Taxes

[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.

I am absolutely not going to do what I described.

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

An aggregate of the exchanges dealing in the currency of the country you live in would seem like the answer to me.  I'd ask a tax professional to get a definitive answer though.

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[Mahkul]

So, is selling goods at the price you get them taxable?

[FatherMcGruder]

So, is selling goods at the price you get them taxable?

Usually. As such, most prices don't include sales tax.

[schnak]

Services do not typically suffer from sales tax tho. So if your service it buying a product as a consultant or something similar I don't think it would be covered. I'm not a tax pro tho.

[Littleshop]

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.

Where do you live?  I want to move there! 

[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.

Where do you live?  I want to move there! 

Australia .

You still need to pay income tax so its not all good news - although you can write a lot of expenses off.......

[nmteaco]

So, is selling goods at the price you get them taxable?

It looks like you live in Poland, so I cant speak to what the rules are there. But in the US we have many different kinds of taxes, and it depends on what state your doing business in what taxes must be collected and paid.

As a business in my state I do not pay "income" tax on money that I spent buying an item to resale (meaning the cost of the item sold is tax deductible from my income tax)... but there is "sales" tax which is collected from the person at the time of sale. In California its around 9.5%, in my state its 7%. I owe the state 7% of the cost that my customer paid for the item weather I collect the tax or not. Often time you will see promotions "pay no sales tax this friday..." well the store is just paying the sales tax for you, but the state still gets its money.

Services do not typically suffer from sales tax tho. So if your service it buying a product as a consultant or something similar I don't think it would be covered. I'm not a tax pro tho.

Services in the United States are absolutely taxable... you will notice when your accountant charges you tax for the hour he spent telling you about taxes

[Littleshop]

Services in the United States are absolutely taxable... you will notice when your accountant charges you tax for the hour he spent telling you about taxes

Actually that varies per location.  In Maryland most (but not all) services are not taxable.  Labor on repairs, construction and even tax services is not taxed with sales tax in Maryland. 

They did TRY I think in 2008 to do that but it was pulled at the last minute. 

[Amso]

Bartering is generally taxable.

Whether doing business with bitcoin is 'doing business with money' or 'just bartering' is irrelevant, it is still considered as generating income.

The value is the the 'fair market value' of goods and services.

So, even if you sell a house for 10 dollar, the government can still value it at market value and tax according.

It is similar going through customs. You have to declare the things that you are bringing into the country.

If you bought an US$20,000 expensive Rolex, you can say it is for personal use, you can say you bought it for US$20, but the customs officer makes the final judgment. Even if you really bought it for US$20, the customs officer can still tax you based on the market value of US$20,000.

As for doing business in bitcoin, whether you have to pay taxes depends how much you earned. If the total income is under minimum taxable income, that's another issue.

I guess most people are using bitcoin as a hobby at the moment, and the bitcoin economy is really small, so the government won't bother to look into it. Or the government haven't even heard of the term bitcoin.

[soy]

I was badly hurt with the crash of April 2013 as I had decided to hold my bitcoins and wait it out.  I saw the reverse pump and dump generally devalue bitcoin in the process of transferring wealth to the speculators.  Bitcoin started to come back then started to fall again.  I decided to hedge.  I sold a number of bitcoins.  Pretty quickly the price started to rise again and I was stuck with the fiat so I bought btc ending up with less than I started.  I never kept dollars on MtGox for any real time.

Looking at the US income tax pub 17 that event would be described as a wash sale and not allowed as a loss because of wash sale rules but one might add the disallowed loss to the cost of the new stock or securities (except in an IRA) and the result is the basis for the new stock or security.

Since my purchased bitcoins eventually went into MtGox, I'll have to average my basis for the year.  This seems acceptable especially as the wash sale loss will raise the year's average basis.

What happens if any of my mined bitcoins made their way into my MtGox account?  I mine as a hobby not a business.  I have been assuming that my mined bitcoins are of no concern until I convert them into dollars and I have no plans to do so this year.  But I did barter some mined bitcoins for USB sticks from a non-MtGox account.  How will I calculate the basis for those bitcoins?

Thanks to anyone with correct answers who shares those answers.

[Coins4life]

What are taxes?

[mysidia]

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?)

Ask yourself the following:  If you are doing it with dollars, would you have to collect and report sales tax?

If the answer is yes,  then calculate the fair market value of the Bitcoins involved in the transaction in US dollars,  and take out the proper taxes  to be paid to the government in USD;  charge  the proper sales tax,  and deposit with the taxing authorities.

If you don't collect and pay sales tax on sales, and report income and pay income taxes on income,  AND your business ever becomes large enough  that you appear on the radar of the right authorities,  you will pay more later.


If you want to minimize what you need to pay,  seek the advice of a competent tax advisor.
The trouble may be finding one that understands what Bitcoin is and how it needs to be treated.

Perhaps they would be more understanding if you phrased it as:    doing business with US customers using a foreign currency such as Euros.

[cyrpi4]

As far as I know in Cali you shoud pay tax for trading bitcoins. Don't know anything about barters -should you pay or not. I suppose to think that you should. As I am not really competent you'd better to listen to proffies

[soy]

Darn, finished my taxes.  I think I could have saved a good sum if the Neptune purchase in mid-December, refunded in cash in Feb. 2014, could have been deferred from 2013. 

Elements in this like-kind deferral pub seem to apply:

a. Constructive Receipt Doctrine -- Unfunded Plans Cash basis taxpayers must include gains, profits, and income in gross income for the taxable year in which they are actually or constructively received. Under the constructive receipt doctrine, which is codified in § 451(a), income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions. See § 1.451-2(a) of the regulations.

Actually this might have been argued in my favor. Tho the money was spent the sale fell through due to changing bitcoin mining conditions and I requested a refund. I don't think the ability to request a refund at any time constitutes "...so that he may draw upon it at any time...". I was on the phone with the IRS for advice. First a half hour for the first representative, then another 45 minute wait for an expert. The expert essentially said consult a professional, that she could not help me. And, it wasn't that she didn't seem sharp enough or knowledgeable enough as she seemed sharp and knowledgeable.

[sana8410]

What are taxes?

A tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state.

[LostDutchman]

Just found this interesting article from a couple of days ago:

http://smallbusiness.foxbusiness.com/finance-accounting/2014/04/25/tax-implications-bitcoin/?intcmp=obnetwork

"The Tax Implications of Bitcoin

By Bonnie Lee

Published April 25, 2014

| FOXBusiness

Bitcoin, the decentralized digital currency that has taken the financial spotlight this year, has yet to become regulated by the government, but that hasn’t stopped the IRS from dictating tax treatment on them.

You can purchase items, invest, save, mine and even trade bitcoins, and the IRS has ruled that these transactions should be treated as capital assets .

Jake Benson, founder and CEO of LibraTax, the maker of a software product that can help track virtual currency transactions for tax purposes, states, “It’s a decentralized protocol. There is no single entity that controls the money supply.”

The IRS views virtual currency as just another means of facilitating taxable transactions. “Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency,” the IRS wrote in its clarification. “Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies.”

With this new currency come tax compliance issues. If you engage in a taxable transaction using Bitcoin, you are required to declare it on your tax return. So let’s say that using bitcoin you purchase stock in a company for 3 bitcoins (exchange rate at purchase is 3 bitcoins equals $1,500 USD). Later you sell the stock for 4 bitcoins or $2,000 USD. Your basis in that stock would be the dollar value of the bitcoins on the date of purchase of the bitcoins and sale price will be the USD equivalency of the bitcoins received on the date of the sale. In this example, you will translate the bitcoin value to U.S. dollars and show a capital gain of $500 on Schedule D of your income tax return in the year of the sale.

The IRS says, “The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset.”

Mining bitcoin has become a popular activity—and the IRS has indicated that this is also a taxable event. Mining for one’s own account can be considered a trade or business and therefore declarable on Schedule C and subject to self-employment tax.

If you are an independent contractor and take your pay in virtual currency, it is subject to income tax and self-employment tax. The payer will be required to issue a 1099 to the independent contractor for the US dollar equivalent of the payment made by virtual currency.

Benson calls the concrete directives from the IRS on bitcoins a good thing. “Ultimately, it means that digital currency is being taken seriously, as are the foundational concepts of cryptocurrency technologies such as public ledgers. The end game here is a fully digital economy that improves convenience, efficiency and governance. Eventually, it will be possible to automatically populate your income, itemized deductions, and business expenses directly from public ledgers.”

My $.02.

[monim1]

I have found that this thread is created 3 years 5 months ago. On that time Bitcoin was not legal in US. On 18 November 2013 United States Senate declared Bitcoin as a "legal means of exchange" and that "online payment systems, both centralized and decentralized, offer legitimate financial services". So now you may have to pay tax for transaction of Bitcoin.

[LostDutchman]

I have found that this thread is created 3 years 5 months ago. On that time Bitcoin was not legal in US. On 18 November 2013 United States Senate declared Bitcoin as a "legal means of exchange" and that "online payment systems, both centralized and decentralized, offer legitimate financial services". So now you may have to pay tax for transaction of Bitcoin.

No question about it.

[cyberlink]

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?)

I think it depends on whether you tell government on what amount of things you have and how you do business. If you do it from legal entity, then you have to pay taxes as you tell government what and when you had sell this or that thing. But if you have a small internet shop, than you don't have nothing to do with taxes.

[xsmoffx]

I'm not a business man but i suppose if it's not recognized as a currency you shoudn't pay!