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I understand this causality as: People must pay taxes in USD, so they need to eventually convert whatever currency they use in business into USD, in order to pa

by kennu 15y ago

I understand this causality as: People must pay taxes in USD, so they need to eventually convert whatever currency they use in business into USD, in order to pay their taxes (or go to jail). And this gives USD the backing - having it keeps you away from jail. But what happens if you do business entirely with an unofficial currency like BitCoin, do you have to pay taxes based on some arbitrarily converted USD value? Or can you escape taxes altogether?

jerf 15y ago
While specific details would require competent tax counsel, and there are a lot of specific details, the general rule is that if you receive anything of value that can be converted into dollars at a fair market price (which I use in a sort of technical sense, not just as a wishy-washy term, the IRS knows how to obtain a reasonable approximation of this value), the IRS will hit you in some form for that price. BitCoin has reasonably well-established values in dollars which can be used, should it become successful enough for the IRS to care it will be even more firmly established what the dollar value of a BitCoin is, and if nothing else the IRS can always assign a market valuation to the other side of the transaction, the thing being purchased/sold. When you win A New Car! on the Price is Right, you better believe the IRS and all relevant local tax municipalities express no confusion on how to tax you for it. BitCoin would not be particularly different. Without a rigid wall completely separating the BitCoin economy from the greater global economy (in which the USD is only one player), the greater global economy will tend to efficiently price a BitCoin. ("Efficiently price" is a technical term, what it means in this case is that the conversion rate in some sense has a real existence and isn't just a polite fiction, though there's a couple of simple logical steps betwixt the raw definition and that conclusion.) There is basically no escape from taxes, other than any that may be explicitly laid out in tax law.

by kennu 15y ago

jerf 15y ago

While specific details would require competent tax counsel, and there are a lot of specific details, the general rule is that if you receive anything of value that can be converted into dollars at a fair market price (which I use in a sort of technical sense, not just as a wishy-washy term, the IRS knows how to obtain a reasonable approximation of this value), the IRS will hit you in some form for that price. BitCoin has reasonably well-established values in dollars which can be used, should it become successful enough for the IRS to care it will be even more firmly established what the dollar value of a BitCoin is, and if nothing else the IRS can always assign a market valuation to the other side of the transaction, the thing being purchased/sold. When you win A New Car! on the Price is Right, you better believe the IRS and all relevant local tax municipalities express no confusion on how to tax you for it. BitCoin would not be particularly different. Without a rigid wall completely separating the BitCoin economy from the greater global economy (in which the USD is only one player), the greater global economy will tend to efficiently price a BitCoin. ("Efficiently price" is a technical term, what it means in this case is that the conversion rate in some sense has a real existence and isn't just a polite fiction, though there's a couple of simple logical steps betwixt the raw definition and that conclusion.) There is basically no escape from taxes, other than any that may be explicitly laid out in tax law.