Bitcoin Forum

It is my understanding that in America, every cryptocurrency transaction has to be reported as a capital gain in the end of year taxes. That means for every trade or every cup of coffee you buy with Bitcoin, you have to report capital gains. Someone correct me if I’m wrong on this.

Basically if this is true, then essentially in America right now, Bitcoin is just a long term investment rather that a method of payment. Could this be holding Bitcoin back from a greater potential for value?

Yes, to some extent! US tax authority IRS is taking harsh measures to stop bitcoin and its impact on the economy disguised as a friend! In US, bitcoin is considered as a property instead of a security. That's the reason why people are liable to pay capital gains tax if they want to sell off their holdings! Even crypto to crypto swap calls for a tax event! So you can easily fathom the complexity a day traders has to face while declaring their tax. However, professional help is also available to make things easier for you!

US was always clear about their tax related matters! While the tax rules are pretty strict which gives you a very little chance for hiding anything, but not very unrealistic! Having a proper legal framework is always better than living in a limbo!

It could be a capital gain or loss. If you bought bitcoins at $13,000 and spent them at $6,500 you obviously don't owe any taxes on the purchase. In fact, that capital loss could offset other capital gains you may have realized during the tax year.

It's an accounting nightmare, though.


My feeling is that very few people are reporting capital gains realized by spending. There is no tax reporting on the merchant side, and transactions aren't directly linked to the spender's identity like a credit card or bank account. That creates a lot of incentive to treat Bitcoin like cash and ignore taxes altogether when spending.

bitpay released some data that shows people spend more as the price rises: (https://qz.com/931810/cheapair-and-bitpay-data-show-rising-bitcoin-btc-payment-volumes/)


the takeaway for me is that---taxes aside---most people view bitcoin first and foremost as an investment asset. spending as a currency is a secondary concern.

in fact for many, i think spending bitcoin is a way to take profits out without paying taxes. i've never come across anyone who reports gains/losses with every purchase. they just neglect to report the original buy and then spend it as cash.

The trading part you got correctly but the buying part is where you are wrong. Using Bitcoin as a currency to pay won't be counted as capital gain since you really didn't “gain” anaything from using it as a payment. Basically capital gain is what you earn when your assets raised its market value where not holding it like using it to pay won't hold anything to make it raise its market value. And to answer your second question no taxes aren't holding back cryptocurrency even if the people feel discourage with the IRS enforcing crypto hodlers to pay taxes it's not the biggest factor why it is holding back crypto adoption in the country.

I can't speak for the US but that's not how it works in the UK. If I buy a car with Bitcoin and that Bitcoin was bought for less than the value I'm realising that car sale is subject to capital gains on the difference in price. It's classed as a disposal just the same as selling it directly.

Since alt to alt trades are now treated that way in the US it's probably the same set up for any type of purchase but don't quote me.

We have an allowance that I don't think exists in the US so you can spend freely up to that amount with no tax on the gain.

The American tax situation sounds like a right pain up the arse so I have no doubt it does turn off potential users.

i believe that is why some countries have started treating bitcoin as a legal way of payment without any taxes (like Japan) and only focus on taxation when you buy or sell bitcoin with fiat inside exchanges because that is what they can control and monitor since it involves fiat (banks) and also it helps grow the  economy.

Every transaction? Or every trade from cryptocurrency to fiat?

It makes a stronger debate to support no-KYC, decentralized exchanges like BISQ, and decentralized marketplaces like OpenBazaar.

Yes for every trade that generates profit and for every cup of coffee the U.S's citizens buy using bitcoin.
Trading and use bitcoin as a payment method are two different things, however, the federal still want everything people have earned.

The IRS has made it mandatory to report bitcoin transactions of all kinds, no matter how small in value. Thus, every US taxpayer is required to keep a record of all buying, selling of, investing in, or using bitcoins to pay for goods or services (which the IRS considers bartering). Because bitcoins are being treated as assets, if you use bitcoins for simple transactions such as buying groceries at a supermarket you will incur a capital gains tax (either long-term or short-term depending on how long you have been holding the bitcoins). When it comes to bitcoins the following are different transactions that will lead to taxes
read more (https://www.investopedia.com/articles/investing/040515/are-there-taxes-bitcoins.asp)

I think the authorities will start monitoring the sellers at some point also and will require them to provide details of each transaction that it involves cryptocurrency. You buy a TV for BTC and you completely ignore to pay any tax (except VAT), but it is not too hard to connect the customer to the actual transaction and ask him to explain where he actually gets that BTC.

The most direct way to do this is to introduce a legal obligation on each payment processor to submit such information to tax offices every year. I personally have not yet purchased anything and paid directly to the seller in his personal crypto wallet, everyone uses payment processors like BitPay, CoinGate or CoinPayments. It would be desirable for things to remain as they are today, but I think it is only a matter of time before spending will start to be much more strictly controlled.

Wow, I knew about the capital gains tax, but I never thought of it this way. I thought of it imagining a person who's been holding BTC for, like a year, profited from it and has to pay a part of such profits to the government. And yeah, that also sucks, but at least it makes some sense. Why does every single transaction call for taxes? I mean, if the exchange rate between cryptos was roughly the same, there would be no capital gained, right? So why does the person have to pay or at least to the paperwork?
When it comes to Bitcoin and taxes, I love the Singapore situation. Only income tax is applicable, and it's progressive. Moreover, if the revenue is below $20k per year, the person/company does not have to pay taxes at all.

It doesn't change that much. Even without tax, it is still used, and considered by most people as store of value. Bitcoin still hasn't found an effective solution for addressing scalability. Lightning network looks promising though, but comes with drawbacks such as some point of centralization is introduced. If Bitcoin could surpass that limitation, then I think it would progress much faster, and demand would be real by that time.

In my opinion, Bitcoin is tax-free that is why I think using Bitcoin as a direct method of payment fees are more possible than with taxes I think there are not many that are using direct payment with Bitcoin but I think most people are exchanging with fiat first and mostly they are surely not using bitcoin at all because they are using it as a term as asset, Than a method of payment. I guess if there is a possibility that someone may need the money that badly that will be an instant that they may use their Hodl Bitcoin.

I believe that taxes can affect Bitcoin to some extent, however, we must be clear that most of Bitcoin and cryptocurrency transactions are related to trading and not so much in the purchase of goods and services. I share the opinion of
avikz in the sense that it is better to have a rigorous legal framework than to have none.

Taxes may be a thing but it's the attitude of the authorities and the government that's holding bitcoin back. Most of the people would not mind paying a little from their profit if they are buying and selling from legal medium. It's the use of crypto in money laundering and terrorism that troubles the authorities. Their consequences is much dire than tax evasion.

If these taxes were used for the development of the crypto industry, then it would be good.

Indeed. I believe that's still a few years away. No current laws require merchants to collect consumer KYC information nor issue Form 1099, so the IRS cannot unilaterally require it.

If/when the US passes the FATF travel rule into law, KYC will be required at the $1,000 threshold. BitPay has implemented KYC (https://bitcointalk.org/index.php?topic=5173083.msg52083770#msg52083770) in preparation for this. But even at that point, very few people will reach the $20K/200 transaction threshold to receive Form 1099-K, so nothing will be reported to the IRS. For those that do, they can spread their purchases around to different processors to prevent reporting.

That's right, the america has never been friendly to crypto with all those draculian rules and regulations that they have implemented. Also, note that China is also one of the countries that is very hostile the the development and growth of cryptocurrencies. These two countries are part of the world's most famous countries and if they are to go back on their decisions towards crypto i think it will be a great relief!

The European Union, or at least some of its members, has so far tolerated even the sale of cryptocurrencies up to a certain amount per transaction without any verification, and I also never had a problem buying some things and paying with BTC (in terms of tax). But this new AML 5 in EU will definitely tighten the rules of the game, some things that were possible before are becoming a thing of the past.

I mentioned in another thread that even faucets micro wallet (FaucetHub) is stop working with faucets, AML5 requires that each user be verified which is insane for people who click for few a few dollars a month.

Maybe new years United State have new government after presidential impeachment Trump and have big effect of bitcoin and crypto currency rule for next year, so far Trump looks hate and banned bitcoin in his country but after legislative member agree for presidential impeachment Trump will have new president in United State hope can bring give option for currency of bitcoin there.

That's unfortunately the unwanted side effect of this industry getting more mature. I still think that we haven't seen the worst of what regulations will be imposed on crypto as a whole.

It's simply impossible to grow your business when you play by the rules, which is a damn shame because that could potentially slow down adoption. People wanted crypto to grow larger and larger, well, here they have it.

In a year or two probably everything centralized will require some degree of verification.  :-\

Some countries have already called bitcoin as a commodity asset, not as a currency exchange tool.  There should be no tax to be paid.  In the future it is possible that bitcoin still has the potential to become a currency when all bitcoin has been mined.

Governments are in no mood of showing soft mood towards cryptocurrency be it USA govt or china. This is something we have to accept. With rise in adoption of bitcoin, we will see more such strictness from government bodies. bitcoin has to survive on its own.

I think it would be dangerous to try to get a tax on Bitcoin. Claiming Bitcoin taxes means getting to know him officially. And what kind of tax will you impose on people? There may be injustice in this case. People can only store bitcoin. Imagine that the dollar was not used.

This is really so painful for tax payers but we have nothing to do with it as law abiding citizens. Somehow this may also some of the reasons of holding bitcoin back. American tax laws are really so strict and some countries are somehow adopting to it as well.

The answer is obviously yes. Governments and Bitcoin's incentives are almost entirely opposite. Which is unfortunate because any wholesome government that truly wanted what is best for it's citizenry would be working to figure out how to utilize this technology for good. But the lack of transparency, corruption and all the rest is in part how governments thrive. So yes, they will hold back such markets, both by policy but also out of self-preservation more than anything.

The one major thing is that they have to take it at least some % seriously because if they totally stop innovation and allow other countries to monopolize the technology, they can fall behind which they don't want either. So it's a very tricky one for them to operate with, and I'd argue very hard to predict as well the overall outcomes 5-10-20 years down the road with respect to their overall policy/plan.

how could this bring bitcoin back?every individuals worldwide need to pay taxes in every profit they gain so what should be the mistakes in paying taxes about for a cup of coffee?
this is the problem in misinterpretation about the advantage of crypto,people think that because crypto is decentralize they think that all of them are save in paying taxes .if this is all our views then expect no progress we will be facing even if we took another 10 years from now.

I do not think such thing will be happening.

Laws are what many countries that want to make usage of bitcoin are looking for.
As to make it legal thus making it worth buying / selling for and using within those country.

That also grows that specific country's economy as it is a solid +1 on both sides:
- Making it legal in a certain way
- Making it profitable in terms of economy growth

of course, it's true for some reasons, It's true that US tax authority has taken some steps towards Bitcoin and Cryptocurrency for maintaining their economy in a proper way, I think if Bitcoin holders and the trader will pay their tax according to their income tax so there is nothing hassle they will face, I think still Bitcoin is a tool for holding money not payment tool, so when you have stored your money by Bitcoin then you have to get helped by your lawyer, I think it doesn't mean any special thing or any disturbance to this platform.

No one of the government could not be wish to distroy their financial income source, Even they are alway desire that the all type currency will be transact in ligal way, so that reason amireca will not be take any typrs of terms bywhich cryptocurrency counted as a unbenefited trading. so if we have to buy every cup of coffee with Bitcoin;it will be more benefitable for economical support as a effective laws.

United State of America is not allowed using bitcoin as legal currency payment and not available without become legal currency can take tax laws, need to make legal first and government can get and apply about how many percent for tax from bitcoin transaction or currency digital payment transaction of bitcoin, without get legal government not have chance to get tax laws from bitcoin and altcoin.

what?need to wait for all bitcoin to be mined before becoming a currency?do you know how long would it take for the last bitcoin drop will be mined?until our generation end Bitcoin will be still mining because the more bitcoin mined the longer the time it takes.

so don't say that because it is too close for impossibility ,we will be seeing crypto specially bitcoin to become currency sooner,maybe not in whole world but in majority

This is basically what the situation is in the US. Although I’m sure that many people don’t record all of their cryptocurrency transactions in their taxes. At some point, the government is got to be able to track transactions more effectively and it will impact the growth of Bitcoin if the laws don’t change.

I think that it’s not very convenient to use bitcoin as a payment for goods or services. It does not depend on income taxes. It is just not convenient. I think for daily calculations there will be a stable and generally accepted cryptocurrency. But these factors will not affect the number of Bitcoin holders.

It's a matter of looking at the glass either half empty or half full. Bitcoin was designed to decentralize transactions of a digital asset acting as a currency, operating within a peer-2-peer based network. The number of assets is scarce being 21 million exact. People adopted  Bitcoin then supply and demand handled the rest, while accompanied by a small (at that time) but budding community. I think that in order to take the next step the regulators have to regulate and issue guidance because this a a new frontier operating within some gray areas because it doesn't quite fit the mold within current legal policies on everything.
  One mold it does fit is the tax sector. The IRS has taken the first initiative to shine a light on a dark road that hasn't been full paved yet. The SEC is the second which told us to use the "Howey Test" to help us the investor navigate these legal gray roads that many cryptocurrencies are leading to!

It's very clear that the USA has always taken steps against this Cryptocurrency system, they are trying to stop this Bitcoin and Cryptocurrency system in their territory but their people still want to get attached to this Cryptocurrency system. when the matter is tax-related then obviously it should be very realistic, you should offer them based on some legal framework which is feasible to the people, I support the tax system because it's the only pillar of any economy.

maybe because of their habit of making bitcoin is still used even though the country has made new rules, and indeed it is possible that those who can end this problem are favorable rules for the country and the user. tax is one of the ways to implement the rules because taxes are the state revenue used for state needs, they must find a middle ground for this problem.

Never hope with American will legal using bitcoin as currency payment, they will banned all digital currency payment if can take competitor for USD, ten years after bitcoin running to public and raise higher price above 16k$ but American never interested with bitcoin because can make their money currency USD down and not be interested with many people.