Bitcoin Forum

Is it legal to have a Bitcoin income and not pay taxes on it? Are Bitcoins considered as real money by the governments?

I declare Bitcoin income as "commodity trading" since Bitcoin is a commodity IMO.

I have heard that you only have to declare income on Bitcoins if you cash out. (This was in reference to US tax law.) Just a "rumor," though, and anyone who can comment further would be appreciated, though ultimately you need to talk to a lawyer and/or accountant.

(Sidenote: If some law firm or accountancy would actually advertise that they take bitcoin clients, that would be fabulous.)

(Sidenote 2: If what I heard is true, that could be a force that encourages people *not* to cash out and to instead try to buy things in bitcoins, which would just help speed bitcoin adoption.)

I'll enjoy watching the lawyers try to catch that greased pig.

Something like this wasn't invented before, so they will have to come with some new taxes for this, i am sure of this :)

If they want to censor internet, they will try for sure to add taxes to the money that is passed from side to side in another form of digital currency.

[Pure Speculation]

I think it is comparable commodity trading, as Gladamas stated.  You would probably have to pay a capital gains tax if you made substantial USD (assuming you are in USA; substitute relevant local currency) on the market.  As for mining coins, that is a tricky subject.

In any case, it would be a !@#$% for a government to try to track BTC gains (withdrawing into a bank account i.e. through Mt. Gox, on the other hand, would be easily traced)

Agreed, ill bring the popcorn.  Also, remember the 11th commandment, Don't get caught.

If you cash out i think it's considered income tax

It's like if you receive 10.000$, doesn't matter from where they come, you have to pay tax for them of course.

That seems logical to me too. As far as I know it's not considered as a currency, so earning bitcoins is like earning donuts: you don't declare that. But getting dollars out of bitcoin sales is like getting dollars out of donut sales: you declare that. I'm not a lawyer though, only using what seems like common sense. ;)

Generally, there are two types of taxes you might have to pay on bitcoins:

1) Capital gains tax: If you buy bitcoins and later sell them or spend them*, you have to pay tax on the difference between the value of the bitcoins when you bought them and value of the bitcoins when you sold/spent them.
2) Income tax: If you earn or mine bitcoins, they count as regular income which you have to pay tax on. However, you do not have to pay an additional tax when you sell or spend bitcoins aquired in this manner.

Now, it gets a little tricky when you're buying and earning bitcoins, as well as dealing with price fluctuations, and this is where having a good accountant comes in handy. :)

*Exchanging any kind of property for any other kind of property counts as a "realisation event" as far as capital gains tax is concerned; it makes no difference whatsoever whether you exchanged it for cash or not. Spending bitcoins directly does not provide a loophole to avoid having to pay tax.

If I paint someone's house, and he gives me 1 ounce of gold. Should I report that with the IRS? And/or am I eligible to pay some kind of tax for that?

(not asking if I would get away with it if I don't, or if they have any chance whatsoever of even detecting this)

You should probably pay taxes on them - who knows, better safe than sorry.

Question should be, is it illegal to produce a ton of bitcoins then offload them for USD into your bank account. < that's what I been pondering on.

Well not if I'm unnecessarily wasting money.

But why would you do that. Isn't the whole point of Bitcoin to get RID of (the need for) old fashioned currencies like EUR and USD?

But don't people do this already?

At the moment I think a lot of people are comforted by the fact that bitcoins are backed with "real money", i.e. USD. Until BTC is widely accepted and easy to use, people will still need fiat money to pay their rent, food, utilities, etc. If they were to make most of their income by creating bitcoins, there's an obvious incentive to convert them to fiat :)

Isn't it possbile to declare bitcoin earnings as gambling earnings? It would be tax free that way.

Good point. I mean, hey, every single bitcoin I own comes from Satoshi Dice winnings. Nobody can prove otherwise :)

My guess is that if Bitcoin ever does become a truly successful global currency, governments will be forced to move to a land value tax, since that is the only tax that cannot be avoided or evaded.

The other possibility is that government will force companies to register a particular bitcoin address or addresses as being the payment address for given individuals.  Governments would actually love this, as your income would be written in the block chain.  It could even be automated so that they get their tax even quicker... the government issues a tax payment address per employee to businesses.  The business then has to pay employees in a single transaction that pays both the tax and the employee in one.

What fun we have in store, right?

Meh, BTC is gambling anyway : we run random computations on computers and sometimes when we're lucky 50 BTC come out of thin air ;) So yeah, gambling earnings all the way  ;D

If we ever reach that level, the world around you would be quite different than it is today. Imagine for a few moments what repercussions would have when a government, which are the same people not the frightening organizacion we have today, adopts and uses bitcoins at that scale. You would immediately have a WOT (web of trust) integrated within society, if everyone pays from his "green address".

Off course you will have all the advantages bitcoin brings us, like anonymity or plausible deniability, in case you don't want all your finances public, but this is way too big to grasp in a single image, my head hurts...

Would there be a way to filter out processing transactions to/from government assigned addresses as a form of protest?

Why it should be illegal?

Of course you have to pay taxes for that, but it's legal.

I agree w/ Foxpup.  Except I would even group mined bitcoins as capital gains/losses once sold/spent.  The gain or loss would depend on how much you put into new equipment/electricity/depreciation of old equipment.  Then there are different tax rates depending on how long you held onto the bitcoins.

Definitely uncharted waters, and seeing how the definitions for capital assets aren't clear on bitcoins, it could be reclassified at any time.  But hopefully you will be able to be paid & spend w/o converting before the IRS catches on, then you won't have to pay any taxes  ;D

Of course all this advice depends on the particular jurisdiction you happen to live under, but taking into consideration for the moment only U.S. Federal taxes:

The law requires that you report and pay taxes on any income.  Income doesn't have to be USD.  If you win a car on a game show, you are legally obligated to pay income tax on the fair market value of the car.  When you win money gambling, you are legally obligated to pay income tax on the gambling winnings (although you can deduct any gambling losses in the same year if you kept good records).  In most cases you can probably treat BTC like a commodity, though if you are selling anything in exchange for BTC, you may be legally obligated to report and pay sales tax. And if you are buying something in exchange for BTC from somewhere outside your state, you may be legally obligated to report it and pay a use tax.

Of course many people choose not to report all their income (gambling, small jobs for cash, tips, etc), and therefore avoid paying income tax in those situations.  While this is not legal, it is such a widespread practice that many people believe that no income tax is actually required on such income.

probably not for long

Its Anonymity of bit coin that causes a problem with tax's

It should not be illegal is how I look at it, had to phrase the question like so to receive a good reponse as you have done, ty.

Ok, that's what I figured. Probably have to get a tax man to do everything, unless the person moving the BTC knows how to file such taxes. Shouldn't be to hard to have it all done.

yeah get a tax guy involved to stay super legit, hell offer to pay him in BTC!

hah, if they want a share let's give'em one. I'm waiting forward the day electricity bills and food will be paid in bitcoins, would be interesting to watch  ;D

Good question. I suppose if I was to invest and make a profit on my investments then that profit would be subject to tax once I make a withdrawl in a fiat currency.  Banks report sizeable and frequent transactions directly to the tax authorities here in Sweden.

This you would pay income tax on.  It is considered as bartering by the IRS.  http://www.irs.gov/taxtopics/tc420.html/ (http://www.irs.gov/taxtopics/tc420.html/)

The IRS, you mean the private collection agency for the private federal reserve right? ;)

ofc theyre fucking legal...

I thought the federal reserve doesn't need to collect.  I thought they just print whatever money they want.  ;)

There are services where you can trade bitcoin for physical silver/gold. Depending on what state you live in, you could then legally sell your gold or silver for cash and not be taxed on the sale. As for whether you pay capital gains on selling the silver, that's hard to say since the value you got in at and value you get out at are somewhat arbitrary or debatable. I am not a lawyer, don't take this as advice or fact without doing your own independent research.

Actually, my understanding is that if you trade BTCs that you mined for Au/Ag, you have to pay taxes per the IRS.  It's again bartering.  If you trade BTCs that you purchased for Au/Ag, then you have to pay taxes on the gain in value if you made a gain on it.

As a general rule, you cannot tax a right, you can only tax a privilege.  if you are transacting as a private individual, you shouldn't have any problems.