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Author Topic: Is buying from a merchant who accepts bitcoin a taxable event?  (Read 197 times)
bomberb17
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February 13, 2021, 03:54:16 AM
 #1

Suppose I buy from a merchant who accepts bitcoin (e.g. Newegg which uses Bitpay).
Is this a taxable event? i.e. should I report my purchase to IRS?

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February 13, 2021, 06:49:40 AM
 #2

I am not very clear that I know what you are referring to, but I think the taxable event would be if you sell bitcoin to that merchant who converts it to fiat. You should clarify what you would be buying and what you would be buying it with (bitcoin or fiat).

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February 13, 2021, 06:53:04 AM
Merited by odolvlobo (1)
 #3

Suppose I buy from a merchant who accepts bitcoin (e.g. Newegg which uses Bitpay).
Is this a taxable event? i.e. should I report my purchase to IRS?



Sounds like you reside in the USA based on the example you gave above. So here's how the USA breaks down a taxable event:

If you used bitcoin by cashing it on an exchange or buying goods and services, you will owe taxes if the realized value (the sale price of bitcoin, for example) is greater than the price at which you acquired the bitcoin. You may have a capital gain that's taxable at either short-term or long-term rates.
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February 13, 2021, 08:41:48 AM
 #4

Suppose I buy from a merchant who accepts bitcoin (e.g. Newegg which uses Bitpay).
Is this a taxable event? i.e. should I report my purchase to IRS?
No, not taxable.

This is how it works
You buy: not taxable
You send: not taxable
You lose while holding or trading: not taxable
You gain: taxable.

How gain is taxed
It can deffirr from country to country. Supposing the tax is 10%
You bought $1000 worth of bitcoin.
The price increase and you have $1100.
The gain is $100

10% of the gain
10% of $100

The 10% of $100 is equals $10.

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bomberb17
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February 13, 2021, 04:34:30 PM
 #5

I am not very clear that I know what you are referring to, but I think the taxable event would be if you sell bitcoin to that merchant who converts it to fiat. You should clarify what you would be buying and what you would be buying it with (bitcoin or fiat).

I'm not selling any bitcoins to the merchant. I am just paying the merchant with bitcoins directly to buy a product. (the merchant processes my payment through bitpay)

Suppose I buy from a merchant who accepts bitcoin (e.g. Newegg which uses Bitpay).
Is this a taxable event? i.e. should I report my purchase to IRS?
No, not taxable.

This is how it works
You buy: not taxable
You send: not taxable
You lose while holding or trading: not taxable
You gain: taxable.

How gain is taxed
It can deffirr from country to country. Supposing the tax is 10%
You bought $1000 worth of bitcoin.
The price increase and you have $1100.
The gain is $100

10% of the gain
10% of $100

The 10% of $100 is equals $10.

So buying something with bitcoins as I explained above is considered "send" right? The bitcoins->USD conversion which is done by bitpay is done at the merchant side right?
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February 14, 2021, 05:04:47 AM
Merited by HeRetiK (1)
 #6

I'm not selling any bitcoins to the merchant. I am just paying the merchant with bitcoins directly to buy a product. (the merchant processes my payment through bitpay)
...
So buying something with bitcoins as I explained above is considered "send" right? The bitcoins->USD conversion which is done by bitpay is done at the merchant side right?

No, not taxable.

That is not correct for the U.S.

If you used bitcoin by cashing it on an exchange or buying goods and services, you will owe taxes if the realized value (the sale price of bitcoin, for example) is greater than the price at which you acquired the bitcoin. You may have a capital gain that's taxable at either short-term or long-term rates.

That is mostly correct. In the U.S, when you exchange bitcoins for anything, whether it is dollars, goods, or even other coins, that is a taxable event -- a capital gain or a loss.

This explains everything: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions

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February 14, 2021, 05:32:46 PM
 #7

Ok so suppose I buy a laptop from newegg.com and pay with bitcoin. Is newegg going to send me a 1099-K form next year (as an exchange would)? Or should I manually add it myself to the 8949 form?
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February 14, 2021, 05:44:57 PM
 #8

Ok so suppose I buy a laptop from newegg.com and pay with bitcoin. Is newegg going to send me a 1099-K form next year (as an exchange would)? Or should I manually add it myself to the 8949 form?

Nothing is sent to the IRS. You must track it yourself.

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February 14, 2021, 08:59:43 PM
 #9

You still have to report on the specific parameters of a certain number of transactions. The description of these transactions will contain everything that the tax authorities need. It seems to me the faster all these processes will be digitized and become quick and easy for a large number of people - this will bring a new mass of people into the market who have not yet been here. So it will get better and bigger.

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February 15, 2021, 07:16:53 PM
 #10

Again, my question is unrelated to buying or selling cryptocurrency in exchange for fiat money.

My question is about paying with cryptocurrency directly to buy goods from a merchant.

And from what it seems above, this transaction is indeed a taxable event for IRS, despite no cryptocurrency<->fiat conversion taking place.
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February 15, 2021, 07:22:33 PM
 #11

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And from what it seems above, this transaction is indeed a taxable event for IRS, despite no cryptocurrency<->fiat conversion taking place.
Correct. In the US *any* non-fiat sales transaction be it using crypto or even barter using items or services rendered is taxable at the fiat equivalency of your purchase.

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February 16, 2021, 10:42:59 AM
 #12

Each country has taken a slightly different stance on how to tax and regulate Bitcoin and other cryptos, therefore if the purchase is taxable in the US, it will still be taxable if made with bitcoin, just as it would be if you paid with Dollars, Euros, or a credit card for that matter.
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February 16, 2021, 08:52:08 PM
 #13

do you have to pay tax on bitcoin?
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February 17, 2021, 04:30:48 AM
 #14

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And from what it seems above, this transaction is indeed a taxable event for IRS, despite no cryptocurrency<->fiat conversion taking place.
Correct. In the US *any* non-fiat sales transaction be it using crypto or even barter using items or services rendered is taxable at the fiat equivalency of your purchase.

That sounds horrendous to me if it were to be implemented in my country. Here, every time we buy something, we are already paying layers of taxes. We buy a can of sardines, we pay tax, Value Added Tax (VAT), Extended Value Added Tax (EVAT), and whatnots. And if we pay another tax simply because the transaction uses Bitcoin instead of fiat, I'm afraid the amount of all the taxes paid surpasses that of what was actually bought.

Anyway, I have a curious question. Suppose you bought $1,000 worth of BTC. Months later the worth rose to $1,100. You decided to spend $1,000. That was considered your capital. Since you are not to be taxed on your capital but on your gains, are you gonna be taxed on that purchase?

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February 17, 2021, 07:23:39 PM
 #15

Suppose I buy from a merchant who accepts bitcoin (e.g. Newegg which uses Bitpay).
Is this a taxable event? i.e. should I report my purchase to IRS?


Disclaimer: I am not a legal or financial advisor. I am here to post my opinion on the matter. My opinion is not to be considered investment or legal advice nor does it constitute it. For legal or financial advice, please consult with your local professional!

Every transaction besides a regular transfer just about triggers a taxable event here within the U.S. It doesn't matter where or when, the moment your use cryptocurrency to make a purchase in the U.S, the event triggers. However, there are ways to help negate some of triggers with write offs and other means to legally reduce the amount of tax owed, like charity, etc.
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February 19, 2021, 05:32:53 AM
 #16

Quote
And from what it seems above, this transaction is indeed a taxable event for IRS, despite no cryptocurrency<->fiat conversion taking place.
Correct. In the US *any* non-fiat sales transaction be it using crypto or even barter using items or services rendered is taxable at the fiat equivalency of your purchase.

That sounds horrendous to me if it were to be implemented in my country. Here, every time we buy something, we are already paying layers of taxes. We buy a can of sardines, we pay tax, Value Added Tax (VAT), Extended Value Added Tax (EVAT), and whatnots. And if we pay another tax simply because the transaction uses Bitcoin instead of fiat, I'm afraid the amount of all the taxes paid surpasses that of what was actually bought.

Anyway, I have a curious question. Suppose you bought $1,000 worth of BTC. Months later the worth rose to $1,100. You decided to spend $1,000. That was considered your capital. Since you are not to be taxed on your capital but on your gains, are you gonna be taxed on that purchase?

In this case, I would view your capital gains as separate from the transaction you made using your gains so this will be treated as two taxable instances, IMO. There will be tax for 1) gain from your capital and 2) the purchase but it would ultimately have to depend on the tax framework of your country. In most cases, as long as a purchase is made it will be taxable whether or not crypto or fiat is used. Even if what you use to purchase is your gains from BTC appreciation, it will still be taxable. Value Added Tax (VAT) is already built in transactions so you won't have to manually deduct taxes on your purchases since its already built in as in compliance to the law.
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February 19, 2021, 06:14:21 AM
 #17

IIRC, it is mandatory to report every conversion of crypto currency whether it is to fiat or good or an altcoin because the price you bought bitcoin is not going to be same when you converted it so it is taxable and the tax rate depends on states and how long you are holding it since you purchased.

Tax calculation for US people is bit complicated and it should be assisted with the help of Professionals.

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February 20, 2021, 02:24:12 PM
 #18

I think that logically, this applies to all countries where crypto profits are taxed. Technically, even if the "buying goods with digital currencies" part is not mentioned in the law.

Say you purchased a Bitcoin back when it was $1 and now you've purchased a car worth $50k with it. What do you declare if and when the authorities come and ask you where you had that money from? Will you say it's from Bitcoin? How? Did you purchase a $1 car? No, you've earned a profit and that is what you've used to purchase the car with.

I'd say it is generally advisable that you do report taxes when you purchase goods using the profit you have in crypto.. if you want to have inner peace that you'll never be asked by any authority where your funds came from, because if you tell them it's from a BTC you purchased a while ago you'll probably get screwed up..

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March 04, 2021, 08:42:25 PM
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As long as there is no cash registering and issued by a public or private printing press - no. As soon as you receive cash from any such transaction, you are welcome. If you do not have time to register these incomes correctly and on time, you are welcome. It is not for nothing that the FBI is more afraid of the Tax Service! Smiley

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March 07, 2021, 06:43:46 PM
 #20

Ok so suppose I buy a laptop from newegg.com and pay with bitcoin. Is newegg going to send me a 1099-K form next year (as an exchange would)? Or should I manually add it myself to the 8949 form?

@OP if you are still uneasy on paying Bitcon because there will be a pending tax liability because of it then don't worry about it. Nothing about using Bitcoin as a payment method is considered to be a taxable event since its not even income or its not even capital gains on your part since you are just using Bitcoin as what it supposed to do and that is as a means of payment. Don't be worried about any tax liability here just think about Bitcoin payment as if you are using a regular fiat currency on your transaction, there is simply no taxes for it.
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