Taxes

[mr1337357]

I would like to start selling things in exchange for bitcoins. The problem is that I live in California, and we have a sales tax here. I was wondering if anybody knew how to deal with that. (If the government doesn't yet recognize Bitcoins as currency, do I still have to pay taxes to them for sales that I make?)

[Stephen Gornick]

See: http://bitcointalk.org/index.php?topic=2484.msg33597#msg33597

[SmokeTooMuch]

If it's not recognized as a currency, it should work like an exchange (one commodity for another one) and afaik exchanges aren't taxable,
but I'm not a business man so better wait for some more answers.

[grondilu]

I don't know much about US tax code, but my guess is that you should pay taxes only if you ever sell your earned bitcoins into US dollars.

[em3rgentOrdr]

Don't pay taxes!  That money is used to support the government!

[FreeMoney]

Don't pay taxes!  That money is used to support the government!

No kidding, do you know what those deviants do?

[Babylon]

I don't know much about US tax code, but my guess is that you should pay taxes only if you ever sell your earned bitcoins into US dollars.

Barter is generally considered a taxable transaction.  the government is going to want their cut.

However for small, not terribly trackable transaction you don't need to worry.

If you are setting up a business, I would suggest speaking with a tax professional.

[Mahkul]

I am going to open an on-line store with wooden toys shortly, accepting bitcoin only. I am going to do it as a natural person, without registering any company.

I would say the tax issue really depends on the country one lives in, for example in Ireland you can earn up to 4000 Euro without declaring it as income - so even if Bitcoins were taxable I will be okay for a while.

Barter is generally considered a taxable transaction.  the government is going to want their cut.

I have a question regarding this, actually: if barter was illegal somewhere, would running a shop itself be illegal - or would they have to prove to you that you actually exchanged something for bitcoins to get into you? For instance, if you advertise that you can sell stuff for bitcoin, can they do something to you for advertising itself - or do you have to catch you doing it? (keeping in mind Bitcoin accounts are anynomous it would be damn hard to prove that you actually sold something, unless they arranged a fake sale and pretended being your customer)

[Anonymous]

The government here considers you run a hobby if you earn under $75 000 a year and you arent required to collect goods and services tax.

I dont see myself approaching that anytime soon lol.

[Babylon]

I am going to open an on-line store with wooden toys shortly, accepting bitcoin only. I am going to do it as a natural person, without registering any company.

I would say the tax issue really depends on the country one lives in, for example in Ireland you can earn up to 4000 Euro without declaring it as income - so even if Bitcoins were taxable I will be okay for a while.

Barter is generally considered a taxable transaction.  the government is going to want their cut.

I have a question regarding this, actually: if barter was illegal somewhere, would running a shop itself be illegal - or would they have to prove to you that you actually exchanged something for bitcoins to get into you? For instance, if you advertise that you can sell stuff for bitcoin, can they do something to you for advertising itself - or do you have to catch you doing it? (keeping in mind Bitcoin accounts are anynomous it would be damn hard to prove that you actually sold something, unless they arranged a fake sale and pretended being your customer)

A government repressive enough to make Barter illegal is not going to quibble over things like due process.

[mr1337357]

I would be willing to pay taxes to the government, provided it is not terribly difficult to do. Please don't be offended if you do not believe in taxes, I do not want to turn this thread into a debate over whether or not taxes are good.
My main point for asking was that I may decorate various bags/clothing with Lights and try to resell them for bitcoins.

[grondilu]

(keeping in mind Bitcoin accounts are anynomous it would be damn hard to prove that you actually sold something, unless they arranged a fake sale and pretended being your customer)

That's indeed how they would proceed.   Just like with drugs.  They have policemen disguise themselves into drug addicts, and they try to record an actual drug sell.

I actually think that war against drug will be a good model for a future war against bitcoin.

[Mahkul]

(keeping in mind Bitcoin accounts are anynomous it would be damn hard to prove that you actually sold something, unless they arranged a fake sale and pretended being your customer)

That's indeed how they would proceed.   Just like with drugs.  They have policemen disguise themselves into drug addicts, and they try to record an actual drug sell.

I actually think that war against drug will be a good model for a future war against bitcoin.

Yes, that is very true. I sometimes even ask the question above as an analogy to advertising about selling marihuana. Is advertising that I am selling weed a crime - or does it only become one when such a transaction takes place?

[Mahkul]

There is another aspect of it - regarding paying taxes Let's say, for the argument's sake, that I am willing to pay the taxes.

What if I sell goods at the price I got them (however, I buy them for Euro - and sell them for Bitcoins)? I will be able to produce receipts for the goods I bought - and show the "tax office clerk" the bitcoin rate at the time of sale, that would prove that I did not make any profit on that transaction (not even in Bitcoins). As a matter of fact this is the way I am going to do it - I don't want to make Bitconis on it - I just want to encourage people to start buying goods for them.

What do you guys think, would they have something on me then?

[FreeMoney]

There is another aspect of it - regarding paying taxes Let's say, for the argument's sake, that I am willing to pay the taxes.

What if I sell goods at the price I got them (however, I buy them for Euro - and sell them for Bitcoins)? I will be able to produce receipts for the goods I bought - and show the "tax office clerk" the bitcoin rate at the time of sale, that would prove that I did not make any profit on that transaction (not even in Bitcoins). As a matter of fact this is the way I am going to do it - I don't want to make Bitconis on it - I just want to encourage people to start buying goods for them.

What do you guys think, would they have something on me then?

I was thinking it would be cool if there was a site, call it something like OfficialBitcoinExchange.com, and have it fail if people ever try to trade coins for more than $0.01/BTC. Sure there wouldn't be much volume, but for a small fee the site can print you some official looking exchange history and that's the paperwork I'm going to submit.

[caveden]

There is another aspect of it - regarding paying taxes Let's say, for the argument's sake, that I am willing to pay the taxes.

What if I sell goods at the price I got them (however, I buy them for Euro - and sell them for Bitcoins)? I will be able to produce receipts for the goods I bought - and show the "tax office clerk" the bitcoin rate at the time of sale, that would prove that I did not make any profit on that transaction (not even in Bitcoins). As a matter of fact this is the way I am going to do it - I don't want to make Bitconis on it - I just want to encourage people to start buying goods for them.

What do you guys think, would they have something on me then?

I think that if you go for such business model, you'll hardly scale... If you remain "little", the chance of attracting the tax man is probably small. So, don't even worry.

[Babylon]

If it's not recognized as a currency, it should work like an exchange (one commodity for another one) and afaik exchanges aren't taxable,
but I'm not a business man so better wait for some more answers.

Yes they are.  Exchanges are barter and barter is taxable income.

Talk to a tax professional, this stuff is tricky and if you are making a living the tax man is going to want his cut.

[Babylon]

There is another aspect of it - regarding paying taxes Let's say, for the argument's sake, that I am willing to pay the taxes.

What if I sell goods at the price I got them (however, I buy them for Euro - and sell them for Bitcoins)? I will be able to produce receipts for the goods I bought - and show the "tax office clerk" the bitcoin rate at the time of sale, that would prove that I did not make any profit on that transaction (not even in Bitcoins). As a matter of fact this is the way I am going to do it - I don't want to make Bitconis on it - I just want to encourage people to start buying goods for them.

What do you guys think, would they have something on me then?

I was thinking it would be cool if there was a site, call it something like OfficialBitcoinExchange.com, and have it fail if people ever try to trade coins for more than $0.01/BTC. Sure there wouldn't be much volume, but for a small fee the site can print you some official looking exchange history and that's the paperwork I'm going to submit.

That is tax fraud, and they will get you for it.

If you were being paid in gold would this scam work?  If not, it wont work for bitcoin either.

[FreeMoney]

There is another aspect of it - regarding paying taxes Let's say, for the argument's sake, that I am willing to pay the taxes.

What if I sell goods at the price I got them (however, I buy them for Euro - and sell them for Bitcoins)? I will be able to produce receipts for the goods I bought - and show the "tax office clerk" the bitcoin rate at the time of sale, that would prove that I did not make any profit on that transaction (not even in Bitcoins). As a matter of fact this is the way I am going to do it - I don't want to make Bitconis on it - I just want to encourage people to start buying goods for them.

What do you guys think, would they have something on me then?

I was thinking it would be cool if there was a site, call it something like OfficialBitcoinExchange.com, and have it fail if people ever try to trade coins for more than $0.01/BTC. Sure there wouldn't be much volume, but for a small fee the site can print you some official looking exchange history and that's the paperwork I'm going to submit.

That is tax fraud, and they will get you for it.

If you were being paid in gold would this scam work?  If not, it wont work for bitcoin either.

I am absolutely not going to do what I described.

But can you tell me which site has the 'correct' exchange rate?

[FatherMcGruder]

Does selling goods for gold, or anything not legal tender for that matter, offer any precedent?

A friend bought a motorcycle from someone for a few hundred dollars. On the paperwork however, the seller wrote that the sale price was 5 USD, below the threshold for applicable taxes. I suppose if the seller sold many motorcycles in such a way, the authorities might find it worthwhile to check out the Kelly Blue Book or something. That said, the Kelly Blue book isn't any more official than the Mt. Gox exchange.

If the Kelly Blue Book is good enough for the taxman, then Mt. Gox, or any other reputable exchange is good enough too. If I were a seller and wanted to fairly pay sales taxes on items for which I received payment in bitcoins, I would apply the tax rate to the value of the sale in USD according to the Mt. Gox exchange rate for that day.

Of course, I'm no tax expert. I didn't even stay at a Holiday Inn last night.