Are Bitcoins legal?

[Panzer1]

Is it legal to have a Bitcoin income and not pay taxes on it? Are Bitcoins considered as real money by the governments?

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[Gladamas]

I declare Bitcoin income as "commodity trading" since Bitcoin is a commodity IMO.

[mollison]

I have heard that you only have to declare income on Bitcoins if you cash out. (This was in reference to US tax law.) Just a "rumor," though, and anyone who can comment further would be appreciated, though ultimately you need to talk to a lawyer and/or accountant.

(Sidenote: If some law firm or accountancy would actually advertise that they take bitcoin clients, that would be fabulous.)

(Sidenote 2: If what I heard is true, that could be a force that encourages people *not* to cash out and to instead try to buy things in bitcoins, which would just help speed bitcoin adoption.)

[cbeast]

I'll enjoy watching the lawyers try to catch that greased pig.

[gamebak]

Something like this wasn't invented before, so they will have to come with some new taxes for this, i am sure of this

If they want to censor internet, they will try for sure to add taxes to the money that is passed from side to side in another form of digital currency.

[Koooooj]

[Pure Speculation]

I think it is comparable commodity trading, as Gladamas stated.  You would probably have to pay a capital gains tax if you made substantial USD (assuming you are in USA; substitute relevant local currency) on the market.  As for mining coins, that is a tricky subject.

In any case, it would be a !@#$% for a government to try to track BTC gains (withdrawing into a bank account i.e. through Mt. Gox, on the other hand, would be easily traced)

[silentseawolf]

I'll enjoy watching the lawyers try to catch that greased pig.

Agreed, ill bring the popcorn.  Also, remember the 11th commandment, Don't get caught.

[Gabi]

I have heard that you only have to declare income on Bitcoins if you cash out. (This was in reference to US tax law.) Just a "rumor," though, and anyone who can comment further would be appreciated, though ultimately you need to talk to a lawyer and/or accountant.

If you cash out i think it's considered income tax

It's like if you receive 10.000$, doesn't matter from where they come, you have to pay tax for them of course.

[JTurner]

I have heard that you only have to declare income on Bitcoins if you cash out. (This was in reference to US tax law.)

That seems logical to me too. As far as I know it's not considered as a currency, so earning bitcoins is like earning donuts: you don't declare that. But getting dollars out of bitcoin sales is like getting dollars out of donut sales: you declare that. I'm not a lawyer though, only using what seems like common sense.

[Foxpup]

Generally, there are two types of taxes you might have to pay on bitcoins:

1) Capital gains tax: If you buy bitcoins and later sell them or spend them*, you have to pay tax on the difference between the value of the bitcoins when you bought them and value of the bitcoins when you sold/spent them.
2) Income tax: If you earn or mine bitcoins, they count as regular income which you have to pay tax on. However, you do not have to pay an additional tax when you sell or spend bitcoins aquired in this manner.

Now, it gets a little tricky when you're buying and earning bitcoins, as well as dealing with price fluctuations, and this is where having a good accountant comes in handy.

*Exchanging any kind of property for any other kind of property counts as a "realisation event" as far as capital gains tax is concerned; it makes no difference whatsoever whether you exchanged it for cash or not. Spending bitcoins directly does not provide a loophole to avoid having to pay tax.

[Kazimir]

If I paint someone's house, and he gives me 1 ounce of gold. Should I report that with the IRS? And/or am I eligible to pay some kind of tax for that?

(not asking if I would get away with it if I don't, or if they have any chance whatsoever of even detecting this)

[pron241]

You should probably pay taxes on them - who knows, better safe than sorry.

[pekv2]

Question should be, is it illegal to produce a ton of bitcoins then offload them for USD into your bank account. < that's what I been pondering on.

[Kazimir]

better safe than sorry.

Well not if I'm unnecessarily wasting money.

[Kazimir]

Question should be, is it illegal to produce a ton of bitcoins then offload them for USD into your bank account. < that's what I been pondering on.

But why would you do that. Isn't the whole point of Bitcoin to get RID of (the need for) old fashioned currencies like EUR and USD?

[pekv2]

Question should be, is it illegal to produce a ton of bitcoins then offload them for USD into your bank account. < that's what I been pondering on.

But why would you do that. Isn't the whole point of Bitcoin to get RID of (the need for) old fashioned currencies like EUR and USD?

But don't people do this already?

[Handler]

Question should be, is it illegal to produce a ton of bitcoins then offload them for USD into your bank account. < that's what I been pondering on.

But why would you do that. Isn't the whole point of Bitcoin to get RID of (the need for) old fashioned currencies like EUR and USD?

At the moment I think a lot of people are comforted by the fact that bitcoins are backed with "real money", i.e. USD. Until BTC is widely accepted and easy to use, people will still need fiat money to pay their rent, food, utilities, etc. If they were to make most of their income by creating bitcoins, there's an obvious incentive to convert them to fiat

[Somlba]

Isn't it possbile to declare bitcoin earnings as gambling earnings? It would be tax free that way.

[Kazimir]

Isn't it possbile to declare bitcoin earnings as gambling earnings? It would be tax free that way.

Good point. I mean, hey, every single bitcoin I own comes from Satoshi Dice winnings. Nobody can prove otherwise

[realnowhereman]

My guess is that if Bitcoin ever does become a truly successful global currency, governments will be forced to move to a land value tax, since that is the only tax that cannot be avoided or evaded.

The other possibility is that government will force companies to register a particular bitcoin address or addresses as being the payment address for given individuals.  Governments would actually love this, as your income would be written in the block chain.  It could even be automated so that they get their tax even quicker... the government issues a tax payment address per employee to businesses.  The business then has to pay employees in a single transaction that pays both the tax and the employee in one.

What fun we have in store, right?