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.
Topic 420 - Bartering Income
Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. You must include in gross income in the year of receipt the fair market value of goods and services received in exchange for goods or services you provide or may provide under the bartering arrangement.
more at link...
Fair Tax anyone? lol (minus the prebates and include exemptions for perishable food stuffs)
You shouldn’t be taxed on food and basic necessities, especially when you work in exchange for it.
The encryption and method of storage makes NSA spying unlikely. You would have to be a target already (and a high value one at that) for the gov to spend the resources to crack it.
Like anything else the more prominent a financial method becomes, the more the IRS will pay attention to it. Of course, by definition of purpose, the IRS is interested in REVENUE so, yes, it will tax it! And the 11th commandment of taxation is “Don’t flaunt it because you will then lose it!”
Best of luck, your results may vary and I did not give you tax advice!
Posters at FReerepublic are high value targets already. Just sayin’
That’s the deal with barter - they don’t like it because if I trade tomatoes for rabbits,
we both say they had the same value, and there’s no profit to tax.
I would say that would apply to bitcoin as well.
I trade $1000 worth of bitcoin for $1000 worth of goods or services, and no profit has occurred.
That argument has been used against the income tax,
even though it is a legal and valid argument.
>>> we both say they had the same value, and theres no profit to tax.
I trade $1000 worth of bitcoin for $1000 worth of goods or services, and no profit has occurred.
When trading occurs, you are accumulating one commodity for another. Each of those commodities whether it be bitcoins or pork bellies has value which rises and falls over time.
So it is not necessarily the transaction that is taxed, but rather the change in value of what you own. This form of income is reported as capital gains and is taxed differently than others.
If however, you are receiving a commodity for services, that is recognized as income which you are supposed to report AS wages/salary. The only difference is WHERE you report it on your tax return.
Now... here is where I think your real question resides:
At what point is a bitcoin considered a commodity OR a CURRENCY?
Technically, it cannot be considered a currency because it has no backing and is not recognized as currency by any government. It is therefore a commodity, and is subject to the same income tax regulations for speculative income as everything else.
NOW... what happens IF and WHEN bitcoin’s success positions itself as an effective ALTERNATE form of currency?
If that were to become the case, it would threaten or compete with the value of valid forms of currency, and the federal government would be forced to justifiably ban it.
Now... considering the fact that bitcoin was DESIGNED to be an alternate form of currency, there is ONLY ONE way for it to end.
Encryption is no problem for the NSA. Web searches, destinations, emails, are recorded. Information WILL be shared with any government agency that wants it - including the IRS.
Committing tax fraud and getting caught can give you criminal charges, confiscation of all existing assets, and fines.
Is it worth the risk? I don’t look good in orange. I value the shrinking amount of freedom I have.
I like the Fair Tax concept, understanding the need for constitutional amendment-including a provision limiting spending to no more than revenues, etc.
How would Obama and the Democrats have funded their health care legislation without the ability to tax (impose fines) individuals/companies? You could ask the same question of a myriad of other spending measures. The only answer would be that our elected representatives would be forced to look at setting spending priorities based on anticipated revenues and live within our means. Novel concept, I know.
given enough time and energy you would be correct, How ever if it was so easy no digital currency would be safe and there for all would be worthless. The encryption and storage method for bitcoins is for all intents and purposes completely secure. As I said before for the gov to spend the resources to crack the encryption on to bitcoin wallet you would have to be a major target.
They don’t need to decrypt bit coins to charge you with tax evasion. The rest of the evidence from the NSA and the simple fact they can view what you are spending will be sufficient. Your computer will be seized and your bit coins lost too. In any case, no evidence is actually needed to put you in a terrible position.
that is not a bitcoin issue but how you operate in the underground economy. 2 issues anonymous transactions, think drug deal etc. vs. buying a pizza, vs buying a car. The more records you create in the traditional economy the higher the likelihood your screwed. Screw bitcoins, the shipping invoices of pizza dough and mozzarella are enough to screw mom and pop pizza shops, proof of cash transaction not required. The issue in this thread though is bitcoins.
” and pop pizza shops, proof of cash transaction not required. The issue in this thread though is bitcoins.”
Actually, the topic is whether Bitcoin salary or compensation is taxable. It is. Every other part of the discussion supports the taxable nature and why you should report it.