Buying anything big opens you up for serious tax liability and penalties.

[noone2]

So, what would happen if the government said that capital gains tax on bitcoin appreciation is 100%?

Buying/selling a car with bitcoins is quite possibly the dumbest and riskiest thing I've seen yet. I wonder what will happen if someone on here reports the buyer/seller of that Porsche to the tax authorities? My guess is they get screwed big time.

If the IRS comes to you and asks you to show where you got the car and the money you paid for it, you're screwed. They'd probably make you take the entire value of the car as income. So you bought a car $45000 worth of bitcoins. Now you have to pay say 30% on $45000. Nice.

And what about the sales tax you owe on the car you just bought? Did the seller write up the sale as $0? That's a good way to get in legal trouble.

[noone2]

No comments? Has no one ever thought of this massive problem?

[Kyune]

I agree there is legal risk for people that fail to report capital gains from bitcoins that have appreciated in value, relative to fiat, once they convert them back into fiat or tangible goods.   The IRS, or its equivalent in other countries, has a long arm.

But declaring the capital gains rate 100% with respect to a specific asset?  I think that would require a change in the law and I don't see it happening.  I don't think capital gains incurred from even outright illegal activities are taxed at a different rate, are they?

[noone2]

I agree there is legal risk for people that fail to report capital gains from bitcoins that have appreciated in value, relative to fiat, once they convert them back into fiat or tangible goods.   The IRS, or its equivalent in other countries, has a long arm.

But declaring the capital gains rate 100% with respect to a specific asset?  I think that would require a change in the law and I don't see it happening.  I don't think capital gains incurred from even outright illegal activities are taxed at a different rate, are they?

No, they probably aren't, but penalties are massive. Anywhere from probably 20-40%. And those are just penalties. I wouldn't be surprised if there were other possible fines on top of that.

If that guy who bought that Porsche doesn't report it in some form, and then gets caught, I bet he'd owe more than the value of the car in penalties and fines sooner or later. One can't claim ignorance with these things.

[noone2]

This is a very real problem. Hmmm, maybe a bitcoin to gold/silver exchange would be useful...

That wouldn't make a difference.

Being that bitcoins are probably not recognized as anything by the governments of the world, you'd always be trading nothing for something, and thus owe taxes on the value of that 'something.'

[noone2]

This is a very real problem. Hmmm, maybe a bitcoin to gold/silver exchange would be useful...

That wouldn't make a difference.

Being that bitcoins are probably not recognized as anything by the governments of the world, you'd always be trading nothing for something, and thus owe taxes on the value of that 'something.'

Gold is taxed at sale, not purchase, and only when it involves a certain amount. I myself am interested in being able to transfer bitcoins into something tangible (and not fiat currency).  I think this could be a good way of preventing the government from stealing your wealth.

That's like saying a dying old man can use all his money to buy a bunch of gold before death, then give it to his grandson in exchange for a handful of rocks, and then the grandson won't pay taxes until he sells it.

Saying gold isn't taxed on purchase is correct, but that's true with everything you purchase.  You're right that you don't pay taxes on gold when you buy it, but that's not what you're being taxed on. You're being taxed on the capital gains of the bitcoins used to buy the gold. You're liability is due the moment you exchange the bitcoins for gold, and is not determined by the sell price.

You can't just acquire things of value without paying taxes.

[DannyHamilton]

- snip -
Buying/selling a car with bitcoins is quite possibly the dumbest and riskiest thing I've seen yet. I wonder what will happen if someone on here reports the buyer/seller of that Porsche to the tax authorities? My guess is they get screwed big time.
- snip -

What makes you think the buyer isn't reporting all bitcoin related income and paying all the appropriate taxes?

I certainly report all my income and pay all my taxes, don't you?  Perhaps someone will need to report you.