BitCoin Payment & No Taxes

[tomkane1]

Hey folks,

Just wondering whether the following would word to avoid the income tax:

1. Receive Payments in Bitcoins
2. Buy Commodity using Bitcoins (such as Gold coins)
3. Sell Gold for Money

Where's my mistake or does it really work?

Tom

[mmdough]

Hey folks,

Just wondering whether the following would word to avoid the income tax:

1. Receive Payments in Bitcoins
2. Buy Commodity using Bitcoins (such as Gold coins)
3. Sell Gold for Money

Where's my mistake or does it really work?

Tom

Why bother with 2 or 3?

[tomkane1]

Hey folks,

Just wondering whether the following would word to avoid the income tax:

1. Receive Payments in Bitcoins
2. Buy Commodity using Bitcoins (such as Gold coins)
3. Sell Gold for Money

Where's my mistake or does it really work?

Tom

Why bother with 2 or 3?

Haven't seen the Bitcoin checkout at my local grocery story. My landlord might does not accept Bitcoins either.

[mmdough]

Hey folks,

Just wondering whether the following would word to avoid the income tax:

1. Receive Payments in Bitcoins
2. Buy Commodity using Bitcoins (such as Gold coins)
3. Sell Gold for Money

Where's my mistake or does it really work?

Tom

Why bother with 2 or 3?

Haven't seen the Bitcoin checkout at my local grocery story. My landlord might does not accept Bitcoins either.

Fair enough, but then why bother with 2?

[Alex Beckenham]

Haven't seen the Bitcoin checkout at my local grocery story yet. My landlord does not accept Bitcoins either yet.

Fixed that for you.

[tomkane1]

Well, how would you do it?

[mmdough]

Well, if the only objective is to avoid documentation, and therefore taxes, you could just accept payment in bitcoins, and then either trade or sell the bitcoins. Even if you're nervous about having fiat deposited in your bank acct, you could find a local BTC user and trade face-to face for cash.

I guess I shouldn't poke fun, it's a fine idea. I just think it's best for folks to think more and more in terms of using btc as btc, not just as a convenient placeholder for commodities with 'real' value.

[tomkane1]

Yes, the goal is tax avoidance (legal), not evasion (illegal).

I just thought that when I receive X Bitcoins for a service and trade that for X money, I'd have to pay income tax on that money like everybody else.

[Longmarch]

Hey folks,

Just wondering whether the following would word to avoid the income tax:

1. Receive Payments in Bitcoins
2. Buy Commodity using Bitcoins (such as Gold coins)
3. Sell Gold for Money

Where's my mistake or does it really work?

Tom

I don't believe that would be kosher.  #2 is a taxable barter.  #3 is a capital gain.

[twobitcoins]

What jurisdiction are we talking about?

In the US, barter is taxable.  You haven't specified what the payment in #1 is for, but if it would be taxable as cash it will also be taxable as bitcoins.

Suppose you mow someone's lawn and they pay you with cash.  The cash is taxable income.  Now suppose instead they pay you with carrots.  You still have taxable income equal to the fair market value of the carrots.  It's the same thing with bitcoins: the fair market value of the bitcoins is taxable income.

On the other hand if you receive cash as a gift or repayment of a loan or something like that, it isn't taxable, so it also would not be taxable if paid in bitcoins.

When you get rid of the bitcoins, either by selling for cash or trading for something else (carrots, gold, etc.), capital gains tax will be due on any gain in value.

[tomkane1]

What jurisdiction are we talking about?

In the US, barter is taxable.  You haven't specified what the payment in #1 is for, but if it would be taxable as cash it will also be taxable as bitcoins.

Suppose you mow someone's lawn and they pay you with cash.  The cash is taxable income.  Now suppose instead they pay you with carrots.  You still have taxable income equal to the fair market value of the carrots.  It's the same thing with bitcoins: the fair market value of the bitcoins is taxable income.

On the other hand if you receive cash as a gift or repayment of a loan or something like that, it isn't taxable, so it also would not be taxable if paid in bitcoins.

When you get rid of the bitcoins, either by selling for cash or trading for something else (carrots, gold, etc.), capital gains tax will be due on any gain in value.

Okay, so just the fact that it's not legal tender does not solve the problem. I am located in Spain.

[twobitcoins]

Okay, so just the fact that it's not legal tender does not solve the problem. I am located in Spain.

I don't know the rules in Spain, but looking up tax treatment of barter would be a good place to start.

[error]

Barter? It's a "foreign" currency.

[davux]

Barter? It's a "foreign" currency.

Who says Bitcoin is a currency? Signing numbers with a private key and sending information to other computers is a service, if anything.

[DannyM]

Make sure to always follow tax advice from internet forum members rather than a professional tax advisor.

[AllYourBase]

What are taxes?

[error]

Barter? It's a "foreign" currency.

Who says Bitcoin is a currency? Signing numbers with a private key and sending information to other computers is a service, if anything.

What does that have to do with whether Bitcoin is a currency?