Paying myself in Bitcoins?

[brocktice]

I am part-owner of a company, and paid a monthly salary by said company. I'd like to try paying my salary in bitcoins, but I have a number of concerns. I'm researching these, but feel free to chime in if you know something. Hopefully we can eventually build a guide for employers considering paying salaries and wages in bitcoins.

Questions/Concerns:

1. How will this work for taxes? I want everything above the board. Should my company buy bitcoins each time my salary is to be paid, and then I just pay the same taxes that I would on the cash (and the company pays its share the same way)?

2. Should my salary be pegged to the dollar or a fixed amount of bitcoins? (How does this affect #1?)

3. Will I be able to get by with bitcoins? Will I have to sell them too much, or can I buy most of what I need with bitcoins? How could I work around this?

4. Will my company's banking institution flip out if I buy bitcoins with the company CC or debit card?

5. What's a good way to keep a separate bitcoin balance for my company and for myself? Run a separate bitcoin client/wallet somewhere?

6. What else should I be worried about/planning for if I do this?

[1714150883]

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[1714150883]

1714150883

[FreeMoney]

I am part-owner of a company, and paid a monthly salary by said company. I'd like to try paying my salary in bitcoins, but I have a number of concerns. I'm researching these, but feel free to chime in if you know something. Hopefully we can eventually build a guide for employers considering paying salaries and wages in bitcoins.

Questions/Concerns:

1. How will this work for taxes? I want everything above the board. Should my company buy bitcoins each time my salary is to be paid, and then I just pay the same taxes that I would on the cash (and the company pays its share the same way)?

2. Should my salary be pegged to the dollar or a fixed amount of bitcoins? (How does this affect #1?)

3. Will I be able to get by with bitcoins? Will I have to sell them too much, or can I buy most of what I need with bitcoins? How could I work around this?

4. Will my company's banking institution flip out if I buy bitcoins with the company CC or debit card?

5. What's a good way to keep a separate bitcoin balance for my company and for myself? Run a separate bitcoin client/wallet somewhere?

6. What else should I be worried about/planning for if I do this?

If you really want to do everything by the book then just get paid normally and buy them yourself.

Maybe it would make sense to take most payment in dollars, and have the company buy you some as a small 'perk' like the doughnuts in the office that you never claim on your taxes. They both make you feel good, right?

I think this works best if the company has bitcoin revenue.

[brocktice]

I am part-owner of a company, and paid a monthly salary by said company. I'd like to try paying my salary in bitcoins, but I have a number of concerns. I'm researching these, but feel free to chime in if you know something. Hopefully we can eventually build a guide for employers considering paying salaries and wages in bitcoins.

Questions/Concerns:

1. How will this work for taxes? I want everything above the board. Should my company buy bitcoins each time my salary is to be paid, and then I just pay the same taxes that I would on the cash (and the company pays its share the same way)?

2. Should my salary be pegged to the dollar or a fixed amount of bitcoins? (How does this affect #1?)

3. Will I be able to get by with bitcoins? Will I have to sell them too much, or can I buy most of what I need with bitcoins? How could I work around this?

4. Will my company's banking institution flip out if I buy bitcoins with the company CC or debit card?

5. What's a good way to keep a separate bitcoin balance for my company and for myself? Run a separate bitcoin client/wallet somewhere?

6. What else should I be worried about/planning for if I do this?

If you really want to do everything by the book then just get paid normally and buy them yourself.

Maybe it would make sense to take most payment in dollars, and have the company buy you some as a small 'perk' like the doughnuts in the office that you never claim on your taxes. They both make you feel good, right?

I think this works best if the company has bitcoin revenue.

Well, part of the issue is that the damn bank charges us a fee every time I get paid by direct deposit. I could circumvent that with bitcoins.

[FreeMoney]

Well, part of the issue is that the damn bank charges us a fee every time I get paid by direct deposit. I could circumvent that with bitcoins.

That's dumb.

My mother actually gets charged $11 PER PAYCHECK by her employer, so stupid. You get so much more ill will that way than if you had just offered .12/hr less or whatever.

[casascius]

I think the idea of employers paying salaries and wages solely in Bitcoins would run employers afoul of the law.  It would probably be just as difficult as paying employees in gold.  Gold isn't accepted for the purpose of paying taxes, must be exchanged first, and (e.g. in the US) an employer must withhold and remit taxes in USD, and report salary and wages on form W-2 denominated in USD.

If I had to guess, the closest I think you could get would be to 1) denominate your wages or salary in BTC, in other words, you agree to work for X BTC/year rather than X USD/year, and 2) each payday, the company pays the equivalent value in USD, and withholds taxes in USD, but delivers your net pay (or a portion thereof) to you in BTC.  It books you as having been compensated, along with the equivalent USD value of the BTC you received, no different than had the company given you a vacation or usage of an automobile in the same amount.  Finally, it issues form W-2 for the USD equivalent of all you were paid.  Disclaimer, I'm not an accountant.

As for whether your bank or credit card company would flip out over the purchase of bitcoins, I would ask, if you're going to buy so many bitcoins, and everything is above board, why not just use a wire transfer.  The overhead (3%-4%) of using credit cards would be a silly unnecessary cost for large amount of bitcoin purchases.  If your bank or credit card company were to ask questions, it probably would be of the "is crime/gambling/etc going on here that we might get burned with later?" nature.  Wires, by their nature, are easier for the fed to track, and it's more of a non-recourse kind of transaction that should worry others less.

As for whether you can get by on bitcoins, does your landlord or mortgage company accept bitcoins?

I do think you raise a legitimate broader question, and that is, how should legitimate businesses who want to accept Bitcoin as payment for goods and services, and who want to treat them as legitimate income, account for them?

[casascius]

That's dumb.

My mother actually gets charged $11 PER PAYCHECK by her employer, so stupid. You get so much more ill will that way than if you had just offered .12/hr less or whatever.

I think that is against the law.  I believe employers are required by law to allow employees a reasonable way to receive the full value of their paycheck without any fees or deductions of any kind.  Disclaimer, I am not a lawyer.  But see if the employer offers a way to get the full paycheck without a fee.  If the answer is no, I bet your local Department of Labor would like to hear about it.

[Anonymous]

The retards in the tax office would charge you fringe benefits tax for such a thing I believe.

Similar to providing a company car or laptop for employees personal use.

I dont know how the tax office would assess bitcoins at all. I guess like most things you have to incriminate yourself.

What if you were paid at the start of the year and the value changed significantly at tax time? These douchebags would assess the higher value wouldnt they?

Or would it be the value at the time you received it? How would they assess the increase in  value and how would they even know the value unless you tell them yourself?

What is needed is software like Quicken http://home.quicken.com.au/Pages/HomePage.aspx that interfaces with bitcoinwatch and keeps records of the value at the time you got paid. It should be an easy matter of working out what you owe in dollars.

[davout]

Why are you guys so obsessed with paying taxes in the first place ?

[ribuck]

Why are you guys so obsessed with paying taxes in the first place ?

Because we don't want to end up in prison?

[casascius]

Why are you guys so obsessed with paying taxes in the first place ?

It's a pretty reasonable question, and I would guess that the answer is that those of us who already run real legitimate tax-paying businesses would like to integrate Bitcoin as a method of payment, which helps Bitcoin's recognition as a "currency", while still keeping our businesses real and legitimate.  If we decide to stop paying taxes one day, we run the risk that one day we will get caught and our non-virtual asse(t)s seized by force.

[Timo Y]

1. How will this work for taxes?

Technically, Bitcoin is not money or property. Bitcoin is just valuable information so my guess is that in theory it's not taxable.
 
Perhaps it helps to think of other situations where an employee gets "paid" in valuable information.

Example: Software company A hires a developer, and pays him a fixed salary. After a few months a competitor tries to hire him by offering a bigger salary. Company A cannot afford to raise his salary, but to avoid losing him they make a deal. He is allowed to study the entire source code of their closed-source product.  Previously he was just given access to the module he was working on.  This will give him valuable insider information about industry practices that will potentially increase his net worth.  

The question is: Will such a "raise" be taxable? If yes, how would the value of the be "raise" be calculated in USD? Would the taxman need to hire an external auditor who signs a non-disclosure agreement? What if it is a prototype that isn't on the market yet? Can the value even be estimated? How would the taxman even know about this, given that the software is secret? And so on...

Bitcoin is such a fundamentally new technology that not even a lawyer will be able to tell you what the precise legal status is.

Certainly, Bitcoin behaves like money, and I'm sure that some judges will also see it that way.  Judges have a tendency to be awfully computer illiterate anyhow, and the risk of a mistrial is high even if technically you are not breaking the law.

The only way to find out for certain is to step forward and be the first of us test it in court. You are entering pioneer territory.

[Timo Y]

What if you were paid at the start of the year and the value changed significantly at tax time? These douchebags would assess the higher value wouldnt they?

Scary.

Imagine the following, not totally unlikely scenario:

Your boss has just discovered Bitcoin, and for a laugh, he gives everyone a little "New year's bonus" of 150 BTC.

Being the meticulous person that he is, he includes this bonus when he fills out his tax form and asks you to sign it.

You are new to Bitcoin and not particularly convinced by the idea, so you immediately spend it all on 2 lbs of finest CaPulin coffee.

A few month later your HD fails catatrophically, and your wallet (and thus any proof that you no longer "own" these bitcoins) has vanished.  In the meantime coffee4bitcoin has gone out of business and is nowhere to be found.

Another couple of months pass, and suddenly Bitcoin goes viral. There are millions of new users joining every day and the price of a BTC skyrockets to 10,000 USD.

At the end of the year you get a tax bill for 10% of your assets, including the 150 BTC that you still officialy "own", now worth $ 1.5 M. Uh oh...

That would be diabolical.

[casascius]

Technically, Bitcoin is not money or property. Bitcoin is just valuable information so my guess is that in theory it's not taxable.

If the company had to buy the Bitcoin in order to transfer it, its nature changes greatly.

Taxing authorities may not understand Bitcoin, but they do understand the idea of "widgets" that are worth something to somebody when people pay or work for them, whether tangible or not.  They also understand hours of labor.

Instead of bitcoins, I'll refer to Webkins credits.  (Webkins are childrens plush toys sold at retail, each one has a code that allows for online play of games at the Webkins web site... something whose value is equally as nebulous as Bitcoins.)

Suppose I had 10 software developers working for me, whom I compensated purely with Webkins virtual pet codes, and then I were audited by the IRS.  Those pet codes would probably be deemed to have the same value as what they cost me, or what they might have cost somebody else to acquire on the open market.  Presumably, if software developers will work for them, they are worth something beyond the mere ability to play preschool games online.

Similarly, if I had software developers working for me in exchange for dirt, the IRS would just as quickly assume that the dirt had a market value similar to the market value of software development, and assess accordingly.  They rightfully assume that if the dirt were worthless, people wouldn't work for it.

Companies have to keep records on how they spent their money, so they can differentiate between "profits" (which are taxed), versus the costs of doing business (which are not).  When a company gives something to its employees, that's "cost of doing business" (the tax burden is shifted to the employee), but the company must keep records to substantiate that's how it really spent the money.

The moment a company pays a large sum of money for something to compensate the employee, the company has to be able to account for where that money went.  That's where it would become detectable by a taxing authority.  The nature of what it was doesn't matter, it would be the same as if the employee accepted his salary in dirt or chicken feathers. 

If the company made payments entirely with Bitcoins it generated itself, and kept no record of it, the "valuable information" idea would probably be more tenable, possibly because the IRS wouldn't have a place to start asking questions.  Of course, possibly no different than an employee paid entirely in cash in a cash business, where the inflow of cash cannot be measured.

Perhaps it helps to think of other situations where an employee gets "paid" in valuable information.

Example: Software company A hires a developer, and pays him a fixed salary. After a few months a competitor tries to hire him by offering a bigger salary. Company A cannot afford to raise his salary, but to avoid losing him they make a deal. He is allowed to study the entire source code of their closed-source product.  Previously he was just given access to the module he was working on.  This will give him valuable insider information about industry practices that will potentially increase his net worth. 

The question is: Will such a "raise" be taxable? If yes, how would the value of the be "raise" be calculated in USD? Would the taxman need to hire an external auditor who signs a non-disclosure agreement? What if it is a prototype that isn't on the market yet? Can the value even be estimated? How would the taxman even know about this, given that the software is secret? And so on...

"Valuable information" isn't quite the same, especially if the company didn't have to incur a directly connected expense somewhere else in order to give it up.  If "valuable information" were personal advice from a lawyer, who had to be paid, then this would very well be taxable compensation.  If the valuable information were the first 1000 digits of pi, possibly not so much.

The "value" of valuable information matters.  Can employees use it to pay their rent or mortgage?  Can it be resold?  If "valuable information" is a list of serial numbers off of dollar bills and the serial numbers can't be redeemed for value, then probably not.  If it's hundreds of thousands of Webkins codes that the employee can resell (and is doing so), then probably yes.

Not every perk is necessarily compensation.  If Software company A decides to give the developer a faster computer or a bigger office, these are perks that would be valuable to an employee but these aren't compensation and wouldn't be taxed like a "raise".  The taxing authorities understand that buying computers and office space and furniture is a necessary part of employing software developers and would routinely accept that as a tax deduction.

If the larger office space started included kitchens and beds and living quarters for the developer and his/her family, then it would start to be treated as compensation.

If the company were Webkins themselves, and were generating their own Webkins pet codes, and giving them freely to the employees to resell on the open market, probably nothing would happen at first.  But if later, employees were discovered generating loads of unreported income (maybe one gets audited for having a huge house while his W-2 shows minimal income that couldn't possibly afford it, and he snitches), and the IRS was able to determine that the pet codes were really how they were getting paid, you can bet the IRS would be looking to slap a value on those codes.

[casascius]

Your boss has just discovered Bitcoin, and for a laugh, he gives everyone a little "New year's bonus" of 150 BTC.

Being the meticulous person that he is, he includes this bonus when he fills out his tax form and asks you to sign it.

...

Since the tax form nowhere offers any field for "BTC", and is denominated entirely in USD, you'll have paid taxes on the USD equivalent of the Bitcoin at the time.

The IRS, as far as I know, doesn't track the value of what you own, or send you a bill on its increase.  It depends on you to report it on your own, and then challenges you if it thinks your report is wrong.

If the IRS thinks you own 150 BTC and it has skyrocketed in value, it probably has the burden of proof to show that you received a windfall and didn't just buy coffee.  If it sent you a letter assessing you taxes based on what it "thought" you gained, you would promptly reply in writing saying not so, and that you would welcome your day in court for them to prove otherwise.

[Vinnie]

If the IRS thinks you own 150 BTC and it has skyrocketed in value, it probably has the burden of proof to show that you received a windfall and didn't just buy coffee.  If it sent you a letter assessing you taxes based on what it "thought" you gained, you would promptly reply in writing saying not so, and that you would welcome your day in court for them to prove otherwise.

Nice! I'd run the letter by my attorney for a quick look over. How much would they charge for 15 minutes of time, though? Hmmmm.....

[Cdecker]

Well there is a way around all the hassle, just declare bitcoins a digital asset, which is then distributed among the employees

And finally some people are seeing the need to embrace governments to survive

[pc]

I've got a couple thoughts, although I am of course not a tax or legal professional. And my thoughts are very US-centric, as that's where I live and what I'm familiar with.

I sometimes officiate Magic: the Gathering card game tournaments for local game stores as a hobby. I often have the option of being paid in cash or in product (more packs of shiny cards). I claim the income as "Hobby Income" under the "Other Income" line of my 1040. If I'm paid in product, I value it as the cash that I would have otherwise been paid, since the store and I have essentially agreed that it's a fair price for my work, and that the product is of equivalent value.

I suspect that the IRS would either treat bitcoins like a product, with it being valued at the Fair Market Value at the time of the transaction, or possibly as some sort of barter club.

The way it works in the US is that you declare on your tax return your guess based on your reading of the tax law, and if the IRS disagrees, then you either pay what they say, argue with them, or eventually bring it to tax court. I suspect that as long as you treat bitcoins in a reasonable way for tax purposes, that they'd probably be okay with it. How do users of other alternative currencies like Ithica Hours handle it? I suspect that it's similar.

[Hal]

Why are you guys so obsessed with paying taxes in the first place ?

Because we don't want to end up in prison?

Actually you can't go to prison for not paying your taxes (in the US at least). There are no longer debtors' prisons. You can go to prison for not filing accurate tax forms, but not for failing to pay. The IRS may take away your income and possessions, you may be forced out on the street, but you will not go to prison.

[Anonymous]

Why are you guys so obsessed with paying taxes in the first place ?

They have big guns ?

[MoonShadow]

Why are you guys so obsessed with paying taxes in the first place ?

Because we don't want to end up in prison?

Actually you can't go to prison for not paying your taxes (in the US at least). There are no longer debtors' prisons. You can go to prison for not filing accurate tax forms, but not for failing to pay. The IRS may take away your income and possessions, you may be forced out on the street, but you will not go to prison.

Bullshit semantics.

I dare you to try it.

[casascius]

Actually you can't go to prison for not paying your taxes (in the US at least). There are no longer debtors' prisons. You can go to prison for not filing accurate tax forms, but not for failing to pay. The IRS may take away your income and possessions, you may be forced out on the street, but you will not go to prison.

I would prefer to keep my income and possessions.  it's cold outside.

[Anonymous]

If you have profits related to bitcoins and declare it remember to use their own system against them.

Claim all electricity,hardware,depreciation and anything else as a deduction against your earnings.

take that mr tax man and smoke it lol.

[casascius]

If you have profits related to bitcoins and declare it remember to use their own system against them.

Claim all electricity,hardware,depreciation and anything else as a deduction against your earnings.

take that mr tax man and smoke it lol.

I would have thought that's what the tax man is expecting as a legitimate part of business, not as a fast one pulled over their eyes... even they agree "profit" is income minus expenses.

[Stephen Gornick]

Caveat: I'm not an accountant, and changed my major before there was any chance anyone would confuse me for one.

1. How will this work for taxes?

http://www.irs.gov/businesses/small/article/0,,id=130524,00.html
You must immediately translate into dollars all items of income, expense, etc. (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income taxl

6. What else should I be worried about/planning for if I do this?

FUBAR FBAR
http://games.slashdot.org/comments.pl?sid=1170749&cid=27286155
http://www.irs.gov/businesses/small/article/0,,id=210244,00.html

[Anonymous]

If you have profits related to bitcoins and declare it remember to use their own system against them.

Claim all electricity,hardware,depreciation and anything else as a deduction against your earnings.

take that mr tax man and smoke it lol.

I would have thought that's what the tax man is expecting as a legitimate part of business, not as a fast one pulled over their eyes... even they agree "profit" is income minus expenses.

Im just saying...its worth noting the things people might miss.

[Stephen Gornick]

I think the idea of employers paying salaries and wages solely in Bitcoins would run employers afoul of the law.  It would probably be just as difficult as paying employees in gold.

This was an interesting story:
http://gata.org/node/7696

Jurors heard how the payroll system operated. When workers at Kahre's six businesses and more than 30 companies that were payroll clients went to pick up their pay, each received a tube containing coins.

Kahre had claimed he tried to legally avoid taxes by creating a cash payroll system that disbursed gold and silver coins, on the theory that recipients could go by the coins' face value for tax purposes.

Certified public account Wayne Paul, brother of Texas congressman Ron Paul, testified that Congress created a dual monetary system when it authorized the gold and silver coins that currently circulate.

[Stephen Gornick]

Just thought of this one too ... so let's say you use a dual GPU box at work for your big data / number crunching day job.  During the evenings you have it mine Bitcoin.  Of course the cost of the electricity might be something requiring reimbursement or handled as compensation, but what about the generated coin?

[FreeMoney]

Why are you guys so obsessed with paying taxes in the first place ?

Because we don't want to end up in prison?

Actually you can't go to prison for not paying your taxes (in the US at least). There are no longer debtors' prisons. You can go to prison for not filing accurate tax forms, but not for failing to pay. The IRS may take away your income and possessions, you may be forced out on the street, but you will not go to prison.

Bullshit semantics.

I dare you to try it.

I know a guy, been a few years with no filing, still free. I'll keep you updated.

This isn't something that anyone can just do though. Usually people file because they get money back for doing it. 

[FreeMoney]

I think the idea of employers paying salaries and wages solely in Bitcoins would run employers afoul of the law.  It would probably be just as difficult as paying employees in gold.

This was an interesting story:
http://gata.org/node/7696

Jurors heard how the payroll system operated. When workers at Kahre's six businesses and more than 30 companies that were payroll clients went to pick up their pay, each received a tube containing coins.

Kahre had claimed he tried to legally avoid taxes by creating a cash payroll system that disbursed gold and silver coins, on the theory that recipients could go by the coins' face value for tax purposes.

Certified public account Wayne Paul, brother of Texas congressman Ron Paul, testified that Congress created a dual monetary system when it authorized the gold and silver coins that currently circulate.

I wonder how he managed to pay them minimum wage

Probably used a combination of paper and metal.

[Stephen Gornick]

I wonder how he managed to pay them minimum wage

Probably used a combination of paper and metal.

Kahre did not withhold taxes, because he classified all the workers as independent contractors, who are responsible for doing their own taxes.

[ColdHardMetal]

What if you were paid at the start of the year and the value changed significantly at tax time? These douchebags would assess the higher value wouldnt they?

Or would it be the value at the time you received it? How would they assess the increase in  value and how would they even know the value unless you tell them yourself?

No, it wouldn't happen like that. Your income would be assessed on the value of the item at the time you received it and you would pay tax on that amount. When the time came for you to liquidate the asset if there had been a change in it's value you would then be taxed on the increased amount, or could most likely claim the loss against other income if the value had decreased. Basically you aren't charged tax on the change in value of an asset until you realize that gain.

For example say you get paid partly in cash and partly in X shares of company stock. When you first get paid the shares are worth $10 each and you would pay tax on that $10 the same as your regular income. Later you decide to sell those shares that are now worth $15. Come tax time you would have to declare the $5 as additional income and pay the appropriate tax on that amount.

Please note that this is a gross oversimplification but I think you get the idea. Tax rates for different types of income vary and I don't know that a BTC would get treated in the same way that a stock of a company would. More like an investment in gold I guess. At the same time a capital gain is a capital gain so it might not matter at all.

But then BTC is a currency not an asset as such so it's more like you got paid partially in USD and partially in EUR for how it should be treated. Technically I think you would still have to declare any gains/losses you realized come conversion time if you moved one portion of your paycheck into the other currency. If you just left them alone you would definitely never pay tax on increases/decreases in market rates.

So yeah, consult your accountant and your tax attorney before you do anything. All my tax law studies were in Canada and every jurisdiction is different in the details, but the principles above should hold true for the most part.

[caveden]

It would be really nice if an employer find a way to pay people in BTC.

But I guess it isn't that simple... for example, what about minimum wage laws? Don't they force you to pay a minimum amount in the official currency?
In Brazil, there are laws that forbids the employer from decreasing the nominal value of a salary. Isn't the same for the US? Fixing the the salary in BTC and paying with USD would be really risky in such case, as you wouldn't be allowed to decrease the USD amount.

Maybe the easiest way is to have an official, minimum wage salary in USD, and all the rest paid as "variant complement" in BTC... but even that might bring the unions on you...

[ribuck]

...while still keeping our businesses real and legitimate

Your business is legitimate if you have real customers who receive value from your business that is worth at least as much to them as what they pay for it.

Your business is legal if you operate it according to the applicable laws.

A business can be both legitimate and legal, but it's important to appreciate the distinction.

[davout]

Deflationist currency + "don't reduce wages below contractual value" = /thread

[Cdecker]

Should I ever need to fill Bitcoin equivalents in my tax declaration I'll use the exchange rate at the beginning of the year, since I expect value to increase over time ^^

[Anonymous]

I just think of the enormous amount of paperwork this is going to create. How do I even begin to separate personal bitcoins from business bitcoins?


Its not like theres any accounting software that would make it easier!

[davout]

Its not like theres any accounting software that would make it easier!

It's not like there's bug-free accounts functionality available in stock client 

[Babylon]

I strongly suggest that those with tax questions consult a tax professional.  They make their money off of getting you out of paying taxes, and they get paid a chunk of what you save in taxes.

If you are conducting enough business in bitcoins that if it were dollars you'd go to jail for not paying taxes, go down to H&R block, or your local tax professional, and ask them.  They don't generally charge for a consultation.

[Anonymous]

Its not like theres any accounting software that would make it easier!

It's not like there's bug-free accounts functionality available in stock client 

lol

[Cryptoman]

How do I even begin to separate personal bitcoins from business bitcoins?

Separate wallets?

[MoonShadow]

I strongly suggest that those with tax questions consult a tax professional.  They make their money off of getting you out of paying taxes, and they get paid a chunk of what you save in taxes.

If you are conducting enough business in bitcoins that if it were dollars you'd go to jail for not paying taxes, go down to H&R block, or your local tax professional, and ask them.  They don't generally charge for a consultation.

Not H&R Block, they are just using a program like TurboTax.  Go to a CPA, or stay out of the whole mess.

[Anonymous]

How do I even begin to separate personal bitcoins from business bitcoins?

Separate wallets?

Yeah thought about that.

there is also mybitcoin .

[Kluge]

Arise!

Caveat: I'm not an accountant, and changed my major before there was any chance anyone would confuse me for one.

1. How will this work for taxes?

http://www.irs.gov/businesses/small/article/0,,id=130524,00.html
You must immediately translate into dollars all items of income, expense, etc. (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income taxl

I keep hearing I need to declare USD value when the conversion happens. What kind of evidence would be sufficient in an audit? Do I just write the date down, GoxLast (which fluctuates $20/hour anymore), and tell them to look up historical price charts? What if Bitcoins are only worth $20 on miou302ponz.info's exchange, but $190 on MtGox? Which do I use? Would the IRS even trust data from Gox?

How do I prove the transaction? "Oh, txID is 19512a921ec4b501faf5b2f56a1cf41129cef65cf46d3fa79b1b2034797793f2, Mr. Has-Me-By-The-Balls -- you can look it up on blockchain.info if you don't believe me and don't keep a copy of the blockchain around."