Do we need to pay tax from Bitcoins earnings?

[audaciousbeing]

As long as we keep Bicoins as btc in our account and don't exchange them to either EUR or USD will we be liable for tax at this point?

I was just wondering if somone know about it since my CPA say no.

If you are in my country then I will say No. Because any tax that is being levied and collected by the relevant government agencies is backed by law otherwise it will be declared null and void by the court of law which will be a shame and even damage their PR activities and until when there is a new law that will be enacted today to cover Bitcoin I say we are free but the same cannot be said concerning countries like USA which will find every means to nail you and pay tax.

[darkangel11]

As long as we keep Bicoins as btc in our account and don't exchange them to either EUR or USD will we be liable for tax at this point?

I was just wondering if somone know about it since my CPA say no.

Could depend on your jurisdiction and/or the type of activity, but in most cases (in my unqualified opinion) the answer is Yes. Doesn't really matter if it's bitcoins, foreign currency, or even other goods/services (received as a payment), you're still expected to pay tax on it (providing it's a taxable income), at the exchange rate/value at the time of receiving payment.

Let us know what kind of earnings are you talking about and what country do you live in and maybe someone will offer you a sound advice.

And here lies the problem. Income in bitcoin is not a taxable one and you are not supposed to pay the tax based on the exchange rate at the time because you are not exchanging anything.
First of all the value of coins is not recognized globally and does not have a global market. Furthermore the price differs around the world, so what exchange rate should we consider? What if the country you live in has no working exchange?
You are supposed to pay taxes only when you exchange your coins for fiat or a real estate. Until then you still don't own anything besides ones and zeros on your hard drive and nobody but you knows about it.

[pawel7777]

As long as we keep Bicoins as btc in our account and don't exchange them to either EUR or USD will we be liable for tax at this point?

I was just wondering if somone know about it since my CPA say no.

Could depend on your jurisdiction and/or the type of activity, but in most cases (in my unqualified opinion) the answer is Yes. Doesn't really matter if it's bitcoins, foreign currency, or even other goods/services (received as a payment), you're still expected to pay tax on it (providing it's a taxable income), at the exchange rate/value at the time of receiving payment.

Let us know what kind of earnings are you talking about and what country do you live in and maybe someone will offer you a sound advice.

And here lies the problem. Income in bitcoin is not a taxable one and you are not supposed to pay the tax based on the exchange rate at the time because you are not exchanging anything.
First of all the value of coins is not recognized globally and does not have a global market. Furthermore the price differs around the world, so what exchange rate should we consider? What if the country you live in has no working exchange?
You are supposed to pay taxes only when you exchange your coins for fiat or a real estate. Until then you still don't own anything besides ones and zeros on your hard drive and nobody but you knows about it.

Where did you get that idea from? Are you implying that if you're running a business and only accept bitcoin payments you're magically tax-exempt until you 'exchange' (which may never happen ie when your landlord/local store/suppliers also accept BTC)?

That's simply wrong. It's not even limited to bitcoin, if you conduct business activity, you need to pay tax even if you only perform barter transactions, otherwise it would create easy to abuse loophole.

I don't know whether there's any official guidance on how to determine market value of bitcoin/other goods or services, but I'm guessing you'd probably be safe to use rate of the major exchange in your country or the average rate of few major exchanges. And if you were to massively understate the value of your income (i.e. by using the rate from some obscure website which offers to buy 1 btc at £1) then you'd be setting yourself up for a tax evasion charges.

[JahLovesAll]

As long as we keep Bicoins as btc in our account and don't exchange them to either EUR or USD will we be liable for tax at this point?

I was just wondering if somone know about it since my CPA say no.

I'm not paying anyone a damn penny for tax on my BTC. I'd rather let them stroke me off with razor wire.

[olubams]

I have every reason to believe that this topic has been treated several times even on this forum but with the current happenings and new developments, I guess it can never be enough. However, I will still maintain that until we have laws that recognise Bitcoin as a currency then there is no tax on it. because come to think of it, if something is not recognised as a currency how do you even generate revenue? But same cannot be said concerning USA now because I read about IRS wanting to investigate Coinbase about its users... I am sure they will be hiding under some particular section or sub-section of the law to carry out that investigation...

[darkangel11]

Where did you get that idea from? Are you implying that if you're running a business and only accept bitcoin payments you're magically tax-exempt until you 'exchange' (which may never happen ie when your landlord/local store/suppliers also accept BTC)?

That's simply wrong. It's not even limited to bitcoin, if you conduct business activity, you need to pay tax even if you only perform barter transactions, otherwise it would create easy to abuse loophole.

I don't know whether there's any official guidance on how to determine market value of bitcoin/other goods or services, but I'm guessing you'd probably be safe to use rate of the major exchange in your country or the average rate of few major exchanges. And if you were to massively understate the value of your income (i.e. by using the rate from some obscure website which offers to buy 1 btc at £1) then you'd be setting yourself up for a tax evasion charges.

Many countries don't recognize bitcoin and have no laws regarding it. I'm sure you know that when you run a business you produce invoices, which serve as a proof of transaction for the client and the government (if needed). Do you make invoices when you mine bitcoins? I think not. When a business owner decides to pay tax and he has no proof of transaction, he has to declare the amount he assumes is right, and I'll repeat assumes, because it's difficult to be accurate on such unstable grounds.
Take a moment and think about it. If we consider mining income what is his actual gain based on?
1. The price of bitcoin at the moment when it was mined?
2. The price at the time of filling up the income report?
3. Or, maybe at the time when he came to his farm and found out how much he has?
4. Or if he mines in a pool at the time when the coins appeared in his personal wallet?
5. Based on what exchange and what currency? In some countries there are no exchanges until this day, while in other you have to convert local currency to USD to perform a transaction. What about countries in which there's a discrepancy between the price in local currency and USD or the local price and the average.

Again you said about business activity. Of course if you are allowed to register a business dealing in bitcoin you will be required to fill out a form each year, but that wasn't OP's question.

As long as we keep Bicoins as btc in our account and don't exchange them to either EUR or USD will we be liable for tax at this point?

And my answer is still no. Until he exchanges it for fiat, goods or services, he doesn't have to report and pay anything.
1. There's nothing that links him as a person to his wallet account.
2. The value of the coins is so unstable, that one could say the sum of his yearly income becomes larger each month.

Last question, just for fun. If you were given an item of value, like an antique painting, and you knew you're not going to sell it so its value wouldn't matter to you at the time.
Would you go through all this trouble to find someone to price it, pay that person, fill out the tax form, and run to your tax office to report it?

[pawel7777]

Many countries don't recognize bitcoin and have no laws regarding it.

irrelevant

I'm sure you know that when you run a business you produce invoices, which serve as a proof of transaction for the client and the government (if needed). Do you make invoices when you mine bitcoins? I think not.

I'm sure you know that there are plenty of instances where you can receive a taxable gain but it doesn't involve you issuing invoices (to name a few: interest on deposits, fx gains, adsense revenue and alike, small-business low value online sales, tips of all kind... and bitcoin mining).

I specifically wrote that I meant business accepting bitcoins as a payment for goods/services and you're countering my point with bitcoin miners...

When a business owner decides to pay tax and he has no proof of transaction, he has to declare the amount he assumes is right, and I'll repeat assumes, because it's difficult to be accurate on such unstable grounds.
Take a moment and think about it. If we consider mining income what is his actual gain based on?
1. The price of bitcoin at the moment when it was mined?
2. The price at the time of filling up the income report?
3. Or, maybe at the time when he came to his farm and found out how much he has?
4. Or if he mines in a pool at the time when the coins appeared in his personal wallet?
5. Based on what exchange and what currency? In some countries there are no exchanges until this day, while in other you have to convert local currency to USD to perform a transaction. What about countries in which there's a discrepancy between the price in local currency and USD or the local price and the average.

You seem to think that there is some strict, rigid set of tax rules or guidelines that are supposed to cover every type of activity imaginable, and if your activity doesn't fall in any category - you're automatically exempt from tax (you're not). In reality, the criteria/time of revenue recognition can differ and can be tailored to your circumstances. Even businesses with similar operations can (and do) use different accounting policies.

In terms of large scale (non-hobbyist) miner, I'd say that most sensible approach would be to take the value of BTC at the moment it became available to you, ie landed in your wallet, or in your pool account, and if you have reasonable doubt whether your pool account will pay out, you could use the moment of successful withdrawal.

Same for valuation, you take the best rate that would be available to you (as if you decided to sell) at that moment. There's no one, set-in-stone, valuation method. Exchange rates swings between BTC/USD/your local currency are not that much of a problem, as you recognise (and offset) these separately in the accounts, either similar to fx gains/losses, revaluation, or asset impairment.

In terms of miners that hoard and won't convert to fiat - I wouldn't be surprised if (for practical reasons) they would be allowed to use one rate at the date of their financial year-end.

Point is, if you don't know how to calculate your taxes, you conduct activity that doesn't fall within any known category - then enquire with your tax office. The stupidest thing the business owner could do is to assume he's not liable to pay income tax because it makes sense in his head. "b...but I didn't know any better" is rarely a sufficient defence.  

Again you said about business activity. Of course if you are allowed to register a business dealing in bitcoin you will be required to fill out a form each year, but that wasn't OP's question.

As long as we keep Bicoins as btc in our account and don't exchange them to either EUR or USD will we be liable for tax at this point?

Neither you or I know what OP really meant (he was likely just spamming), that's why I asked him to specify.

And my answer is still no. Until he exchanges it for fiat, goods or services, he doesn't have to report and pay anything.
1. There's nothing that links him as a person to his wallet account.
2. The value of the coins is so unstable, that one could say the sum of his yearly income becomes larger each month.

You're improving. Not that long ago it was only "fiat or a real estate" now you expanded to "goods and services". Still wrong though.

Last question, just for fun. If you were given an item of value, like an antique painting, and you knew you're not going to sell it so its value wouldn't matter to you at the time.
Would you go through all this trouble to find someone to price it, pay that person, fill out the tax form, and run to your tax office to report it?

If the type of gift was not taxable (ie inheritance) then the question is moot. You declare and pay capital gain tax upon the sale.

If the type of gift was taxable (or just declarable) - then I'd have to be clinically retarded not to declare it and pay tax if due. If I didn't and sold it X years later for a massive amount (attracting taxman's attention), I would not only have to pay overdue tax + penalty charges + accumulated interest on both (which could very well exceed the sale value), but I'd also be facing tax evasion charges.
So, just for a laugh, what would you do?

useful link (probably a bit out of date): https://en.bitcoin.it/wiki/Tax_compliance

[darkangel11]

I'm sure you know that there are plenty of instances where you can receive a taxable gain but it doesn't involve you issuing invoices (to name a few: interest on deposits, fx gains, adsense revenue and alike, small-business low value online sales, tips of all kind... and bitcoin mining).

I specifically wrote that I meant business accepting bitcoins as a payment for goods/services and you're countering my point with bitcoin miners...

Isn't this a dead law? I know low value online sales are taxable according to most governments but people in general never report them and I haven't heard of a revenue service. Maybe you do, and are among those people that do as they are told, but really do you think that a young guy who sells his PS2 to buy a PS3 or a girl selling an old iphone is going to fill out a form and pay a tax? This is a dead law because although it probably exists in most countries it's never executed. And don't get me wrong I'm not talking about high value sales, but cheap yard sale, everything must go grade stuff.

Straight from the Ebay's site:
In reality, if you are a casual seller who only sells a few items on eBay every now and then it's doubtful the IRS is going to let loose an army of agents to collect taxes on the few bucks you make. However, if you consistently sell on eBay the IRS may deem your activities to be business oriented and you will be required to file a Schedule C and claim the income.
The IRS uses a number of factors to determine if an eBay hobby that generates sales revenue is actually a business. These factors include: 1. Do you carry on the hobby in a businesslike manner? 2. Do you spend considerable time working on the hobby? 3. Do you depend on income from your hobby for your livelihood?
If the answer to any or all of these question is yes, you're running a business, not carrying on a hobby, and you are responsible for paying taxes on your income.

So, they officially advise occasional sellers that it's possible not to report their transactions and we are talking about the US law, which is rather strict when it comes to taxes.

You seem to think that there is some strict, rigid set of tax rules or guidelines that are supposed to cover every type of activity imaginable, and if your activity doesn't fall in any category - you're automatically exempt from tax (you're not). In reality, the criteria/time of revenue recognition can differ and can be tailored to your circumstances. Even businesses with similar operations can (and do) use different accounting policies.

You're right, but it can be from difficult up to nearly impossible to determine the amount of your gains, the time when they were received and whether you still are in possession. And when there are no guidelines it's not you, the taxpayer, who is to blame. If the laws aren't clear and established who can blame people for not obeying them?

In terms of large scale (non-hobbyist) miner, I'd say that most sensible approach would be to take the value of BTC at the moment it became available to you, ie landed in your wallet, or in your pool account, and if you have reasonable doubt whether your pool account will pay out, you could use the moment of successful withdrawal.

Same for valuation, you take the best rate that would be available to you (as if you decided to sell) at that moment. There's no one, set-in-stone, valuation method. Exchange rates swings between BTC/USD/your local currency are not that much of a problem, as you recognise (and offset) these separately in the accounts, either similar to fx gains/losses, revaluation, or asset impairment.

In terms of miners that hoard and won't convert to fiat - I wouldn't be surprised if (for practical reasons) they would be allowed to use one rate at the date of their financial year-end.

Point is, if you don't know how to calculate your taxes, you conduct activity that doesn't fall within any known category - then enquire with your tax office. The stupidest thing the business owner could do is to assume he's not liable to pay income tax because it makes sense in his head. "b...but I didn't know any better" is rarely a sufficient defence.  

Again you said about business activity. Of course if you are allowed to register a business dealing in bitcoin you will be required to fill out a form each year, but that wasn't OP's question.

As long as we keep Bicoins as btc in our account and don't exchange them to either EUR or USD will we be liable for tax at this point?

Neither you or I know what OP really meant (he was likely just spamming), that's why I asked him to specify.

And my answer is still no. Until he exchanges it for fiat, goods or services, he doesn't have to report and pay anything.
1. There's nothing that links him as a person to his wallet account.
2. The value of the coins is so unstable, that one could say the sum of his yearly income becomes larger each month.

You're improving. Not that long ago it was only "fiat or a real estate" now you expanded to "goods and services". Still wrong though.

I was hoping for a better answer to these questions. Wrong? According to which law?

Good points, especially the one in bold. At the moment probably half of the world has completely no bitcoin laws or they are very basic, so to report it is to err on the side of caution. If you are a business owner in general, even if you don't deal exclusively in bitcoin, you should report your bitcoin gains.
On the other hand if you got your coins from somewhere (a forum job, signature, gambling...) and aren't planning to sell it for fiat I still think you don't have to report it until you change it to something recognizable worldwide as an item of value and that would be for instance that dreadful real estate, or other goods and services that could be taxable, like hiring a housemaid .
Why? As I said your wallet is not in your name nor does it have your tax identification number on it.

If the type of gift was not taxable (ie inheritance) then the question is moot. You declare and pay capital gain tax upon the sale.

If the type of gift was taxable (or just declarable) - then I'd have to be clinically retarded not to declare it and pay tax if due. If I didn't and sold it X years later for a massive amount (attracting taxman's attention), I would not only have to pay overdue tax + penalty charges + accumulated interest on both (which could very well exceed the sale value), but I'd also be facing tax evasion charges.
So, just for a laugh, what would you do?

useful link (probably a bit out of date): https://en.bitcoin.it/wiki/Tax_compliance

And how would that overdue tax be calculated? Only a retarded person when reporting a sale of this painting would include a note saying "and I owned it for X years and haven't paid taxes, please charge me!"
I imagine in your view a girl who got a ring from her man should price it and run to the taxman...

As for me, no reporting and no price tags. If I liked it on my wall I'd let it sit there and affect my mood, feng shui and all.

[MANNYKURSH]

in some countries in caribean ,you dont  pay tax, you can spend 1000btc without payn tax,

[Silberman]

in some countries in caribean ,you dont  pay tax, you can spend 1000btc without payn tax,

In most counties were you don't pay income tax, there is a limitation that states you don't pay income taxes in foreign income so if you want to take advantage of it you will need to set up your income as coming from outside that country.