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A bitcoin address is just a container for some amount of BTC. Holding an amount of currency isn't taxable, and exchanging currency often isn't taxable either. (
by DougWebb 13y ago
A bitcoin address is just a container for some amount of BTC. Holding an amount of currency isn't taxable, and exchanging currency often isn't taxable either. (I'm generalizing across jurisdictions, but I think what I'm saying is true for most of them.)
If you move money from one pocket to another, or one savings account to another (that you own), that's not taxable. Very many transfers between bitcoin addresses is just like that: the 'change' from a transfer goes to a new address owned by the same person.
Even when the addresses are owned by two different people, the transfer often isn't taxable. You don't pay a tax when you pay a bill, but that's a currency transfer between two parties. Even when you buy something it isn't necessarily taxable; in many jurisdictions many products are sold tax-free based on either the type of product or where the buyer and/or seller are based.
I don't think there's a way to enforce taxation on bitcoin that's not already being used to enforce cash sales taxes and cash income, despite the tracability of the coins, because the address owners may not be identifiable, and the nature of the transfer is definitely not identifiable from the blockchain.
- deleted 13y ago[deleted]
- Thiz 13y agoGreat explanation. Ignore my ignorance in crypto stuff, so, what's stopping us from creating a hundred accounts in one computer and having a couple of bitcoins in each one of them? Or even spread in one hundred shared peer-to-peer bank services?
- marcell 13y agoNothing stops you from create hundreds or even millions of bitcoin addresses, which can act as "accounts." Edit: A bitcoin address is a 160-bit number. That number is associated with a public and private key. The only way you can spend bitcoins stored in an address is if you know the private key of that address. For more information, this video gives a fairly in depth explanation: http://www.youtube.com/watch?v=Lx9zgZCMqXE http://www.youtube.com/watch?v=Lx9zgZCMqXE
- baddox 13y agoNot only does nothing stop you, it's fairly trivially automatable.
- pkulak 13y agoI just wondered to myself how long it would take you to use up all the addresses if you created a trillion per second. 3.6e+17 times the current age of the universe. So, it looks like there are enough addresses for you to really go nuts, if you like. Block chain might get a bit bloated though.
- deleted 13y ago[deleted]
- discobean 13y agowhen you create addresses, you can do them offline. Has nothing to do with the blockchain.
- jafaku 13y agoAddresses are not added to the block chain unless they receive Bitcoin. There are no checks in place to ensure the uniqueness of the address, since it's virtually impossible to generate the same address twice, let alone an address with a positive balance.
- qnr 13y agoThis is exactly what the standard bitcoin client does - it creates 100 addresses when installed.
- rsynnott 13y agoNothing. For that matter, nothing stops you having a hundred bank accounts, but doing so will certainly increase your chances of an audit.
- TomaszZielinski 13y ago> exchanging currency often isn't taxable either Exchanging currency often generates "exchange differences" which (often indirectly) increase/decrease the profit.
- swampthing 13y agoI'm not sure that's an accurate representation of how things work in the tax world. You don't pay a tax when you pay a bill, but it's likely the recipient of your money includes it as income on their tax return. Same goes for any seller - whether or not a sales tax is involved. If you were to transfer a large amount of money from your bank account to a friend's, your friend would likely have to count that money as income on their tax return (as a gift). The way the US tax code is set up, any income is taxable unless there's an exception for it.
- dclowd9901 13y agoTheory question: If I gift my friend $X, and then he gifts it right back to me, and we proceed to do this back and forth ad infinitum, is it the case that the IRS would eventually bleed that money to $0?
- ebiester 13y agoYes, but only via the gift tax and after you've reached the gift tax exemption, which is pretty big.
- adestefan 13y agoIt's not that big. It's $14,000 per person per year.
- dclowd9901 13y agoI'm trying to think of a way to "test" this, like set up a couple of accounts and programmatically transfer money back and forth. I imagine most banks/processors have some sort of mechanism to limit transactions that would be considered suspect (such as automated back-and-forth transfers). But the lower limit's not a problem -- by repeating the transaction, you'd be contributing to the limit of $/year, even with a miniscule amount.
- marme 13y ago
- dendory 13y agoIn Canada, even if you destroy all paperwork and tell the taxman that you don't remember anything, the law permits them to look at your assets and decide how much you owe. Then it's your burden to prove otherwise. Is it different in the US? Hell they could even force exchanges or code mainteners to build in a tax system.
- tsuyoshi 13y agoIt's the same in the US.
- nullc 13y agoYup, same in the rest of the civilized world. People scaremongering about Bitcoin and taxation really have no idea how taxation works. Sure, there will be small amounts of fraud— there always is— but if cash didn't kill taxes, Bitcoin sure won't. The incentives are just setup to make tax fraud at any real scale unattractive.
- stickfigure 13y agoNobody can force opensource code maintainers to build anything. More importantly, nobody can force all exchanges to run any particular code; exchanges can exist in any political jurisdiction.
- jeffasinger 13y agoHowever, a government can probably make it very difficult to impossible to get money in and out of an exchange for it's citizens, if that exchange chose not to implement whatever features it requires.
- mehwoot 13y agoWhilst way you say may technically be true, the government could just declare this: Each person must publicly declare the bitcoin addresses that they hold. Any legitimate business accepting payment in bitcoins can only receive bitcoins from other registered addresses, else they are black flagged and no longer a registered address. Now, your average business and the banks are not going to circumvent these rules. The Banks will probably give their business customers payment gateways that enforce these rules without the business having any choice. Black market bitcoins will still exist, they will just be useless as "normal" currency and will be completely separate, with no way to cross over. Since all transactions are public it is trivial for the government to enforce these rules. You'll still be able to run your exchange in some other political jurisdiction, but unless the Government white lists your addresses, nobody will be able to spend those coins on legitimate businesses in your country.
- e12e 13y ago> Holding an amount of currency isn't taxable It is in Norway - any cash or deposits in excess of 750.000 NOK (around 125.000 USD or so) is taxed in addtion to interest being taxed as income. Now, cash isn't easily detectable, so it is a very easy asset to hide -- but while possible, that would be tax evasion and is illegal.
- bluedino 13y agoTaxed at what percent? Ludicrous.
- sgk284 13y agoI agree, the thought of merely holding money being a taxable event seems weird (speaking as an American). That said, it's a great way to ensure that people don't hoard cash and instead spend it or invest it (in theory, keeping the economy moving).
- justinhj 13y agoWell if you put it into a bank account the money will actually be being invested by the bank anyway.
- threeseed 13y agoWhy ? Seems like a great tax to me. The people who are most likely to be hoarding large sums of cash are the type of people who you want to be taxing.
- jafaku 13y agoSo that they take their money somewhere else?
- jasonlingx 13y agoSeems like a great way to discourage saving and keeping people living hand to mouth.
- kaonashi 13y ago(For Americans) If you earn income in bitcoins, you still have to pay tax in USD. If you earn income in Euros, you still have to pay tax in USD. Bitcoin does not absolve you of your tax obligations, even thought it might help you to evade them.
- dasil003 13y agoThe interesting part would be what exchange rate you would use. The IRS publishes rates for major currencies, but Bitcoin is so volatile that a single yearly exchange rate could dramatically shift things one way or another.
- Flenser 13y agoBut do you pay based on what the bitcoin was worth in USD when you made the transaction, or when you pay your tax bill. Which exchange does that valuation come from?
- betterunix 13y agoI am pretty sure it is at the time of the transaction. This is no different than buying or selling stock.
- ubernostrum 13y agoBelieve it or not, we've had taxes for a long time on non-dollar-but-store-of-value things whose values fluctuate over time. Bitcoin does not present any sort of radical new challenge to the tax system.
- Flenser 13y agoOk, I had a feeling that would be already settled but a lot of people seem to think you should be paying taxes now and I don't see how can that can be done without knowing which of the many exchange rates to use.