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What's going to stop me from using bitcoin for everything, and then exchanging some into dollars at the last second to pay my taxes?

Proven 6y ago
Nothing, but everyone quickly figures out they would be better off if they exchanged BTC for USD (or other national currency) before tax season when almost everyone must sell BTC for USD.
null0pointer 6y ago
Nothing, really. Except that it would be a taxation nightmare, since every time you spend some you need to report the difference in price between when you acquired it and when you spent it, and pay tax on the gain/loss. It would also be a lot of effort to find people willing to accept bitcoin for things like groceries.
tripletao 6y ago
Nothing, but if I earn $1 on January 1 and anticipate 30% tax on that due April 15, saving $0.30 guarantees that I can pay that debt. If I earn 1 mBTC on January 1 and save 0.3 mBTC, then that might be worth much more or less than my tax liability come April 15. The tax argument for the value of USD is because people have future debts denominated in USD (taxes), and they become aware of the amount of those debts in USD before those debts are due. If those people want an asset perfectly matched to that future liability, then they want USD. The demand is from that saving period, not the actual payment (which you correctly note is brief, just however long the transaction would take). Most discussions either express this distinction unclearly or miss it altogether, including the linked article.
solotronics 6y ago
There are already initiatives to pay taxes directly in Bitcoin. https://bitcoinmagazine.com/articles/why-ohios-state-treasurer-backs-decision-accept-btc-tax-payments https://bitcoinmagazine.com/articles/why-ohios-state-treasur... This isn't some fringe idea it is being developed by governments around the US. I remember reading about some city in America that will take Bitcoin directly for tax but I can't find the article.
- tripletao 6y ago
  See my comment below--the tax-related demand for USD comes from the holding period between incurring the tax liability and paying it, not from the payment itself. Even if you get paid in BTC and pay your taxes in BTC, 1 mBTC earned on Jan 1 with a 30% tax rate doesn't imply you owe 0.3 mBTC on April 15--USA tax law expects you to convert from BTC to USD using the Jan 1 exchange rate to calculate your tax liability, and then convert back using the April 15 exchange rate when you make the payment.

Proven 6y ago

Nothing, but everyone quickly figures out they would be better off if they exchanged BTC for USD (or other national currency) before tax season when almost everyone must sell BTC for USD.

null0pointer 6y ago

Nothing, really. Except that it would be a taxation nightmare, since every time you spend some you need to report the difference in price between when you acquired it and when you spent it, and pay tax on the gain/loss. It would also be a lot of effort to find people willing to accept bitcoin for things like groceries.

tripletao 6y ago

Nothing, but if I earn $1 on January 1 and anticipate 30% tax on that due April 15, saving $0.30 guarantees that I can pay that debt. If I earn 1 mBTC on January 1 and save 0.3 mBTC, then that might be worth much more or less than my tax liability come April 15. The tax argument for the value of USD is because people have future debts denominated in USD (taxes), and they become aware of the amount of those debts in USD before those debts are due. If those people want an asset perfectly matched to that future liability, then they want USD. The demand is from that saving period, not the actual payment (which you correctly note is brief, just however long the transaction would take). Most discussions either express this distinction unclearly or miss it altogether, including the linked article.

solotronics 6y ago

There are already initiatives to pay taxes directly in Bitcoin. https://bitcoinmagazine.com/articles/why-ohios-state-treasurer-backs-decision-accept-btc-tax-payments https://bitcoinmagazine.com/articles/why-ohios-state-treasur... This isn't some fringe idea it is being developed by governments around the US. I remember reading about some city in America that will take Bitcoin directly for tax but I can't find the article.

tripletao 6y ago
See my comment below--the tax-related demand for USD comes from the holding period between incurring the tax liability and paying it, not from the payment itself. Even if you get paid in BTC and pay your taxes in BTC, 1 mBTC earned on Jan 1 with a 30% tax rate doesn't imply you owe 0.3 mBTC on April 15--USA tax law expects you to convert from BTC to USD using the Jan 1 exchange rate to calculate your tax liability, and then convert back using the April 15 exchange rate when you make the payment.