Tax Planning Bitcoins: The Taxless Currency Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Published Jul 18, 2011 - [Updated Aug 23, 2016] 1 min read In today’s economy, the value of the dollar is weaker than ever and the thought of a digital currency is becoming more of a reality with the recent introduction of bitcoins. Bitcoins can be compared to cash, but cash is limited to physical exchange, where as bitcoins can be sent throughout the Internet. Today there are more than 6.3 million bitcoins in existence and this number continues to grow. So, how are bitcoins used and how have they become a currency that can be used like dollars, but is tax avoidable? Let’s explore. Embed the above image on your site using the code below: Free Tax Filing, Efile Taxes, Income Tax Returns – TurboTax.com Previous Post Summer Job Tax Tips Next Post Don’t Let That Summer Getaway Get Away Written by More from 31 responses to “Bitcoins: The Taxless Currency” « Older Comments How can bitcoin be taxable?It is akin to gambling and no government regulation or protection is given by government so how exactly does government earn this tax? Reply Bitcoin may be taxable, but in reality not feasible. If one claims loss of a bitcoin wallet, will the IRS allow a tax deduction as one ends up losing money in bitcoin investment? Who knows whether you really lose a wallet or not? One can always make up a tax report showing a loss in bitcoin investment by claiming loss of wallet. Reply A lot of this seems wrong or misleading. Transaction logs are shared publicly online, but the transaction log is entirely anonymous. You can see that someone sent 2 BTC to someone else, but you can’t see who those people are. “Because of the scripts contained inside transactions” this makes absolutely no sense. Scripts inside a transaction…what? Executing an exchange is incredibly simple. When running the bitcoin client, at the top in a big box is “Your bitcoin address”. You give it to someone, they then click the “Send coins” button, enter your address, and the amount, then click send. It requires no registration or configuration. You just download and install the client. If this is complicated, I don’t know what is simple. Bitcoins are no or less refundable, replacable or insurable than any other form of currency. Remember that bitcoin is a form of cash, and that the security you find while spending money online isn’t provided by the US dollar, it is provided by credit companies and insurers. These types of company can (and do) exist in the bitcoin world. Reply I do not agree at all that bitcoin is a taxable currency. If you sell bitcoin for USD, then I guess the IRS can count that as a gain and tax you for it. At least until FairTax totally replaces the massive and destructive tax code, and shuts down the IRS for the most part. They can not, I repeat, Can NOT tax other currencies. If you have a Swiss bank account full of Swiss Francs, none of which is traded for, or from, USD, then the IRS has absolutely no jurisdiction over it. Ever heard that word before? Jurisdiction? If you buy something in Switzerland, like say a House over there, and you go visit that house once in a while, and pay people to keep it clean, etc., you will be paying entirely in Swiss Francs. Any taxes you owe would be owed to Switzerland! Just because you’re a US Citizen that does not mean you Also must pay the IRS whatever they decide you owe them. Even if there is a law that supposedly says you have a liability, there is still no law requiring you to REPORT anything to those socialist frakers! I suggest you learn the truth about taxes, and ignore the lies coming from the socialists in our government. Go to Tax Honesty Patriot’s page https://www.facebook.com/groups/143888978966141?ap=1 Reply Converting Bitcoins to Federal Reserve Notes is undoubtedly a taxable event. If you really want to avoid paying taxes , endorse your Federal Reserve Notes. It will then become a liability as opposed to an asset. You will be on the hook to redeem it for lawful money. Don’t fret though. No one redeems their Federal Reseve Notes at the Fed so i doubt they will redeem them with you? Reply For those arguing against the article’s point that bitcoin is not inherently taxable, some points: – The article does not say that a purchase of bitcoin with USD and subsequent sale for profit in USD would not be taxable. This is a gain in USD and may be taxable. – However, the act of buying an item in bitcoin is not taxable. It is a barter of one good for another, and is akin to trading one red shirt for your neighbor’s purple shirt. There was no gain or loss to tax here. There was no sale involving USD. Now let’s replace bitcoins for one of those shirts. As the government can’t tell you the inherent value of a bitcoin, it cannot show that your trade of 5 bitcoins for a T-shirt was either a gain or a loss. By definition, in fact, it is neither – the “value” of those bitcoins at that moment is exactly one T-shirt. No gain, no loss, no tax. How exactly is barter taxable? Reply Its curious that this infographic is listed under ‘Tax Tips’. There is some good information here but its misleading hype to suggest bitcoins can be used for tax evasion. Replace ‘bitcoin’ with ‘pet rock’ and you’ll get the same result – not generated by the government, but buying and selling them are still taxable. The exchanges demonstrate a fair market value which helps determine how they can be taxed. Many people using bitcoin are looking for convenience and no overhead cost to transfer money electronically. The ‘expected future supply’ chart is actually the ‘exact future supply’ chart as its built into bitcoin to generate coins every 10 minutes, starting with 50 and cutting that in half every two years. Reply The “taxless currency”? Are you serious? Bitcoins are interesting for a lot of reasons, but avoiding tax liability is not one of them. Barter is taxable. If you sell goods or services for bitcoins, you have taxable income. If you buy bitcoins and sell them at a gain, you have taxable income. Bitcoins are not magically tax free. Granted, transacting in bitcoins can make tax evasion easier, just as transacting in cash can, but that is hardly something I would expect Intuit to advocate. Reply You really need to fact check you article. Passwords were not leaked , hashes of the passwords were leaked. Only weak passwords where cracked. Mine wasn’t. Mtgox hack never resulted in the loss of a single bitcoin. Fake bitcoins where created within the exchange database NOT BITCOIN and sold artificially driving the price on the exchange down. It was 10K bitcoin that was allegedly stolen. this individual has shown a shread of proof. Even the transaction hash this individual said was proof actually proved it didn’t happen. He was another individual that didn’t comprehend how bitcoin worked so he spewed garbage. Now that we have covered that … how many credit card infos have been stolen since January 1st? How many millions in paper money have been stolen? Bitcoin isn’t even a blip in comparison. Reply As for the theft of bitcoins, your bitcoin wallet is like a physical wallet, if someone steals your physical wallet, they get your money, and you don’t get it back. Not like an FDIC insured checking account where you get your money back if someone hacks into the bank account somehow and takes everything in it. So, yes, you have to be vigilant and Protect your digital wallet as if it were a physical wallet containing physical coins. Those bitcoins are not refundable, replaceable, or insured in any way. If someone steals your wallet file, that’s it, that money is gone. I use TrueCrypt and stuff for my wallet, but if you don’t want to mess around with a local bitcoin wallet on your computer, you could decide to trust an online eWallet provider, like http://bit-bank.org. But, just like your graphic said, online websites can be vulnerable to hackers, and thieves. Just be careful. Reply « Older Comments Leave a ReplyCancel reply Browse Related Articles Tax News IRS Provides Guidance on the Taxation of Bitcoins and Virtual Currency Income and Investments Bitcoin Calculator: How Much is Your Wallet Worth? 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How can bitcoin be taxable?It is akin to gambling and no government regulation or protection is given by government so how exactly does government earn this tax? Reply
Bitcoin may be taxable, but in reality not feasible. If one claims loss of a bitcoin wallet, will the IRS allow a tax deduction as one ends up losing money in bitcoin investment? Who knows whether you really lose a wallet or not? One can always make up a tax report showing a loss in bitcoin investment by claiming loss of wallet. Reply
A lot of this seems wrong or misleading. Transaction logs are shared publicly online, but the transaction log is entirely anonymous. You can see that someone sent 2 BTC to someone else, but you can’t see who those people are. “Because of the scripts contained inside transactions” this makes absolutely no sense. Scripts inside a transaction…what? Executing an exchange is incredibly simple. When running the bitcoin client, at the top in a big box is “Your bitcoin address”. You give it to someone, they then click the “Send coins” button, enter your address, and the amount, then click send. It requires no registration or configuration. You just download and install the client. If this is complicated, I don’t know what is simple. Bitcoins are no or less refundable, replacable or insurable than any other form of currency. Remember that bitcoin is a form of cash, and that the security you find while spending money online isn’t provided by the US dollar, it is provided by credit companies and insurers. These types of company can (and do) exist in the bitcoin world. Reply
I do not agree at all that bitcoin is a taxable currency. If you sell bitcoin for USD, then I guess the IRS can count that as a gain and tax you for it. At least until FairTax totally replaces the massive and destructive tax code, and shuts down the IRS for the most part. They can not, I repeat, Can NOT tax other currencies. If you have a Swiss bank account full of Swiss Francs, none of which is traded for, or from, USD, then the IRS has absolutely no jurisdiction over it. Ever heard that word before? Jurisdiction? If you buy something in Switzerland, like say a House over there, and you go visit that house once in a while, and pay people to keep it clean, etc., you will be paying entirely in Swiss Francs. Any taxes you owe would be owed to Switzerland! Just because you’re a US Citizen that does not mean you Also must pay the IRS whatever they decide you owe them. Even if there is a law that supposedly says you have a liability, there is still no law requiring you to REPORT anything to those socialist frakers! I suggest you learn the truth about taxes, and ignore the lies coming from the socialists in our government. Go to Tax Honesty Patriot’s page https://www.facebook.com/groups/143888978966141?ap=1 Reply
Converting Bitcoins to Federal Reserve Notes is undoubtedly a taxable event. If you really want to avoid paying taxes , endorse your Federal Reserve Notes. It will then become a liability as opposed to an asset. You will be on the hook to redeem it for lawful money. Don’t fret though. No one redeems their Federal Reseve Notes at the Fed so i doubt they will redeem them with you? Reply
For those arguing against the article’s point that bitcoin is not inherently taxable, some points: – The article does not say that a purchase of bitcoin with USD and subsequent sale for profit in USD would not be taxable. This is a gain in USD and may be taxable. – However, the act of buying an item in bitcoin is not taxable. It is a barter of one good for another, and is akin to trading one red shirt for your neighbor’s purple shirt. There was no gain or loss to tax here. There was no sale involving USD. Now let’s replace bitcoins for one of those shirts. As the government can’t tell you the inherent value of a bitcoin, it cannot show that your trade of 5 bitcoins for a T-shirt was either a gain or a loss. By definition, in fact, it is neither – the “value” of those bitcoins at that moment is exactly one T-shirt. No gain, no loss, no tax. How exactly is barter taxable? Reply
Its curious that this infographic is listed under ‘Tax Tips’. There is some good information here but its misleading hype to suggest bitcoins can be used for tax evasion. Replace ‘bitcoin’ with ‘pet rock’ and you’ll get the same result – not generated by the government, but buying and selling them are still taxable. The exchanges demonstrate a fair market value which helps determine how they can be taxed. Many people using bitcoin are looking for convenience and no overhead cost to transfer money electronically. The ‘expected future supply’ chart is actually the ‘exact future supply’ chart as its built into bitcoin to generate coins every 10 minutes, starting with 50 and cutting that in half every two years. Reply
The “taxless currency”? Are you serious? Bitcoins are interesting for a lot of reasons, but avoiding tax liability is not one of them. Barter is taxable. If you sell goods or services for bitcoins, you have taxable income. If you buy bitcoins and sell them at a gain, you have taxable income. Bitcoins are not magically tax free. Granted, transacting in bitcoins can make tax evasion easier, just as transacting in cash can, but that is hardly something I would expect Intuit to advocate. Reply
You really need to fact check you article. Passwords were not leaked , hashes of the passwords were leaked. Only weak passwords where cracked. Mine wasn’t. Mtgox hack never resulted in the loss of a single bitcoin. Fake bitcoins where created within the exchange database NOT BITCOIN and sold artificially driving the price on the exchange down. It was 10K bitcoin that was allegedly stolen. this individual has shown a shread of proof. Even the transaction hash this individual said was proof actually proved it didn’t happen. He was another individual that didn’t comprehend how bitcoin worked so he spewed garbage. Now that we have covered that … how many credit card infos have been stolen since January 1st? How many millions in paper money have been stolen? Bitcoin isn’t even a blip in comparison. Reply
As for the theft of bitcoins, your bitcoin wallet is like a physical wallet, if someone steals your physical wallet, they get your money, and you don’t get it back. Not like an FDIC insured checking account where you get your money back if someone hacks into the bank account somehow and takes everything in it. So, yes, you have to be vigilant and Protect your digital wallet as if it were a physical wallet containing physical coins. Those bitcoins are not refundable, replaceable, or insured in any way. If someone steals your wallet file, that’s it, that money is gone. I use TrueCrypt and stuff for my wallet, but if you don’t want to mess around with a local bitcoin wallet on your computer, you could decide to trust an online eWallet provider, like http://bit-bank.org. But, just like your graphic said, online websites can be vulnerable to hackers, and thieves. Just be careful. Reply