BitCoin and Business

[xzec]

Hello there.

I've known about BitCoin for a while and read some about how BitCoin works, but there's something that's still unclear for me.
If I start a service for renting game servers and people can pay through BitCoin, how am I supposed to show my state that I got the money from my customers?
Especially when it comes to onion routing and laundries? Would it still be possible to tax it and all that?

[1713923709]

1713923709

[1713923709]

1713923709

[Stephen Gornick]

If I start a service for renting game servers and people can pay through BitCoin, how am I supposed to show my state that I got the money from my customers?

The billing system or shopping cart interface you use will likely have recordkeeping sufficient for tax purposes.

What you would do then is convert Bitcoin revenues into its equivalent value in the currency that you use for tax purposes.  For instance, a calculation using the daily "closing" exchange rate times the amount of bitcoins received would yield an amount giving total revenues for the day.
  
http://en.bitcoin.it/wiki/Tax_compliance#Are_bitcoins_taxable_if_I_earned_them_by_doing_a_service_for_someone_else.2C_or_received_them_in_exchange_for_something.3F

[xzec]

Thanks a lot, much appreciated; that actually cleared a lot for me, but if there would be any question about my income, how can I prove where I got it from?

[ovidiusoft]

Thanks a lot, much appreciated; that actually cleared a lot for me, but if there would be any question about my income, how can I prove where I got it from?

A printout of the logs of your Bitcoin client or even some screenshots of the Received page on the standard desktop client should be enough. You can even alias the receiving addresses to some useful label, like client name, email address.

[xzec]

Are you sure that's enough? I don't suddenly want to pay back for misunderstanding.

I mean, a customer could use 10minute e-mail, Tails Live CD or even laundries and if they do so, I can't prove who they are -- wouldn't they disapprove my income then?

[edd]

The IRS (or other government tax collection agency) doesn't care where you got it from, as long as you report it.

[edd]

Sorry, just reread your post and saw that you mention reporting it to your state. I assume you're referring to state sales tax? That only has to be collected on goods or services that stay within your home state. I'm not familiar with how it applies to renting servers, but it shouldn't matter if your customers are using bitcoins. If your state requires records of where your customers reside, you'll have to collect that information somehow, you just won't have the convenience of allowing credit card companies and Paypal to do it for you.

In any case, your question is about taxation in general, it doesn't change just because you're accepting BTC.

[ovidiusoft]

Are you sure that's enough? I don't suddenly want to pay back for misunderstanding.

I mean, a customer could use 10minute e-mail, Tails Live CD or even laundries and if they do so, I can't prove who they are -- wouldn't they disapprove my income then?

No. Shops don't ask for your ID when you buy soda. They record the purchase on a log and then they report it as is: "sold i soda at 12:34 AM for 1 EUR". They don't need more proof than that. Tax collectors usually have problems with people not reporting income, not with people reporting it .

Edit: Of course, some economic activities will require more data than this. Check you local laws.

[xzec]

Sorry, just reread your post and saw that you mention reporting it to your state. I assume you're referring to state sales tax? That only has to be collected on goods or services that stay within your home state. I'm not familiar with how it applies to renting servers, but it shouldn't matter if your customers are using bitcoins. If your state requires records of where your customers reside, you'll have to collect that information somehow, you just won't have the convenience of allowing credit card companies and Paypal to do it for you.

In any case, your question is about taxation in general, it doesn't change just because you're accepting BTC.

Yes, state sales tax, indeed. My servers are physically in my home, it's only the service that is available anywhere.
That's my worry, if they ask for records that I can't provide, I believe I might be screwed.
I mean, I can provide the address, e-mail and so forth, but that doesn't say much about the person I got it from -- for all they know, it could be money from "terrorists" or whatever.

No. Shops don't ask for your ID when you buy soda. They record the purchase on a log and then they report it as is: "sold i soda at 12:34 AM for 1 EUR". They don't need more proof than that. Tax collectors usually have problems with people not reporting income, not with people reporting it .

Edit: Of course, some economic activities will require more data than this. Check you local laws.

That's what I thought at first too, but since it's electronical, I started thinking it would be the same as banks, where ID is necessary if they ask for it.
I have to check with my state, since there are no current law against BTC, so they can't just disapprove it either. Hopefully.

[edd]

You worry too much. State sales tax collectors don't care where the money comes from. I had a small business for ten years and all they ever asked for were the figures. The only agency that might ever want specific information on your customers is some kind of law enforcement agency and they don't require that you collect that kind of information, only that you cooperate if they do need to conduct some kind of investigation. As I said, these are concerns unrelated to bitcoins.

[xzec]

Thanks for putting my worries to sleep.

[offshoregenius77]

It would seem that eventually the FEDS are going to try to take a stand against btc. If it keeps mushrooming, it will create quite a dent in the IRS tax intake. Lets just hope they dont try to stamp it out altogether. Its obviously got great long-term potential.

[ovidiusoft]

It would seem that eventually the FEDS are going to try to take a stand against btc. If it keeps mushrooming, it will create quite a dent in the IRS tax intake. Lets just hope they dont try to stamp it out altogether. Its obviously got great long-term potential.

You are assuming that most people using Bitcoin are trying to avoid paying taxes. Sure, those exist, but they wouldn't be paying taxes anyway. Most businesses based on Bitcoin seem to be regular, tax-paying companies that simply hate the banking system.

Bitcoin's first purpose is skipping the banks, not skipping the tax office. In this context, the IRS will *LOVE* Bitcoin - if companies have more income/proffit, there's more to tax. If I were to pay 3% less to the banks, I would decrease my prices by 2% - have an edge on the competition while still making more money. IRS also gets more taxes. WIN-WIN-WIN (me, customers, tax office). Ta-daaaa

[xzec]

I want to say thank you to everyone for sorting this out for me; you've all been really helpful and I really do appreciate all your contribution.
I will try my best to promote BTC instead of the banking system (e.g. discounts, extra features etc.), eventually exclusively only BTC if I get the hosting service popular enough -- I'm thinking about perhaps web hotel aswell.