Skip to comments.Question: BitCoin transactions taxable?
Posted on 12/06/2013 7:30:16 AM PST by thetallguy24
If you never use legal tender for any transactions, be it for business, salary, expenses, etc., would you have to pay taxes on it? For example, if you're salary was always in BitCoins and you paid for everything in BitCoins, would any of that be taxable? After all, it isn't considered fiat.
Was your transaction reported or traceable?
I wasn’t too thrilled with being charge State sales tax for a private party, used car purchase, recently.
They’ll tax the air you breath, if you let them.
lol no, I’m asking a hypothetical.
I have never used Bitcoins, but thought it was interesting how this could affect taxation if people start switching from the traditional fiat currency to BitCoins or even bullion.
Technically, even barter transactions are taxable.
Problem is, IRS is not that well equipped or trained to track, convert, and ultimately enforce it.
It all boils down to fair-market value.
If you profit from any transaction, it’s the fair market value of what you received as payment which is taxable.
So... if you sell a bitcoin for $1000 that you bought for $5.00, you realize a $995 capital gain... whether that transaction is in dollars or not.
Forget the investment part for a moment, because that does require a purchase most likely using fiat currency.
Say you get hired and work for someone who pays you only in BitCoins. Is that income taxable?
Absolutely considered taxable. Try not declaring and paying taxes, unless orange is not your favorite clothing color...
Yes, theoretically, the IRS will tax your 5 cent “profit” on baseball trading cards, if you report it.
Or is it even considered income? Would it be considered more of a barter?
While it would be taxable in reality the government won’t have the information to act as long as your transactions remain anonymous. The currency is hidden from governments the only risk is if you buy a car, lets say, you’ll need to provide an address and name, and when you register it again you’ll have to provide information. This is why bitcoins et al are used by drug dealers. It work better for the underground economy, unless your issue is looking for an inflation protected and easily exchanged currency and are not worried about staying off the radar.
>>> Or is it even considered income? Would it be considered more of a barter?
If someone pays you in bitcoins for your services, its the same as paying you cash. The IRS expects you to claim the fair market value of what you were paid as income.
"You say... 'Steve.. how can I be a millionaire... and never pay taxes?' First... get a million dollars. Now... you say, 'Steve... what do I say to the tax man when he comes to my door and says, "You... have never paid taxes"?'
Two simple words. Two simple words in the English language: 'I forgot!' How many times do we let ourselves get into terrible situations because we don't say 'I forgot'?
Let's say you're on trial for armed robbery. You say to the judge, 'I forgot armed robbery was illegal.' Let's suppose he says back to you, 'You have committed a foul crime. You have stolen hundreds and thousands of dollars from people at random, and you say, "I forgot"?'
Two simple words: 'Excuuuuuse me!!'"
Yes. Even barter is taxable. “You paint my house, I’ll fix your car” is income to both parties.
So, I guess I should never work for food then, because the IRS will come for me if I don’t report it lol
“The currency is hidden from governments the only risk is if you buy a car, lets say, youll need to provide an address and name, and when you register it again youll have to provide information.”
The NSA spying program has internet records... jest sayin’
Barters which result in a profit are income, pure and simple. Income is potentially taxable no matter what assets were exchanged to produce the profit.
would the IRS know what to do with a bitcoin if someone paid their taxes with them?
Yes, it would be legally taxable. However, the problem is like “ being paid under the table”’when someone works at some job. The person is legally obligated, but in the absence of a “paper trail” the authorities are less likely to find out.
But at some point - the IRS can look at your situation and ask how you are able to live in that house you have, drive that car you are driving, etc. - when you have no taxable income.
It’s all taxable. Imagine you raise a prize bull, and sell it for an ounce of gold. The value of the gold, less your raising expenses is taxable.
Then, you later take that ounce of gold and buy a steer.
What’s amazing is that if you held onto that ounce of gold during an inflationary time (say the value went from $20 to $2000 per ounce) you are taxed on that “gain” of $1980.
“So, I guess I should never work for food then, because the IRS will come for me if I dont report it lol”
Yes. Worse still, the IRS insists upon payment in U.S. Dollars and not in Wisconsin cheddar cheese. So, your one ton of cheese will be taxable in U.S. Dollars you may not possess, meaning you have to sell some cheese to raise the cash to pay the income taxes on the cheese.
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