fulfill the vision of bitcoin as "digital money" if every time you buy a cup of coffee with bitcoin the expectation is that you'd have to calculate capital gains and report every year?

zcrackerz 7y ago
It's not buying a cup of coffee that's the issue. The issue is in converting between currencies, which is no different than investing in foreign currencies. If you exchange USD for EUR, wait a while, then exchange back to USD and you've made a profit, it's taxable.
- dawhizkid 7y ago
  It is, though. Transacting with bitcoin is a taxable event just like converting between bitcoin and fiat. It's no different from the IRS's perspective.
- PKop 7y ago
  Every taxable event is something you have to keep track of. And spending appreciated crypto, even on coffee, or anything else, is a taxable event. So the point stands that using crypto as "spending money" vs purposefully saving it as store of value is going to be a real pain, for all of the technical reasons but also the tax complexity. To see why this is the case, imagine someone saved BTC as store of value, then years later exchanged it for a house. They didn't sell if for $. But they used its appreciated value to buy something. There is a capital gain involved, and so taxes as well.
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zielmicha 7y ago
I think it shouldn't be hard to do that automatically in software - you only need to know exchange rates at time of every transaction.
- quotha 7y ago
  That software did not exist in 2013!!
Proven 7y ago
It makes sense if you don't report or aren't a US taxpayer.
ca98am79 7y ago
There is a bill that has been introduced which would make it so that you don't have to report BTC transactions less than $600: https://www.ccn.com/u-s-bill-would-ease-bitcoin-tax-regulations-for-small-transactions/ https://www.ccn.com/u-s-bill-would-ease-bitcoin-tax-regulati...
- topmonk 7y ago
  That story is from 2017. I don't think it passed.
parliament32 7y ago
This applies to any forex. If you're in the US, but you buy a coffee using CAD somewhere near the border, you have to keep track of that transaction and report it as a cap gain (or loss if you want). Things get weird when you use a strange currency for any transaction.
- sjy 7y ago
  Surely this is not true? It doesn't seem consistent with the IRS's guidance [1], anyway. You would simply value the expense in USD at the time of the transaction. There is no capital gain or loss. [1]: https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates https://www.irs.gov/individuals/international-taxpayers/fore...
  - parliament32 7y ago
    Any time you "realize" a currency or commodity (that is, sell it or trade it for something else) you need to pay tax on the capital gain, if there is one. At some point, you purchased those CAD. If the value of CAD is higher when you use it to pay for your coffee, there was a capital gain, and you just realized it. Say you purchased X amount of CAD a few years back for $0.70 USD. It doesn't matter how much you purchased. Now some time goes by, and the current market rate for CAD is $1.00 USD. You go ahead and purchase your $5 CAD coffee. By doing that, you've realized $5 CAD of your investment, which is currently worth $5 USD, but when you bought it it was only worth $3.50 USD. So you made a capital gain of $1.50, and you have to report and pay tax on that. Whether you purchased a coffee or converted to USD doesn't matter -- the important part is that you made a gain on the CAD over time, then used it for something.
    - sjy 7y ago
      I did not realise you were assuming that the taxpayer already held the CAD for some period of time before the coffee purchase. So US tax law provides no exception for trivial capital gains on personal use assets? Clearly it makes sense to bring forex gains and losses to account when dealing with large transactions and investments expected to produce a return (eg. cryptocurrency). But in my country, a small balance in a foreign bank account held for the purpose of personal expenditure while in that country would not be regarded as a capital asset where every transaction is taxable.
wpietri 7y ago
This is true for any foreign currency, and it's exactly why a country tends to converge on exactly one currency, even when it's illegal. Dealing with multiple currencies on a daily basis is a giant pain in the ass. Europe is an instructive example here. Most of a continent was sick enough of the hassle that they eliminated 19 currencies in favor of the Euro [1] Another good example is Ecuador. In the 1980s, both currencies were in use, with dollars being used by wealthier people for larger transactions, including savings. That was due to financial instability that got worse; eventually Ecuador just gave up and adopted the dollar. [2] So to answer your question, it probably doesn't make sense, which is why approximately nobody uses Bitcoin as digital money. In contrast, look at the digital money scheme M-Pesa, which started around the same time. It has many millions of users and has seen widespread adoption. [3] [1] http://webs.schule.at/website/European_Currencies/old_eu_currencies_en.htm http://webs.schule.at/website/European_Currencies/old_eu_cur... [2] https://en.wikipedia.org/wiki/Currency_of_Ecuador https://en.wikipedia.org/wiki/Currency_of_Ecuador [3] https://en.wikipedia.org/wiki/M-Pesa https://en.wikipedia.org/wiki/M-Pesa
- garmaine 7y ago
  No, this is not the case. For foreign currency there is a low-value transaction exemption. If you go on vacation in Italy you don’t have to report forex income/loss for every meal. But if you came back with an Italian sports car, you would. Not so with bitcoin, which the IRS taxes every transaction, no matter how small.
  - wpietri 7y ago
    I think the reasonable justification for the low-value exemption for foreign currencies is that it's a) a common consumer use case, and b) hard to account for. Neither applies to Bitcoin. Not only is Bitcoin a failure for typical consumer use [1], but its digital-from-the-start nature means that the accounting burden is much lower. [1] https://avc.com/2017/08/store-of-value-vs-payment-system/ https://avc.com/2017/08/store-of-value-vs-payment-system/
    - garmaine 7y ago

zcrackerz 7y ago

It's not buying a cup of coffee that's the issue. The issue is in converting between currencies, which is no different than investing in foreign currencies. If you exchange USD for EUR, wait a while, then exchange back to USD and you've made a profit, it's taxable.

dawhizkid 7y ago
It is, though. Transacting with bitcoin is a taxable event just like converting between bitcoin and fiat. It's no different from the IRS's perspective.
PKop 7y ago
Every taxable event is something you have to keep track of. And spending appreciated crypto, even on coffee, or anything else, is a taxable event. So the point stands that using crypto as "spending money" vs purposefully saving it as store of value is going to be a real pain, for all of the technical reasons but also the tax complexity. To see why this is the case, imagine someone saved BTC as store of value, then years later exchanged it for a house. They didn't sell if for $. But they used its appreciated value to buy something. There is a capital gain involved, and so taxes as well.
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zielmicha 7y ago

I think it shouldn't be hard to do that automatically in software - you only need to know exchange rates at time of every transaction.

quotha 7y ago
That software did not exist in 2013!!

Proven 7y ago

It makes sense if you don't report or aren't a US taxpayer.

ca98am79 7y ago

There is a bill that has been introduced which would make it so that you don't have to report BTC transactions less than $600: https://www.ccn.com/u-s-bill-would-ease-bitcoin-tax-regulations-for-small-transactions/ https://www.ccn.com/u-s-bill-would-ease-bitcoin-tax-regulati...

topmonk 7y ago
That story is from 2017. I don't think it passed.

parliament32 7y ago

This applies to any forex. If you're in the US, but you buy a coffee using CAD somewhere near the border, you have to keep track of that transaction and report it as a cap gain (or loss if you want). Things get weird when you use a strange currency for any transaction.

sjy 7y ago
Surely this is not true? It doesn't seem consistent with the IRS's guidance [1], anyway. You would simply value the expense in USD at the time of the transaction. There is no capital gain or loss. [1]: https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates https://www.irs.gov/individuals/international-taxpayers/fore...
- parliament32 7y ago
  Any time you "realize" a currency or commodity (that is, sell it or trade it for something else) you need to pay tax on the capital gain, if there is one. At some point, you purchased those CAD. If the value of CAD is higher when you use it to pay for your coffee, there was a capital gain, and you just realized it. Say you purchased X amount of CAD a few years back for $0.70 USD. It doesn't matter how much you purchased. Now some time goes by, and the current market rate for CAD is $1.00 USD. You go ahead and purchase your $5 CAD coffee. By doing that, you've realized $5 CAD of your investment, which is currently worth $5 USD, but when you bought it it was only worth $3.50 USD. So you made a capital gain of $1.50, and you have to report and pay tax on that. Whether you purchased a coffee or converted to USD doesn't matter -- the important part is that you made a gain on the CAD over time, then used it for something.
  - sjy 7y ago
    I did not realise you were assuming that the taxpayer already held the CAD for some period of time before the coffee purchase. So US tax law provides no exception for trivial capital gains on personal use assets? Clearly it makes sense to bring forex gains and losses to account when dealing with large transactions and investments expected to produce a return (eg. cryptocurrency). But in my country, a small balance in a foreign bank account held for the purpose of personal expenditure while in that country would not be regarded as a capital asset where every transaction is taxable.

wpietri 7y ago

This is true for any foreign currency, and it's exactly why a country tends to converge on exactly one currency, even when it's illegal. Dealing with multiple currencies on a daily basis is a giant pain in the ass. Europe is an instructive example here. Most of a continent was sick enough of the hassle that they eliminated 19 currencies in favor of the Euro [1] Another good example is Ecuador. In the 1980s, both currencies were in use, with dollars being used by wealthier people for larger transactions, including savings. That was due to financial instability that got worse; eventually Ecuador just gave up and adopted the dollar. [2] So to answer your question, it probably doesn't make sense, which is why approximately nobody uses Bitcoin as digital money. In contrast, look at the digital money scheme M-Pesa, which started around the same time. It has many millions of users and has seen widespread adoption. [3] [1] http://webs.schule.at/website/European_Currencies/old_eu_currencies_en.htm http://webs.schule.at/website/European_Currencies/old_eu_cur... [2] https://en.wikipedia.org/wiki/Currency_of_Ecuador https://en.wikipedia.org/wiki/Currency_of_Ecuador [3] https://en.wikipedia.org/wiki/M-Pesa https://en.wikipedia.org/wiki/M-Pesa

garmaine 7y ago
No, this is not the case. For foreign currency there is a low-value transaction exemption. If you go on vacation in Italy you don’t have to report forex income/loss for every meal. But if you came back with an Italian sports car, you would. Not so with bitcoin, which the IRS taxes every transaction, no matter how small.
- wpietri 7y ago
  I think the reasonable justification for the low-value exemption for foreign currencies is that it's a) a common consumer use case, and b) hard to account for. Neither applies to Bitcoin. Not only is Bitcoin a failure for typical consumer use [1], but its digital-from-the-start nature means that the accounting burden is much lower. [1] https://avc.com/2017/08/store-of-value-vs-payment-system/ https://avc.com/2017/08/store-of-value-vs-payment-system/
  - garmaine 7y ago