9 ms·

is it possible to stay "above board" with bitcoins? i.e., pay capital gains tax when you cash out, or in someway pay taxes on your bitcoin income?

by bitless 15y ago

MattBearman 15y ago
Surly declaring your BC income on a tax return would take care of that?
- mrvc 15y ago
  How would you value it though? If you accepted the coins at a $5 per bitcoin rate for a product valued at $5, but the rate at the time of the tax return is $15 per bitcoin, do you pay tax on the $15 or the $5?
  - gst 15y ago
    And even if you take a given rate you cannot be sure that you can really sell your coins for this rate. E.g., assume that you are one of those early miners who currently owns at least 400.000 BTC (see http://bitcoinreport.blogspot.com/2011/01/latest-bitcoin-top-100-rich-list.html http://bitcoinreport.blogspot.com/2011/01/latest-bitcoin-top...). How do you declare this on your tax statement? Yes - in theory that's worth 4 million dollars. However, as soon as you try to sell your BTCs you will crash the market.
  - vabole 15y ago
    That is merely an accounting issue. Multinationals are dealing with currency translation all the time. In your example you would of course pay tax from $15.
- UnFleshedOne 15y ago
  Only if government is willing to collect bitcoin tax in bitcoins, without a conversion.
gst 15y ago
I think the complicated decision here is how to classify Bitcoins: If you treat Bitcoins as currency you would need to state the value of your Bitcoin income on your tax statement. However, when doing so you would need to convert the Bitcoin value to your government's local currency, so that taxes can be calculated. The problem here is that the Bitcoin market is still relatively small and that you have no guarantee that you can sell a given amount of Bitcoins at a given price. E.g., you may have earned 100.000 BTC in a given year. However, when you try to sell all of them on the Bitcoin exchange markets at the same time, it may be possible that you crash the market. So you would need to pay taxes in your governments currency for something that you cannot sell at the estimated price. On the other side, you could only declare income resulting from selling Bitcoins for a "real" currency. However, I'm not sure if your government will allow this, as this would allow for "creative" tax statements. E.g., as a freelancer you could charge your clients in Bitcoins, but then only convert Bitcoins to a "real" currency if you need to buy something that cannot be bought for Bitcoins. So if you would have charged your client in USD, you would have had to pay a large amount of taxes in a given year. However, by using Bitcoins, you can delay the payment of those taxes.
- coconutrandom 15y ago
  If it gets to the point you can do a significant number of transactions in bitcoin, it should hopefully be to a stable exchange rate.
  - bhousel 15y ago
    What commodity-based currency has a "stable" exchange rate?
    - coconutrandom 15y ago
      Where a thousand units won't move the market?
- lupatus 15y ago
  I've heard of gold prospectors doing something similar and only selling their gold nuggets when they need to make large purchases and otherwise living on the government dole because they have no regular income.
BarkMore 15y ago
Do the rules for bartering apply to exchanges of goods and services for bitcoins? http://www.irs.gov/taxtopics/tc420.html http://www.irs.gov/taxtopics/tc420.html
coconutrandom 15y ago
Would taxes be paid on generated bitcoins? or just transactions?
- gst 15y ago
  Interesting question. I can give you a counter-example, why I think that taxes shouldn't apply to generated coins: Let's say you programm an application (or paint a picture, etc.) and it is easy to estimate the market value. Do you need to pay taxes for your application (or the picture) as long as you don't sell it? IMO it's the same with generated Bitcoins.
  - coconutrandom 15y ago
    I agree. But that seems a bit too intuitive for tax laws anywhere haha
aidenn0 15y ago
I think the most obvious way to classify bitcoins is to consider them as a fungible commodity (like gold). Just about anybody would accept gold as payment for something, but it is still classified as a commodity tax-wise.
- tptacek 15y ago
  What do you mean, "classified as a commodity tax-wise"?
  - aidenn0 15y ago
    I mean that if you were to buy a bunch of gold it is treated by the IRS the same as if you were to buy a bunch of wheat or crude oil; not as if you were to buy a bunch of euros.

is it possible to stay "above board" with bitcoins? i.e., pay capital gains tax when you cash out, or in someway pay taxes on your bitcoin income?

by bitless 15y ago

is it possible to stay "above board" with bitcoins? i.e., pay capital gains tax when you cash out, or in someway pay taxes on your bitcoin income?

MattBearman 15y ago

Surly declaring your BC income on a tax return would take care of that?

mrvc 15y ago
How would you value it though? If you accepted the coins at a $5 per bitcoin rate for a product valued at $5, but the rate at the time of the tax return is $15 per bitcoin, do you pay tax on the $15 or the $5?
- gst 15y ago
  And even if you take a given rate you cannot be sure that you can really sell your coins for this rate. E.g., assume that you are one of those early miners who currently owns at least 400.000 BTC (see http://bitcoinreport.blogspot.com/2011/01/latest-bitcoin-top-100-rich-list.html http://bitcoinreport.blogspot.com/2011/01/latest-bitcoin-top...). How do you declare this on your tax statement? Yes - in theory that's worth 4 million dollars. However, as soon as you try to sell your BTCs you will crash the market.
- vabole 15y ago
  That is merely an accounting issue. Multinationals are dealing with currency translation all the time. In your example you would of course pay tax from $15.
UnFleshedOne 15y ago
Only if government is willing to collect bitcoin tax in bitcoins, without a conversion.

gst 15y ago

I think the complicated decision here is how to classify Bitcoins: If you treat Bitcoins as currency you would need to state the value of your Bitcoin income on your tax statement. However, when doing so you would need to convert the Bitcoin value to your government's local currency, so that taxes can be calculated. The problem here is that the Bitcoin market is still relatively small and that you have no guarantee that you can sell a given amount of Bitcoins at a given price. E.g., you may have earned 100.000 BTC in a given year. However, when you try to sell all of them on the Bitcoin exchange markets at the same time, it may be possible that you crash the market. So you would need to pay taxes in your governments currency for something that you cannot sell at the estimated price. On the other side, you could only declare income resulting from selling Bitcoins for a "real" currency. However, I'm not sure if your government will allow this, as this would allow for "creative" tax statements. E.g., as a freelancer you could charge your clients in Bitcoins, but then only convert Bitcoins to a "real" currency if you need to buy something that cannot be bought for Bitcoins. So if you would have charged your client in USD, you would have had to pay a large amount of taxes in a given year. However, by using Bitcoins, you can delay the payment of those taxes.

coconutrandom 15y ago
If it gets to the point you can do a significant number of transactions in bitcoin, it should hopefully be to a stable exchange rate.
- bhousel 15y ago
  What commodity-based currency has a "stable" exchange rate?
  - coconutrandom 15y ago
    Where a thousand units won't move the market?
lupatus 15y ago
I've heard of gold prospectors doing something similar and only selling their gold nuggets when they need to make large purchases and otherwise living on the government dole because they have no regular income.

BarkMore 15y ago

Do the rules for bartering apply to exchanges of goods and services for bitcoins? http://www.irs.gov/taxtopics/tc420.html http://www.irs.gov/taxtopics/tc420.html

coconutrandom 15y ago

Would taxes be paid on generated bitcoins? or just transactions?

gst 15y ago
Interesting question. I can give you a counter-example, why I think that taxes shouldn't apply to generated coins: Let's say you programm an application (or paint a picture, etc.) and it is easy to estimate the market value. Do you need to pay taxes for your application (or the picture) as long as you don't sell it? IMO it's the same with generated Bitcoins.
- coconutrandom 15y ago
  I agree. But that seems a bit too intuitive for tax laws anywhere haha

aidenn0 15y ago

I think the most obvious way to classify bitcoins is to consider them as a fungible commodity (like gold). Just about anybody would accept gold as payment for something, but it is still classified as a commodity tax-wise.

tptacek 15y ago
What do you mean, "classified as a commodity tax-wise"?
- aidenn0 15y ago
  I mean that if you were to buy a bunch of gold it is treated by the IRS the same as if you were to buy a bunch of wheat or crude oil; not as if you were to buy a bunch of euros.