Elwar (OP)
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August 28, 2012, 05:04:28 PM |
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Being the loyal servant citizen that I am, I report any earning that I make in Bitcoins to my tax man. I also never carry federal reserve notes as they have trace amounts of cocaine on them and I am not willing to violate the law when it comes to possessing an illegal substance. I never bet in any office gambling pools and I make sure to inform the police if I see such legal activity going on so as not to be in collusion with such an offense.
Being the loyal servant that I am, I am wondering about the various new ways of converting BTC to dollars.
One being the BitInstant Visa card. You can put BTC in your account and when you make a purchase they convert it to dollars for you. So, what happens if the price of Bitcoins went up between the time I purchased them to the time I swipe my Visa card? BitInstant is the one who converts it from BTC to dollars and pays the merchant. So, do I pay taxes for the extra value gained in the transaction? Does the fact that I converted my dollars to BTC when I could buy 1 steak for 1 BTC then when I go to make my purchase, the value is 2 steaks for 1 BTC. Do I have to now pay taxes on the value of the extra steak? If that were the case, when I make $20 and it can then be used to buy 2 steaks, but then after some time I can now only purchase 1 steak...I cannot take a tax hit for that transaction. So, being the loyal citizen, who pays the taxes for gained value of the BTC?
Or in another case. The OpenPay scenario. You have BTC in your wallet. You go to a store and swipe your card. You pay BTC for your product and it goes into the credit card network. The merchant then decides if he wants the BTC or wants it converted to dollars. Who gets taxed there?
It is pretty straightforward when going from dollars to BTC to dollars. It is even clear for a miner to calculate gained capital minus production costs of selling BTC for dollars. But what about BTC for goods?
I am a loyal servant to my great leader Obama and would never do anything illegal (just to make that clear to any of the fine custodians of this great nation which may be reading this right now). So this may be something that would need to be addressed.
I am not saying that I approve of such careless proposals, but Ron Paul's competing currencies law would probably clear this all up. But I support our current governments laws and would never imply that they should not be followed to the T.
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First seastead company actually selling sea homes: Ocean Builders https://ocean.builders Of course we accept bitcoin.
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kjj
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August 28, 2012, 05:09:27 PM |
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Shhh.... Not so loud.
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17Np17BSrpnHCZ2pgtiMNnhjnsWJ2TMqq8 I routinely ignore posters with paid advertising in their sigs. You should too.
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optimator
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August 28, 2012, 05:31:20 PM |
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Abstract the discussion from bitcoins to a USD/EUR transaction.
I leave the US and go to Europe and purchase a prepaid EURO card - say for $100. The exchange rate fluctuates. I could either gain or loose. However, I don't pay any taxes (or take any loss) and the exchange rate fluctuation. I've already paid taxes on my $100 used to buy the Euros on the card. So.... I'm good.
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DeathAndTaxes
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Gerald Davis
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August 28, 2012, 05:36:36 PM |
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THIS POST IS GENERAL INFORMATION AND NOTING IN IT SHOULD BE CONSIDERED LEGAL OR FINANCIAL ADVICE.
Dollars -> BTC -> Dollars or Dollars -> BTC -> Goods doesn't really matter.
The IRS would consider that a capital gain (or capital loss) in either example. Obviously they have to otherwise it creates a trivial loophole.
Say I bought 100 shares of Apple at $100 ($10,000 basis). It is $5,00 per share ($50,000 or $40,000 capital gain). Now if Dollars -> Stock -> Goods was treated differently than Dollars -> Stock -> Dollars it would be a nice tax shelter to simply pay people in Apple stock.
Get some share certs and treat them like $500 bills. The IRS would see the exchanging Apple stock for a steak dinner to be barter just like they would see exchanging BTC for a steak dinner.
So If you bought BTC @ $10.00 per BTC and traded x BTC for steak at an equivalent rate of $13.00 per BTC then you have a $3 per BTC capital gain. Now obviously barter and BTC makes everything more "messy" and you probably could get away with some fraud. You and the owner could pretend BTC is only worth $10 and that the steak is worth less and you avoid a capital gain and the owner reports less income. That doesn't change what is owed so evasion or the morality of taxes is a whole separate topic.
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evoorhees
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Democracy is the original 51% attack
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August 28, 2012, 06:11:50 PM |
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Abstract the discussion from bitcoins to a USD/EUR transaction.
Exactly. Bitcoins should be treated identical to any foreign currency for any taxation reporting. Companies/individuals receive foreign currencies all the time and accounts know the rules for how to treat this under tax law. Bitcoin is no different for this purpose.
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Elwar (OP)
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Viva Ut Vivas
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August 28, 2012, 06:30:43 PM |
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Wow, I thought I was a strong libertarian... but this thread is showing me that Im weak... LOL
On topic though, I think that it is pretty much impossible to tax capital gains on bitcoins. However there are many other ways to tax bitcoins, and I think goverments will stay here and tax their citizens, even though it will become more difficult. If all else fails, they can just go from house to house with guns and collect the taxes that way ![Cheesy](https://bitcointalk.org/Smileys/default/cheesy.gif) It will likely be like how we all pay sales taxes on our Internet transactions when the transaction is with a company in the same state. I do that every time. Diligently.
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First seastead company actually selling sea homes: Ocean Builders https://ocean.builders Of course we accept bitcoin.
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Domrada
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August 28, 2012, 07:12:04 PM Last edit: August 28, 2012, 07:32:21 PM by Domrada |
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Abstract the discussion from bitcoins to a USD/EUR transaction.
Exactly. Bitcoins should be treated identical to any foreign currency for any taxation reporting. Companies/individuals receive foreign currencies all the time and accounts know the rules for how to treat this under tax law. Bitcoin is no different for this purpose. In college I studied the accounting rules for accounts held in foreign currency under FASB. FASB stands for Financial Accounting Standards Board; it is an international standards body. FASB is concerned with creating the rules that most accurately reflect accounting for financial purposes (for the benefit of investors). FASB does NOT govern the rules of tax accounting, which is a national matter. For that you look to the IRS code. The IRS code, believe it or not, is shorter and less thorough than the FAS collection. Whereas the FAS collection usually has exhaustive prescriptions for every little issue endlessly debated at conferences (and people call us geeky!), the IRS code will tend to give some guidelines and then say "by any reasonable method". And then when you get audited, you have to convince the tax court that you were being reasonable. Guilty until proven innocent. (I am not making this up. The professors actually lectured on all this.) In the case of foreign accounts, I believe the tax treatment is basically the same as barter transactions. You are required to estimate the value of your transactions in USD by any reasonable method. Since bitcoin is exchange traded, the exchange price would almost certainly be tied to any method considered reasonable, and whatever method you choose, it cannot change year to year and still be considered reasonable.
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fivemileshigh
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August 29, 2012, 07:46:16 AM |
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So If you bought BTC @ $10.00 per BTC......
And how would the IRS know that?
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DannyHamilton
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September 04, 2012, 01:41:21 PM |
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So If you bought BTC @ $10.00 per BTC... And how would the IRS know that? . . . I report any earning that I make in Bitcoins . . .
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edd
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September 04, 2012, 02:32:42 PM |
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Wow, I thought I was a strong libertarian... but this thread is showing me that Im weak... LOL
On topic though, I think that it is pretty much impossible to tax capital gains on bitcoins. However there are many other ways to tax bitcoins, and I think goverments will stay here and tax their citizens, even though it will become more difficult. If all else fails, they can just go from house to house with guns and collect the taxes that way ![Cheesy](https://bitcointalk.org/Smileys/default/cheesy.gif) It will likely be like how we all pay sales taxes on our Internet transactions when the transaction is with a company in the same state. I do that every time. Diligently. Actually, the company you do business with is required to collect sales tax for the state they are located in if you also live within the same state. Otherwise, YOU are expected to report purchases made from out-of-state businesses and pay the sales tax to your local office. No one does, of course, which is why states are now looking for any evidence they can find to demonstrate that a business "is located in" their jurisdiction and should be collecting the tax.
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Still around.
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DeathAndTaxes
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September 04, 2012, 02:55:19 PM |
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So If you bought BTC @ $10.00 per BTC......
And how would the IRS know that? Well the crappy thing about the IRS is they don't need to know anything. YOU need to prove everything. There is no innocent until proven guilty. That being said if you don't report it you probably won't get caught. Then again lots of people don't report lots of income (even income in dollars <gasp>) and don't get caught. Now obviously barter and BTC makes everything more "messy" and you probably could get away with some fraud. As I said fraud (tax evasion) is possible but it doesn't change how much taxes are due and how they are calculated. If Bitcoin ever became large enough the IRS would simply require exchanges to file with the IRS just like brokerages are required to do.
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Slushpuppy
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September 06, 2012, 03:56:18 AM |
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As I said fraud (tax evasion) is possible but it doesn't change how much taxes are due and how they are calculated. If Bitcoin ever became large enough the IRS would simply require exchanges to file with the IRS just like brokerages are required to do.
I can't wait to see how the IRS is going to get the Silk Road to register ![Wink](https://bitcointalk.org/Smileys/default/wink.gif)
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sunnankar
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September 07, 2012, 06:12:01 AM |
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Abstract the discussion from bitcoins to a USD/EUR transaction.
Exactly. Bitcoins should be treated identical to any foreign currency for any taxation reporting. Companies/individuals receive foreign currencies all the time and accounts know the rules for how to treat this under tax law. Bitcoin is no different for this purpose. Actually, Bitcoin and bitcoins can be different for this purpose. There are at least four reasonable approaches on how to choose to account for bitcoins for tax purposes and foreign currency is one approach. Plus, there are a whole other host of issues to consider. Perhaps you should consider getting a general lay of the land by reading A Lawyer's Take On Bitcoin And Taxes.
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