what paperwork to jump through to not be running what amounts to a black market. Anyone want to throw me a bone on tax law?
there's little difference, tax wise, between using bitcoins for commerce versus using cash or any other payment method.
just like selling on ebay, yahoo shopping, etc, there's very little paperwork necessary. for a small volume business, simply having a record of the basic details of each transaction (date, item sold, price) will be enough come tax time. that's for both buying and selling of goods.
when transactions are made in btcs, using the daily "closing price" data from an exchange will likely be suitable to be able to convert bitcoins to the value in us dollars at the time of sale or purchase, for tax purposes.
you will probably exchange those bitcoins into and back from dollars so keep a record of those transactions as well to be able to know the capital gains on those holdings. keep your personal accounts/wallet separate from your business accounts/wallet to keep things easier to follow.
here's more info: http://en.bitcoin.it/wiki/Tax_compliance