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Author Topic: Will i get tax/bank troubles by wiring money to bitcoin exchanges?  (Read 3636 times)
ardana123
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September 22, 2013, 03:22:55 PM
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I want to wire some some, like 20k, to bitstamp, and wire them out of gox to work arbitrage. If I do this and receive these wires from the bank mtgox uses, could i run into troubles proving that's my money or something? Could i get audited? I live in europe by the way. I wouldn't wire my profits to the bank, i'd keep them in bitcoins so i wouldn't have to pay taxes on them.
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Rannasha
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September 22, 2013, 03:28:29 PM
 #2

I want to wire some some, like 20k, to bitstamp, and wire them out of gox to work arbitrage. If I do this and receive these wires from the bank mtgox uses, could i run into troubles proving that's my money or something? Could i get audited? I live in europe by the way. I wouldn't wire my profits to the bank, i'd keep them in bitcoins so i wouldn't have to pay taxes on them.

Depends on the country you live in and how active their tax-service is with audits.

Anyway, before you go crazy with your plans, remember that you can't really wire money out of MtGox right now.
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September 22, 2013, 03:31:26 PM
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I want to wire some some, like 20k, to bitstamp, and wire them out of gox to work arbitrage. If I do this and receive these wires from the bank mtgox uses, could i run into troubles proving that's my money or something? Could i get audited? I live in europe by the way. I wouldn't wire my profits to the bank, i'd keep them in bitcoins so i wouldn't have to pay taxes on them.

How will you keep Bitcoins if you're going to wire out of gox?
ardana123
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September 22, 2013, 03:32:59 PM
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I want to wire some some, like 20k, to bitstamp, and wire them out of gox to work arbitrage. If I do this and receive these wires from the bank mtgox uses, could i run into troubles proving that's my money or something? Could i get audited? I live in europe by the way. I wouldn't wire my profits to the bank, i'd keep them in bitcoins so i wouldn't have to pay taxes on them.

How will you keep Bitcoins if you're going to wire out of gox?

Buy bitcoins with my profits, keep them in cold storage for later use.

Anyway, i was wondering what an audit would entail if i did get one? What exactly would happen?
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September 22, 2013, 04:01:45 PM
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I want to wire some some, like 20k, to bitstamp, and wire them out of gox to work arbitrage. If I do this and receive these wires from the bank mtgox uses, could i run into troubles proving that's my money or something? Could i get audited? I live in europe by the way. I wouldn't wire my profits to the bank, i'd keep them in bitcoins so i wouldn't have to pay taxes on them.

How will you keep Bitcoins if you're going to wire out of gox?

Buy bitcoins with my profits, keep them in cold storage for later use.

Anyway, i was wondering what an audit would entail if i did get one? What exactly would happen?

Ah ok, got it.

Like Rannasha said, depending on your country's regulations it may trigger bank's attention, even the receiving bank. Banks may have to report it to the finance authority, which will do an internal investigation first. When there is a plausible history of origin they won't bother. Some transborder regulations may kick in. But when your transaction draws attention to the authorities, they might have some interest when your later Bitcoin purchases hit a certain level. With your 20k-in-out-transaction on the radar, it's as easy as ABC to conclude. I don't want to scare you off, but you better should be prepared for the worst case.
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September 22, 2013, 04:14:58 PM
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Thing is, these bitcoin exchanges like bitstamp or gox are pretty much a gray zone right now. If the tax authorities would want a detailed record of all my activities on these exchanges, would they actually bother contacting them for it? And would Gox or stamp give them the records?
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September 22, 2013, 04:37:18 PM
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Thing is, these bitcoin exchanges like bitstamp or gox are pretty much a gray zone right now. If the tax authorities would want a detailed record of all my activities on these exchanges, would they actually bother contacting them for it? And would Gox or stamp give them the records?

Again depends on your country's regulations and the transaction's sources and targets. As a citizen of US of A you're doomed getting caught with your pants down. For example Gox had to register with FinCen. I'm pretty sure Gox has to delivery any information available about you when there is an invetigation.
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September 22, 2013, 05:03:52 PM
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Thing is, these bitcoin exchanges like bitstamp or gox are pretty much a gray zone right now. If the tax authorities would want a detailed record of all my activities on these exchanges, would they actually bother contacting them for it? And would Gox or stamp give them the records?

Again depends on your country's regulations and the transaction's sources and targets. As a citizen of US of A you're doomed getting caught with your pants down. For example Gox had to register with FinCen. I'm pretty sure Gox has to delivery any information available about you when there is an invetigation.

I live in Belgium. I've already done a few transactions to and from bitcoin exchanges, involving sums around 5k euro... My bank is a pretty small family bank, so i'm not sure where they would stand on all of this. I think a big bank would block someones account faster if there were dubious activities.
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September 22, 2013, 05:16:42 PM
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IANAL. Usual disclaimers apply; no legal advice in this post, yada yada.

Government, by definition and its very nature, is a group of violent thugs and taxation is robbery with violence. Tax offices can be nosy and aggressive, the US IRS in particular, but they all have some kind of modus operandi, and they'd rather go after serious money than small fry.

Bank transfers of €5k here or there probably won't trigger AML-related signals, unless you're making lots of them, but YMMV. I've heard of stories of the tax man occasionally nailing business owners over about €50k worth of tax evasion, but even that's considered pretty small fry. If you're in a position in which you fear the tax office is likely to audit you, you should prepare accordingly - or just declare everything and pay your taxes. Being in that kind of position (well-off or rich) isn't the worst problem in the world to have.

IMO, tax avoidance is both moral and legal. Why pay more tax than the State says you have to?
OTOH, tax evasion, while I have no moral objections to it since it's resisting robbery, is illegal and not something the State often takes kindly to. It's rather like not coughing up extortion dues to the Mafia - dangerous. I can't openly recommend it, and you have to be the one who weighs up the risks versus the benefits of being "dishonest" vis-à-vis taxes.

The Bitcoin angle to all of this can be summarised as: Bitcoin is not a tax-evasion scheme. If the State considers something to be "tax evasion", then that is so, whether Bitcoin is involved or not. You can do business off the books and evade taxes (illegally), whether or not you're handling bitcoin.

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September 22, 2013, 05:36:31 PM
 #10

Some ideas...for an audit, in Belgium, for Arbitrage... Capital gains are normally treated as ordinary business income and are taxable at the normal corporation tax rates (33%). However, there are exceptions and exemptions.
•    under certain conditions, "rollover relief" is granted for gains on fixed assets held for business purposes for more than five years
•    unrealised gains are exempt provided they are credited to a specific non-distributable reserve
•    realised capital gains on shares are exempt fromtaxif dividends on the shares
qualify for the participation exemption. As a result of the new Belgian budget measures, a realised capital gain will be taxed at a rate of 25.75 % if shares are sold before a minimum holding period of one year is reached.

Capital losses are tax-deductible if they relate to fixed assets used for business purposes.
Unrealised capital losses on shares (booked devaluations) are not tax-deductible.
Realised capital losses on shares are generally not deductible. Capital losses realised on the liquidation of a company are deductible up to the value of the capital actually paid-up.

So you may do well with an individual enterprise, and be able to deduct your costs from the gains.

If you keep your profits in bitcoin and the enterprise is arbitrage, you may be able to claim those as STOCK INVENTORY.

Stock inventories should be valued at the lower of acquisition cost or year-end market value. The acceptable methods of determining acquisition cost are actual cost, FIFO, LIFO and weighted average. The Revenue administration requires that the method chosen is justified and applied consistently.

If they are going into cold storage, acquisition cost by actual cost may benefit you, especially as the actual coins retained are idenifiable.  BUT... realized or unrealized profit may be taxable.  You don't necessarily avoid the tax by not converting them.

Someone well versed in Belgian law may easily improve on these ideas.

Definitely... track your costs.
There is more here (in a pdf)
http://www.pkf.com/media/1954296/belgium%20pkf%20tax%20guide%202013.pdf
Which comes from these folks:
http://www.pkf.com/publications/tax-guides/belgium-pkf-tax-guide

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Lord F(r)og
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September 22, 2013, 06:02:55 PM
 #11

Thing is, these bitcoin exchanges like bitstamp or gox are pretty much a gray zone right now. If the tax authorities would want a detailed record of all my activities on these exchanges, would they actually bother contacting them for it? And would Gox or stamp give them the records?

Again depends on your country's regulations and the transaction's sources and targets. As a citizen of US of A you're doomed getting caught with your pants down. For example Gox had to register with FinCen. I'm pretty sure Gox has to delivery any information available about you when there is an invetigation.

I live in Belgium. I've already done a few transactions to and from bitcoin exchanges, involving sums around 5k euro... My bank is a pretty small family bank, so i'm not sure where they would stand on all of this. I think a big bank would block someones account faster if there were dubious activities.

I don't know anything about belgian regulations, but I would rather assume it to be more liberal than regulated. Maybe you should get in touch with your bank to figure out the most appropriate procedure. Especially a small family bank should be open-minded about their customers needs. On the other hand, to get financial regulations covered you should think about talking to a tax advisor, too.
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September 22, 2013, 06:13:12 PM
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Thanks for that informative post, NewLiberty. On the capital-gains tax angle, the German law offers a sensible long-term (gains realized after one year) CGT rate of 0%. No idea about Belgium, however. When tax laws are written sanely, the incentive to break them drops immensely, because the risk-reward ratio of tax evasion becomes very poor.

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ardana123
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September 22, 2013, 06:13:25 PM
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Thing is, these bitcoin exchanges like bitstamp or gox are pretty much a gray zone right now. If the tax authorities would want a detailed record of all my activities on these exchanges, would they actually bother contacting them for it? And would Gox or stamp give them the records?

Again depends on your country's regulations and the transaction's sources and targets. As a citizen of US of A you're doomed getting caught with your pants down. For example Gox had to register with FinCen. I'm pretty sure Gox has to delivery any information available about you when there is an invetigation.

I live in Belgium. I've already done a few transactions to and from bitcoin exchanges, involving sums around 5k euro... My bank is a pretty small family bank, so i'm not sure where they would stand on all of this. I think a big bank would block someones account faster if there were dubious activities.

I don't know anything about belgian regulations, but I would rather assume it to be more liberal than regulated. Maybe you should get in touch with your bank to figure out the most appropriate procedure. Especially a small family bank should be open-minded about their customers needs. On the other hand, to get financial regulations covered you should think about talking to a tax advisor, too.

But i'm a small fish i don't know if they would care... And for the small profit (maybe like 2 or 3k) i'll be raking in it probably won't be worth it to hire a tax advisor...
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September 22, 2013, 06:19:27 PM
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But i'm a small fish i don't know if they would care... And for the small profit (maybe like 2 or 3k) i'll be raking in it probably won't be worth it to hire a tax advisor...

For capital gains, German tax rate is 0% if you realize the profit after one year. UK has a CGT threshold of GBP 10400 last time I looked it up. It can't be too hard to find out what the Belgian (or Flemish, Walloon, Brussels...) law is on this, then act accordingly.

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September 22, 2013, 06:26:08 PM
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But i'm a small fish i don't know if they would care... And for the small profit (maybe like 2 or 3k) i'll be raking in it probably won't be worth it to hire a tax advisor...

For capital gains, German tax rate is 0% if you realize the profit after one year. UK has a CGT threshold of GBP 10400 last time I looked it up. It can't be too hard to find out what the Belgian (or Flemish, Walloon, Brussels...) law is on this, then act accordingly.

I'm actually more worried about the bank closing down my account and confiscating my money or some shit because of these big transfers, or getting an audit where i can't prove where the money came from because Gox and Stamp are shady enterprises. Not so much worried about the tax thing since i can keep my profits in bitcoin.
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September 22, 2013, 06:31:28 PM
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I'm actually more worried about the bank closing down my account and confiscating my money or some shit because of these big transfers, or getting an audit where i can't prove where the money came from because Gox and Stamp are shady enterprises.

OK, gotcha. Actually, this question is quite interesting, because it has been a very big deal for UK-based bitcoin traders for at least the past year, maybe longer. On 25 September 2012, Mt Gox's UK feeder account at Barclays was frozen. Similar has occurred to other exchange services with UK banking as well and it's likely caused by the bank flagging a transfer as fraudulent. I have a UK chequing account with a building society and would be concerned about similar were I selling cryptocurrency regularly using that account.

If your bank identifies a payment entering your account as fraudulent for whatever reason (perhaps because it really was fraud, the funds really were unlawfully expropriated), they probably will freeze your account, for legal and other reasons.

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September 22, 2013, 07:05:26 PM
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I'm actually more worried about the bank closing down my account and confiscating my money or some shit because of these big transfers, or getting an audit where i can't prove where the money came from because Gox and Stamp are shady enterprises.

OK, gotcha. Actually, this question is quite interesting, because it has been a very big deal for UK-based bitcoin traders for at least the past year, maybe longer. On 25 September 2012, Mt Gox's UK feeder account at Barclays was frozen. Similar has occurred to other exchange services with UK banking as well and it's likely caused by the bank flagging a transfer as fraudulent. I have a UK chequing account with a building society and would be concerned about similar were I selling cryptocurrency regularly using that account.

If your bank identifies a payment entering your account as fraudulent for whatever reason (perhaps because it really was fraud, the funds really were unlawfully expropriated), they probably will freeze your account, for legal and other reasons.

Maybe if i spread the transfers over several bank accounts? I have like 3 bank accounts with seperate banks. What if i just do 5k with one account, 5k with the other... And afterwards transfer all of them back to my original account, which won't put up any flags cuz it's just domestic transfers between same owner accounts.
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September 22, 2013, 07:16:02 PM
 #18

But i'm a small fish i don't know if they would care... And for the small profit (maybe like 2 or 3k) i'll be raking in it probably won't be worth it to hire a tax advisor...

For 2-3K income net of costs, you could easily have costs higher than that and the individual enterprise may even provide some tax benefit against your other income.  Some local advice might be worthwhile anyway, and if nothing else it gives a successful bitcoiner something to talk about in a good way.  Depending on how open minded they are, it may end up benefiting them more than you in the long run.

I had the opportunity to raise the issue with my external accounting folks again last month.  Planting seeds in fertile minds may bear unexpected fruits.

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September 24, 2013, 08:11:28 PM
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I would fear to RECEIVE funds from the exchange because bank can report to tax agency. Using payment systems like OKPay is much safe IMHO.
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September 25, 2013, 04:20:30 AM
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I would fear to RECEIVE funds from the exchange because bank can report to tax agency. Using payment systems like OKPay is much safe IMHO.

For my money, I'd declare both income and any offsetting costs.  As you said it is not a lot and the tax thugs do have pretty pointy sticks.  Fighting back in the dark alley of audit time if they come for you, may be over-brave.  But don't confuse this for advice.  Get that locally.  Some here may advise you to fight the thugs with all you've got, but it isn't their skin on the line.  Only you can pick your battles.

In the US, not declaring income is fraud, which has many repercussions.  Some professions have rules of conduct and being barred from one's profession is not a risk everyone can take. YMMV

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