Taxation

[Babylon]

I am not completely clear on tax law, and I know it varies from place to place.  However, for those of you who feel bitcoin is a way to avoid taxes, it's anonymous nature may make this easier but anytime you exchange bitcoin for dollars, or any other national fiat money you are creating a record and i would strongly suggest factoring that into your income for taxation.  I know that the eventual goal is a bitcoin economy which does not require exchange to or from another currency, but at the moment that is not the case and the fact that the tax man will get you if you pretend as if income from sale of bitcoins did not occur is something people should remember.

[FreeMoney]

The bogymen you are talking about are not completely clear on the 10k page tax law (in US) either.

[Anonymous]

I am not completely clear on tax law, and I know it varies from place to place.  However, for those of you who feel bitcoin is a way to avoid taxes, it's anonymous nature may make this easier but anytime you exchange bitcoin for dollars, or any other national fiat money you are creating a record and i would strongly suggest factoring that into your income for taxation.  I know that the eventual goal is a bitcoin economy which does not require exchange to or from another currency, but at the moment that is not the case and the fact that the tax man will get you if you pretend as if income from sale of bitcoins did not occur is something people should remember.

Ed and Elaine Brown 
Waco
Ruby Ridge

et all.....

[Babylon]

I am not completely clear on tax law, and I know it varies from place to place.  However, for those of you who feel bitcoin is a way to avoid taxes, it's anonymous nature may make this easier but anytime you exchange bitcoin for dollars, or any other national fiat money you are creating a record and i would strongly suggest factoring that into your income for taxation.  I know that the eventual goal is a bitcoin economy which does not require exchange to or from another currency, but at the moment that is not the case and the fact that the tax man will get you if you pretend as if income from sale of bitcoins did not occur is something people should remember.

Ed and Elaine Brown 
Waco
Ruby Ridge

et all.....

Right, trying to find a way to dodge taxes is generally not a good idea.

[mtp]

Bitcoins are digital bits, hence a digital good, when you give that to someone in exchange for something like other currencies, you are creating a sale and thus a taxable event in the eyes of the IRS, that money you have received is a payment for your digital good and thus taxable income.

Bitcoins as digital bits however provided to someone else as payment (eg. for a service or good), that could be construed as barter income to the person whom received payment however it would be a very hard stretch that would require a centrally stated and official value in a manner which has a comparable exchange rate.

Right now Bitcoin has the advantage here, there is no central authority however, if pressed, I'm sure any government could attach an intrinsic exchange rate to the currency based on the established design of there only being X possible coins in circulation which would have two advantages for Bitcoin legitimacy, one, it establishes a daily reporting rate requirement for the exchange of BTC to the currency of that government (eg. XX BTC to YY USD), two, it would make Bitcoin a legitimately recognized form of payment in the eyes of that government and force acceptance as by setting that rate and required reporting means that it becomes an officially recognized form of currency in that country and, three, it would mean that Bitcoin would have to be developed to be used in portable and mobile formats, perhaps best done through BTC bank support wherein you have a debit card loaded with BTC which can pay in both BTC and native currency with that same BTC based on the exchange rate.

To you as a service or goods provider accepting BTC now, you are simply giving away these services or goods and at this time, based on current tax law, means you get to declare them as a loss until the government can find a means of establishing a rate of exchange which starts a whole new level for BTC.

For the record I am not a lawyer, nor tax professional and thus the views I state are only based upon my personal experience and should not be taken into practice without consulting a proper tax attorney or accountant.

[Babylon]

Bitcoins are digital bits, hence a digital good, when you give that to someone in exchange for something like other currencies, you are creating a sale and thus a taxable event in the eyes of the IRS, that money you have received is a payment for your digital good and thus taxable income.

Bitcoins as digital bits however provided to someone else as payment (eg. for a service or good), that could be construed as barter income to the person whom received payment however it would be a very hard stretch that would require a centrally stated and official value in a manner which has a comparable exchange rate.

Right now Bitcoin has the advantage here, there is no central authority however, if pressed, I'm sure any government could attach an intrinsic exchange rate to the currency based on the established design of there only being X possible coins in circulation which would have two advantages for Bitcoin legitimacy, one, it establishes a daily reporting rate requirement for the exchange of BTC to the currency of that government (eg. XX BTC to YY USD), two, it would make Bitcoin a legitimately recognized form of payment in the eyes of that government and force acceptance as by setting that rate and required reporting means that it becomes an officially recognized form of currency in that country and, three, it would mean that Bitcoin would have to be developed to be used in portable and mobile formats, perhaps best done through BTC bank support wherein you have a debit card loaded with BTC which can pay in both BTC and native currency with that same BTC based on the exchange rate.

To you as a service or goods provider accepting BTC now, you are simply giving away these services or goods and at this time, based on current tax law, means you get to declare them as a loss until the government can find a means of establishing a rate of exchange which starts a whole new level for BTC.

For the record I am not a lawyer, nor tax professional and thus the views I state are only based upon my personal experience and should not be taken into practice without consulting a proper tax attorney or accountant.

Yeah, the whole barter aspect (which is what it is, not giving the product away) is where taxation gets complex.  I certainly would not write the product off as a loss, although not mentioning the bitcoins you received might be ok.  My main point was that if you sell bitcoins for another currency it would be abysmally foolish not to report that as taxable income.

[mtp]

Yeah, the whole barter aspect (which is what it is, not giving the product away) is where taxation gets complex.  I certainly would not write the product off as a loss, although not mentioning the bitcoins you received might be ok.  My main point was that if you sell bitcoins for another currency it would be abysmally foolish not to report that as taxable income.

Perhaps you are right given you have received digital product (coin) however how would you declare this to the IRS as a service provider?

Would it be an exchange of services for product? Your digital coins (a digital product) for my services? At what rate would that be declared at for loss or gain? My services sell for say $19.99, you gave me 50 BTC, would that be taxed at $19.99 or declared at the rate of BTC to the USD as it is a form of currency you accept, where is the rate for BTC officially? If going on a transactional basis you have to look at the complications there, my rate is not going to be the same as another service provider's rate.

If I took 200 transactions each with different BTC payments you have to consider (especially if price varies) which is more value for loss and gain purposes and which incurs the tax if any applicable and without an established rate officially recognized, it can incur numerous taxation issues. You do an exchange at $1 per 2 BTC, I do one at $1 per $1 BTC, for the IRS this disparity moves that your rate and mine are purely individual however if I say the rate is $0.25 per 1 BTC then I say I sold it at a loss as that would come to about $5 so then I have a loss of $14.99 I can declare. Repeat that for 200 transactions, do you think the IRS would accept that or would they go for the throat and try to establish a rate more closer to my price as barter income at a loss is a full writeoff.

Of course they could scapegoat to say it's barter hence an equal trade but then where is the tax for them? You traded something for X and you got something at the same value of X, no tax gain, no tax loss... just a lot more paperwork for you and them to go through.

Isn't tax law fun?

[Babylon]

Yeah, the whole barter aspect (which is what it is, not giving the product away) is where taxation gets complex.  I certainly would not write the product off as a loss, although not mentioning the bitcoins you received might be ok.  My main point was that if you sell bitcoins for another currency it would be abysmally foolish not to report that as taxable income.

Perhaps you are right given you have received digital product (coin) however how would you declare this to the IRS as a service provider?

Would it be an exchange of services for product? Your digital coins (a digital product) for my services? At what rate would that be declared at for loss or gain? My services sell for say $19.99, you gave me 50 BTC, would that be taxed at $19.99 or declared at the rate of BTC to the USD as it is a form of currency you accept, where is the rate for BTC officially? If going on a transactional basis you have to look at the complications there, my rate is not going to be the same as another service provider's rate.

If I took 200 transactions each with different BTC payments you have to consider (especially if price varies) which is more value for loss and gain purposes and which incurs the tax if any applicable and without an established rate officially recognized, it can incur numerous taxation issues. You do an exchange at $1 per 2 BTC, I do one at $1 per $1 BTC, for the IRS this disparity moves that your rate and mine are purely individual however if I say the rate is $0.25 per 1 BTC then I say I sold it at a loss as that would come to about $5 so then I have a loss of $14.99 I can declare. Repeat that for 200 transactions, do you think the IRS would accept that or would they go for the throat and try to establish a rate more closer to my price as barter income at a loss is a full writeoff.

Of course they could scapegoat to say it's barter hence an equal trade but then where is the tax for them? You traded something for X and you got something at the same value of X, no tax gain, no tax loss... just a lot more paperwork for you and them to go through.

Isn't tax law fun?

My point was, ok, let's say you buy 5 minutes of tarot card reading from me.  That comes to 50 bitcoins at the current rate.  No tax declaration for the moment.  I want to use those coins to get something that isn't being sold for bitcoin at the moment, so I sell 50 bitcoins to someone for $2.50.  $2.50 is the income that I had better declare.

Now if I take that 50 bitcoins and turn around and buy some computer parts off bitlist, well, then it moves into the complex area you are taking about.

[mtp]

My point was, ok, let's say you buy 5 minutes of tarot card reading from me.  That comes to 50 bitcoins at the current rate.  No tax declaration for the moment.  I want to use those coins to get something that isn't being sold for bitcoin at the moment, so I sell 50 bitcoins to someone for $2.50.  $2.50 is the income that I had better declare.

Now if I take that 50 bitcoins and turn around and buy some computer parts off bitlist, well, then it moves into the complex area you are taking about.

Yes, you are correct, based on my knowledge and experience with the IRS and tax law as a business owner, your example is correct however should be run by a tax attorney or CPA first.

It's my area where I'm having a bit of confusion and problem, I want to accept BTC as a valid form of payment for services...

If it comes under barter law, perhaps the best scenario then would be to establish my once per year rate and hold that rate as I would for prices normally, for instance in my example I could set the rate at $0.25 == 1 BTC which means my pricing for BTC would be four times the charge in USD for equality however for marketing, I could sell at a loss based on that rate and be all perfectly fine in the eyes of the IRS (those scoundrels, making me think this much for something which should be simple) as the rate was established by me in an official manner recognized by my company and thus in turn can be formally recognized in my case by the IRS and held for a sustained period which contrasted to the value of the USD to say the EUR is a miracle of taxation calculation.

This however would place all users paying under BTC into a barter agreement which can complicate issues further as you and I would both have to know details of one another thus breaking anonymity as it would fall under a barter exchange, you have BTC and I'm setting the rate and this makes my company a barter exchange: http://www.irs.gov/businesses/small/article/0,,id=188095,00.html

The flipside of this is if I go on a rate to be established by someone else (eg. the market exchange), I can use 1099-MISC or my normal 1040C however even as income the sales would be at a loss in BTC still and thus I can still declare loss for the sales in a recurring manner which would probably still get the IRS up in knots trying to figure out BTC to USD.

[Babylon]

I don't see how you can declare a loss on sold services.  Perhaps you are selling your services below market value when you sell them for bitcoin, but you are still not losing money.  Now if you are paying someone else to perform those services, then perhaps you are losing money.  Theoretically your company could be paying you to perform that service, but in that case you need a source of income to pay yourself with, bitcoins don't count if you are paying yourself in dollars.

[Bitcoiner]

Isn't tax law fun?

http://en.wikipedia.org/wiki/Agorism

Disclaimer: I do not recommend anyone break the law. You do so at your own risk.

[Anonymous]

At what stage would the bitcoin economy become large enough to hire a defense force/lawyers to defend it?If it follows the path of the internet will it just detour/route around government meddling and make the state irrelevent?If the majority is ignoring the state will it go away?Im for ignoring the bully in the room and doing your own thing where it doesnt harm anyone else.

[mtp]

Let's put this to numbers...

Rate of BTC to USD = $0.25 (defined through whatever means of rate determination)

Service cost to users in USD $2
Service cost to users in BTC 4
Service cost to me in USD $1.50
Service cost to me in BTC 6

That makes it a loss in BTC to USD for that same plan thus a tangible loss, could I raise prices? Yes. Could I drop BTC? Yes. Is it a demonstrable loss in profit on that item? Yes. Is it a demonstrable loss in profit on that item according to Fair Market Value? Yes (same service sold in USD).

Loss in any currency can be declared as loss, it's done when you price in multiple currencies, for instance, EUR vs. USD, if the EUR tanks at the time of conversion to USD, you've incurred a tangible loss.

[Anonymous]

I have a small business but I dont have to declare income untill I earn a certain amount in profit each year.Untill then it is considered a "hobby" which remains untaxed.Then I can claim any losses from the preceeding three years to reduce the amount payable - if any.I hope and pray I have the problem of having to declare bitcoin income.

[mtp]

I have a small business but I dont have to declare income untill I earn a certain amount in profit each year.Untill then it is considered a "hobby" which remains untaxed.Then I can claim any losses from the preceeding three years to reduce the amount payable - if any.I hope and pray I have the problem of having to declare bitcoin income.

I have an LLC and three DBAs setup for the LLC, I definitely clear hobby maximum per year.

That's why I'm looking at this now, I think tomorrow (today being Sunday) I'll call my accountant to see what he says about it, bet it'll be one of those two hour explain what I'm doing and what it is and make it basic conversations for a 30 second answer and summary.

EDIT:

If anyone is interested, review publication 525 from the IRS, under Barter it states:

Example 3. You are self-employed and a
member of a barter club. The club uses credit
units as a means of exchange. It adds credit
units to your account for goods or services you
provide to members, which you can use to
purchase goods or services offered by other
members of the barter club. The club subtracts
credit units from your account when you receive
goods or services from other members. You
must include in your income the value of the
credit units that are added to your account, even
though you may not actually receive goods or
services from other members until a later tax
year.

In my case if I accept it at the rate of $0.25 USD to 1 BTC that means I can declare losses, gains, etc... as normal on my normal tax forms without further requirements at this time.

BTC not being formal cash (think LR, etc...) and membership being acceptance, generation, etc... of BTC via client, this I believe would cover it so the .05 BTC I got earlier (thanks faucet) would be declared as income and taxed measured in United States dollars based on the conversion rate of the foreign currency as of the date of the contract for sale.

So as I'm viewing the rate at $0.25 per BTC and accepting it at that rate, I have a tax liability of $0.0125 for that income, if going by my other form of payment which is via Paypal the current ask as of close is $0.075 which amounts to $0.00375 which is rounded up to the whole cent so $0.01.

This of course means, if I'm selling something in BTC for a price less than I pay to provide it, I can declare a loss however does not mean I can declare a loss when stacked against the USD at the alternative price I charge in that currency.

.... I believe now, a nap is in order.

[FreeMoney]

Isn't tax law fun?

http://en.wikipedia.org/wiki/Agorism

Disclaimer: I do not recommend anyone break the law. You do so at your own risk.

When laws are bad, I recommend breaking them. Still at your own risk of course. But risk isn't so bad.
 

[Bitcoiner]

At what stage would the bitcoin economy become large enough to hire a defense force/lawyers to defend it?If it follows the path of the internet will it just detour/route around government meddling and make the state irrelevent?If the majority is ignoring the state will it go away?Im for ignoring the bully in the room and doing your own thing where it doesnt harm anyone else.

I think that defence via opportunity costs, distribution, and decentralization will be more effective. Just shrug the state off your shoulders instead of trying to fight against it. See: P2P filesharing networks. Those who tried to fight against the state usually got wiped out, whereas those who defend themselves by using decentralized networks survive. The state is good at attacking single points of power, so the key is to have that power distributed so that the only way that the network can be shut down is by instituting totalitarian controls over the internet.

In the physical world, I'd like to see initiatives like seasteading, charter cities, and secessionism advance more, but change in the physical world is slower to come by. Governments only understand competition; they respond more quickly to that than they do to political processes. I think that is how we can see better government, and how we can get on the road to a future of no government without voluntary consent.

[Anonymous]

At what stage would the bitcoin economy become large enough to hire a defense force/lawyers to defend it?If it follows the path of the internet will it just detour/route around government meddling and make the state irrelevent?If the majority is ignoring the state will it go away?Im for ignoring the bully in the room and doing your own thing where it doesnt harm anyone else.

I think that defence via opportunity costs, distribution, and decentralization will be more effective. Just shrug the state off your shoulders instead of trying to fight against it. See: P2P filesharing networks. Those who tried to fight against the state usually got wiped out, whereas those who defend themselves by using decentralized networks survive. The state is good at attacking single points of power, so the key is to have that power distributed so that the only way that the network can be shut down is by instituting totalitarian controls over the internet.

In the physical world, I'd like to see initiatives like seasteading, charter cities, and secessionism advance more, but change in the physical world is slower to come by. Governments only understand competition; they respond more quickly to that than they do to political processes. I think that is how we can see better government, and how we can get on the road to a future of no government without voluntary consent.

Have you heard about the Free State Project?http://freestateproject.org/

What is everyones suggestions for incorporating a company in a foreign country to use for bitcoin operations?Switzerland or costa rica?

[Bitcoiner]

At what stage would the bitcoin economy become large enough to hire a defense force/lawyers to defend it?If it follows the path of the internet will it just detour/route around government meddling and make the state irrelevent?If the majority is ignoring the state will it go away?Im for ignoring the bully in the room and doing your own thing where it doesnt harm anyone else.

I think that defence via opportunity costs, distribution, and decentralization will be more effective. Just shrug the state off your shoulders instead of trying to fight against it. See: P2P filesharing networks. Those who tried to fight against the state usually got wiped out, whereas those who defend themselves by using decentralized networks survive. The state is good at attacking single points of power, so the key is to have that power distributed so that the only way that the network can be shut down is by instituting totalitarian controls over the internet.

In the physical world, I'd like to see initiatives like seasteading, charter cities, and secessionism advance more, but change in the physical world is slower to come by. Governments only understand competition; they respond more quickly to that than they do to political processes. I think that is how we can see better government, and how we can get on the road to a future of no government without voluntary consent.

Have you heard about the Free State Project?http://freestateproject.org/

What is everyones suggestions for incorporating a company in a foreign country to use for bitcoin operations?Switzerland or costa rica?

I have. I like the idea, but it's moving far too slowly. What we need are some good old FEZs here in NA; I wonder if economic destabilization will provide enough of an impetus to get this rolled out; it's an intermediary step between change through the political process and full-brown secession.

[idev]

best place for this is New Zealand.

[asdf]

What if I'm operating entirely within the bitcoin economy? I earn ONLY bitcoins and buy things for bitcoins ONLY. I never touch any $.

In this case, I pay no taxes and the government knows nothing of my activities except that I'm "unemployed". Maybe I could take a part time job (putting me in a low tax bracket) just to keep the suspicion off.

What are the legal implications for this and what are the chances of getting caught?

[jgarzik]

That would certainly be violating the law (the tax code): http://www.irs.gov/taxtopics/tc420.html

I won't speculate on your chances of being caught...

[silverman]

There are two factors to consider; your liability, and your tax rate. The rate is determined by your income, and the income is calculated in U.S. dollars (Federal Reserve Notes, actually). If you are unemployed, then you are definitely liable, so the key to your question would be the amount of Bitcoins, expressed in Federal Reserve Notes, and termed as U.S. dollars.

If they are equivalent, and if you are using Bitcoins to bypass your fair share of taxes, then you are a tax cheat.

But I know of no equivalence between Bitcoins and FRNs. They belong to two unrelated accounting systems. As long as no one says anything blatantly stupid, such as "Rate of BTC to USD = $0.25", the Bitcoin will be useless in determining your tax rate.

[jgarzik]

But I know of no equivalence between Bitcoins and FRNs. They belong to two unrelated accounting systems. As long as no one says anything blatantly stupid, such as "Rate of BTC to USD = $0.25", the Bitcoin will be useless in determining your tax rate.

You mean, like the numbers found on http://www.bitcoinwatch.com/ ?

[FreeMoney]

But I know of no equivalence between Bitcoins and FRNs. They belong to two unrelated accounting systems. As long as no one says anything blatantly stupid, such as "Rate of BTC to USD = $0.25", the Bitcoin will be useless in determining your tax rate.

Which is the important part? That you remain ignorant of a conversion rate or that no single person in the world utters it? And what if 14 people say 13 different rates?

[silverman]

Do you see what you're up against?

Even though our system of taxation is based upon voluntary assessment and payment, not upon distraint (you might wish to Google that phrase) the IRS can usually find useful idiots like the two above who "know what the law means" to sell you out.

Just ask them the IRS definition of "income", chapter and verse, if you want to see how bright they are.

[jgarzik]

lol, apparently the two CPAs I queried are useful idiots too

Sometimes this board can get pretty silly and imaginative, when it comes to naive attempts to dodge the taxman.

[MoonShadow]

Do you see what you're up against?

Even though our system of taxation is based upon voluntary assessment and payment, not upon distraint (you might wish to Google that phrase) the IRS can usually find useful idiots like the two above who "know what the law means" to sell you out.

Just ask them the IRS definition of "income", chapter and verse, if you want to see how bright they are.

If you really believe that our system is based upon voluntary assessment and payment, try to refuse.  And when they drag you in front of a federal judge, try asking the court to cite the law that grants any of them the authority to do so.  Or the legal definition of "taxpayer" under the federal code.

There is more than one kind of "useful idiot" in this wide world, Mr. Silverman. 

[silverman]

No stopping some of these guys. jgarzik just sold out his two gurus! Chapter and verse, all three of you, or go away.

creighto: "If you really believe that our system is based upon voluntary assessment and payment, try to refuse.  And when they drag you in front of a federal judge, try asking the court to cite the law that grants any of them the authority to do so.  Or the legal definition of "taxpayer" under the federal code."

I actually do believe this Supreme Court decision, creighto. And further, I know how it can be properly plead, though I don't expect the average taxpayer to get much mileage from it. Because he self-identifies, doesn't he?

[MoonShadow]

No stopping some of these guys. jgarzik just sold out his two gurus! Chapter and verse, all three of you, or go away.

creighto: "If you really believe that our system is based upon voluntary assessment and payment, try to refuse.  And when they drag you in front of a federal judge, try asking the court to cite the law that grants any of them the authority to do so.  Or the legal definition of "taxpayer" under the federal code."

I actually do believe this Supreme Court decision, creighto. And further, I know how it can be properly plead, though I don't expect the average taxpayer to get much mileage from it. Because he self-identifies, doesn't he?

Which SCOTUS decision are you referring to?  One of the two times that SCOTUS has declared that the 14th(?) amendment didn't change the meaning of "taxpayer" to include wages earned within a resident's own state, that continue to be ignored, perhaps?  The citizen who prepares his taxes "self-identifies" by signing the tax return, but it's a fraud that the IRS pretends that this is the known intent.  Under the law as it is written, the citizen must agree that the taxes are owed, but there is little wiggle room without sending up red flags; which just gets you an appointment with the taxman against your will anyway.  So in practice, the voluntary part is bulllshit and everyone knows that.  If it wasn't, then "tax evasion" couldn't be a crime.  This is one reason that the extremely wealthy can sometimes pay less taxes than the middle class family of four, because the rich have a greater incentive to hire a full time professional to minimize their taxes.  I do the same thing, and have never owed on April 15th except when I tried to use one of those tax-prep programs.  I gladly continue to pay my CPA roughly 20% of the taxes that I don't end up paying by trying to figure it out on my own.

[silverman]

Which SCOTUS decision am I referring to?? How freaking lazy can you be? It's called Google. Use it.

Here's another clue: What does line 75 of your 1040 form say, and what does the "Sign Here" box declare, under penalties of perjury?

Can we rely on this document to establish your status as a taxpayer, and the amount that you owe?

Don't come back without an answer.

[MoonShadow]

Which SCOTUS decision am I referring to?? How freaking lazy can you be? It's called Google. Use it.

Here's another clue: What does line 75 of your 1040 form say, and what does the "Sign Here" box declare, under penalties of perjury?

Can we rely on this document to establish your status as a taxpayer, and the amount that you owe?

Don't come back without an answer.

Now that is just being rude.  I asked because your reference was vague, and now you're just another dick.

[Anonymous]

How is the tax man going to know what Ive been doing with bitcoin unless I tell them?

[Timo Y]

What if I'm operating entirely within the bitcoin economy? I earn ONLY bitcoins and buy things for bitcoins ONLY. I never touch any $.

In this case, I pay no taxes and the government knows nothing of my activities except that I'm "unemployed". Maybe I could take a part time job (putting me in a low tax bracket) just to keep the suspicion off.

What are the legal implications for this and what are the chances of getting caught?

Sooner or later you are going to want to use large scale infrastructure and the government can easily commandeer that if it wants to and run it as a state monopoly. In most countries, highways, railways, and airports are already a state monopoly. Electricity, water, fuel in some others.

If they can no longer make money from taxing income or sales ... worst comes to worst they can expropriate all land/real estate owners and demand "rent" from everybody, in Bitcoins if need be.

  

[asdf]

What if I'm operating entirely within the bitcoin economy? I earn ONLY bitcoins and buy things for bitcoins ONLY. I never touch any $.

In this case, I pay no taxes and the government knows nothing of my activities except that I'm "unemployed". Maybe I could take a part time job (putting me in a low tax bracket) just to keep the suspicion off.

What are the legal implications for this and what are the chances of getting caught?

Sooner or later you are going to want to use large scale infrastructure and the government can easily commandeer that if it wants to and run it as a state monopoly. In most countries, highways, railways, and airpots are already a state monopoly. Electricity, water, fuel in some others.

If they can no longer make money from taxing income or sales ... worst comes to worst they can expropriate all land/real estate owners and demand "rent" from everybody, in Bitcoins if need be.

I don't have a problem with the government owning natural monopolies, such as these (better than private sector). In fact I think that this should be the sole source of income for the government (maybe...). What I really hate is personal income tax and the way it gets wasted on inefficient govt. health and education, which would be better served by the private sector. I don't like redistribution of wealth. I see bitcoin as a way to bypass the tax/welfare system. Something that society badly needs.

From what I understand, bitcoin is legal, but you have to declare it as taxable income. This is fine because, as bitcoin grows, you'll see allot more underground/cash-style economies due to the untraceable nature of bitcoin transactions. Eventually, perhaps only big corporates will be paying taxes, because they are too big to go under the radar. As people realise their newfound economic freedom, they'll begin to see that they don't need the government to manage the economy or the currency or any industry and the role of government will naturally be reduced to military, police, courts; where it belongs.

I'm really excited by this. :-)

[FreeMoney]

If a monopoly is natural then you don't need to enforce it. If you pretend or incorrectly think something is a natural monopoly when it isn't then you will have to keep others out of that business with guns.

Any natural monopoly will arise naturally. If some industry that you think should have a monopoly provider ends up having competition then you should be surprised, not violent.

[Anonymous]

If a monopoly is natural then you don't need to enforce it. If you pretend or incorrectly think something is a natural monopoly when it isn't then you will have to keep others out of that business with guns.

Any natural monopoly will arise naturally. If some industry that you think should have a monopoly provider ends up having competition then you should be surprised, not violent.

The trouble is they only have violence to back them up. Any other way of doing things is completely alien. The other issue is that people let them get away with it.

[caveden]

I don't have a problem with the government owning natural monopolies

There is no such a thing as "natural monopoly".

All "network services" can be provided freely. You can, for example, create "neighborhood institutions" (don't know the best English word for it) which would own the local networks, and then contract the "backbone" from a free provider.
By network services I mean all these services that are normally called natural monopoly, such as transport network, water, electricity, telephony, sewer and so on.

[asdf]

I don't have a problem with the government owning natural monopolies

There is no such a thing as "natural monopoly".

All "network services" can be provided freely. You can, for example, create "neighborhood institutions" (don't know the best English word for it) which would own the local networks, and then contract the "backbone" from a free provider.
By network services I mean all these services that are normally called natural monopoly, such as transport network, water, electricity, telephony, sewer and so on.

How are these not natural monopolies? if you own the sewer system, then who's going to compete with you?

What is a "neighborhood institution"? sounds like a local government... ;-)

[Babylon]

What if I'm operating entirely within the bitcoin economy? I earn ONLY bitcoins and buy things for bitcoins ONLY. I never touch any $.

In this case, I pay no taxes and the government knows nothing of my activities except that I'm "unemployed". Maybe I could take a part time job (putting me in a low tax bracket) just to keep the suspicion off.

What are the legal implications for this and what are the chances of getting caught?

About exactly the same as using all paper money.  I don't know exact statistics, I do know that I know at least a dozen people who operate this way and none have been caught, so the chances (based purely on a very limited sample) should be less than 10 percent.

[caveden]

How are these not natural monopolies? if you own the sewer system, then who's going to compete with you?

What is a "neighborhood institution"? sounds like a local government... ;-)

A condominium. Like, when you own an apartment, you partially own the common parts of the buildings. When you own a house on a private condo, you partially own the streets and common area etc.
The local networks (streets, plumbing, electric cables etc) could be owned by the condominiums, which would then contract "backbone" providers.

It's not like a government because it's voluntary, contractual. (okay, to switch from the current system to such a system it would be hard to make it 100% voluntary, but it would be at least much closer to a voluntary institution than when the state controls everything).

[asdf]

How are these not natural monopolies? if you own the sewer system, then who's going to compete with you?

What is a "neighborhood institution"? sounds like a local government... ;-)

A condominium. Like, when you own an apartment, you partially own the common parts of the buildings. When you own a house on a private condo, you partially own the streets and common area etc.
The local networks (streets, plumbing, electric cables etc) could be owned by the condominiums, which would then contract "backbone" providers.

It's not like a government because it's voluntary, contractual. (okay, to switch from the current system to such a system it would be hard to make it 100% voluntary, but it would be at least much closer to a voluntary institution than when the state controls everything).

Voluntary in what sense? I can enter a contract with another condo if I like... So I have choice. Essentially, I see this as competition in governments; voting with your feet. If I am free to change my local government, then this is a voluntary system. This is a vision of decentralised of government, which I like.

Really, we're just arguing about definitions. The condominium is not THE government, but it functions as a form of government: votes, taxes, laws, regulations, maintaining infrastructure, etc. So when I say that natural monopolies should be owned by the government, you actually agree with this, but have added decentralisation into the equation.

[rutherford]

I do not think avoiding tax is a good idea. The government these days are sophisticated, they would know that there  have been money transferred to your account. Instead of hiding it from the government, you better report it but that's if there are rules about bitcoin taxes. As long there wasn't any rules about bitcoin taxes, it's still fine.

[squatz1]

No one should ever try to use bitcoin as a way to avoid tax, you're using an online currency that is fully traceable in an attempt to hide TAXES with FIAT currency. Hiding paper notes is going to be much easier than trying to hide something which is present straight on the blockchain.

The full force of the US government will find the money that they're missing. The IRS has already employed crypto companies to track down bitcoin addresses and people.

[masudginanjar]

may impose a tax on traders who trade in the exchange or market but not too expensive, because Saotshi is appreciated once by the Cryptocurrency community.

and everyone knows that now the market is at the point of Bears 'animals, where traders' opinions are very few.

[dadanpradana]

Bitcoin will not be taxed unless the Bitcoin is entered into the exchange, then when it is traded Bitcoin is subject to a fee.
now the fee will be taxed by the government against Bitcoin.

so, the conclusion is that the Exchange is taxable because it trades Bitcoin.

[ValerieBTC]

Bitcoin will not be taxed unless the Bitcoin is entered into the exchange, then when it is traded Bitcoin is subject to a fee.
now the fee will be taxed by the government against Bitcoin.

so, the conclusion is that the Exchange is taxable because it trades Bitcoin.

Yes that is right and I think that it can only be possible if they will make bitcoin a legal currency, which still most of the countries has not yet make it a legal currency.  I think after making bitcoin a legal currency they will become able to put some taxes on bitcoin and for that they will surely make mechanism to collect tax from their people.

[OrangeSeller]

I do not think avoiding tax is a good idea. The government these days are sophisticated, they would know that there  have been money transferred to your account. Instead of hiding it from the government, you better report it but that's if there are rules about bitcoin taxes. As long there wasn't any rules about bitcoin taxes, it's still fine.

You just cannot hide it from the government and they are going to implement progressive taxation for it is in their interest if they implement such a policy. But when there are policies implemented by the government, there would be regulations as well and this will reduce the crime ratio for Bitcoin is often used for transaction of money for illegal activities.
There are other reasons why the government would implement regulations and taxation like they might also improve the facilities for users to understand Bitcoin.

[Hui8]

Its true, every asset and currency that you exchange and get into your bank account will have the traceable value and this must be taxed. However there are some counties who are having tax free on bitcoin and this means whenever you convert your bitcoins to fiat then it is surely can be sorted out as tax free transaction and thus fiat came from that way wont be taxed. In many countries this is far more strictest and thus you can not avoid the transfers from taxing them. Taxation is important step if you really want to keep the credibility of your accounts with banks and financial institutes.

[anobtc]

Buying and selling Bitcoin is transactions between individuals, even if you transfer them to fiat money, that is what happen in my country. So it is difficult for the government to tax on this type of currency.

[stellgod]

Bitcoin will not be taxed unless the Bitcoin is entered into the exchange, then when it is traded Bitcoin is subject to a fee.
now the fee will be taxed by the government against Bitcoin.

so, the conclusion is that the Exchange is taxable because it trades Bitcoin.

Yes that is right and I think that it can only be possible if they will make bitcoin a legal currency, which still most of the countries has not yet make it a legal currency.  I think after making bitcoin a legal currency they will become able to put some taxes on bitcoin and for that they will surely make mechanism to collect tax from their people.

Bitcoin is legal in many countries and they are tax free for it so it is not the real fact for tax implementation. If governments want to implement tax over the Bitcoin then they will do that which will be additional burden on people because government should not implement tax in every thing. People belong to tax free Bitcoin countries are enjoying their profits.

[Gragal]

why should there be a tax for transacting in bitcoin, if there is taxation take it with not so much climbing, because sometimes bitcoib's income is not much, sorry later if there is a down payment for tax fees.