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Comment by csmeder | Hacker News Reader

Is there a tax guide that would explain the consequences of me using some of the bitcoin I bought in 2013 to buy an item on overstock this month?

As I understand it I would have to record the value I paid for the bitcoin in 2013, calculate the value it appreciated between when I bought it and the amount I am using to buy the item. And then report this as capital gains on my 2014 tax return?

This sucks, this makes using bitcoin a lot more work than just paying with a credit card. Plus, it might mean having to hire an accountant instead of just using turbo tax?

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The best and most complete thread on this topic is over @ Reddit written by a tax attorney:

http://www.reddit.com/r/Bitcoin/comments/1uccfz/i_am_a_tax_a...

Here's another document on the topic: http://www.bitcointax.info/

So basically: Yes, you must calculate your capital gain when you buy something with Bitcoin.

If you are a US citizen or live in the US, where you pay taxes for breathing.

Right, because the US is the only country with a capital gains tax.

If you're trying to imply that the US isn't completely crazy town about tax, you seem to have missed the enforced citizen tax returns for salaried employees and the fact that citizenship makes you liable for US tax regardless of residence and income origin.

> the fact that citizenship makes you liable for US tax regardless of residence and income origin

Without which, evasion becomes trivial for the wealthy.

You can offset taxes paid in foreign jurisdictions through a deduction or credit. You just can't set up a mailing address in a no tax jurisdiction to launder your earnings.

No, I'm merely stating that the US is not even remotely special in requiring you to pay taxes on your Bitcoin appreciation.

I'm just saying the answer is not "basically yes" as the comment I replied to said. Unless you are a US citizen (even if you don't live in the US), where yes, the answer is always "yes, you have to pay".

I offer no actual reply, only a thought experiment, keeping in mind that the USD is another floating currency that fluctuates in value:

...

" Is there a tax guide that would explain the consequences of me using some of the US Dollars I traded for in 2013 to buy an item on overstock this month?

As I understand it I would have to record the value I paid for the US Dollars in 2013, calculate the value it appreciated between when I bought it and the amount I am using to buy the item. And then report this as capital gains on my 2014 tax return?

This sucks, this makes using US Dollars a lot more work than just paying with a credit card. Plus, it might mean having to hire an accountant instead of just using turbo tax? "

Except there are many statutes that give the dollar special tax treatment.

This. People keep thinking that bitcoin is a currency. It's not. It's best thought of as a commodity, in the same way that all foreign currencies are essentially commodities, and using them to pay for things is bartering and capital gains laws apply.

Sort of. The US tax code provides some special provisions[1] that are meant to make life easier for people making smaller transactions in foreign currency. IANAL, but if I had to hazard a wild guess, for the purposes of the statute in question "foreign currency" is defined as the official currency of a sovereign nation that is not the USA. With BTC not being controlled by any country that would imply that for the purposes of tax law it is just another commodity - but something like the Euro is not.

[1]: See section (e) at http://www.law.cornell.edu/uscode/text/26/988

Would this change if a small, minimally developed sovereign nation adopted Bitcoin as its official currency, as opposed to the US Dollar or the Euro or a local currency that is not capable of earning much seigniorage per year?

Just like how Sealand's hosting of the Pirate Bay made copyright infringement globally palatable? No, probably not.

But thanks for reminding me of the word seigniorage, I'd been looking for it actually.

What others have replied to you. Also, if you are trading USD, then another currency must be involved. For example, if you live in the US and trade USD for the Euro and back, then any time you get more USD back you do pay capital gains tax. Except, you pay the IRS and Overstock.com in USD, so the purchase there does not automatically trigger a trade of international currency.

Another possibility is that you live in let's say France and you are trading Euro to USD and back. Now you don't owe any taxes to the US, but you do owe French taxes (whatever the laws are there for capital gains).

In either case you owe someone taxes.

Big advantage of the dollar is you can use it to keep the IRS from throwing you in jail.

You seriously think the IRS is going to go after you for an order on Overstock?

Perhaps if you are a political enemy of $political_party_in_power.

I'm a political enemy of anybody who habitually doesn't pay their taxes, and thus by extension, raises mine.

Are you, by extension, raising the taxes for everybody else by ideologically supporting the current system?

Do you feel responsible for all negative consequences caused by your tax dollars?

> Do you feel responsible for all negative consequences caused by your tax dollars?

I've got other political enemies as well. If by "negative consequences of my tax dollars", you mean "things our governments spend money on that I disagree with"...no, I don't feel wholly responsible for them, since I fight the proponents of those things, too.

So are those who avoid paying taxes but fight for lower taxes also your political enemies?

You must boycott a lot of corporations.

I don't see how being a political enemy implies that an individual would boycott a corporation. If my "enemy" is offering me a deal that is beneficial to me, then I make that deal.

I don't buy things from the vast majority of corporations in existence.

There's a difference between using legal tax structures to reduce (or eliminate) your bill, and simply not paying your taxes.

The end result is the other guy has to pay your fair share of the taxes.

So how do you define "fair share" if it is not defined by following the tax laws as written?

Fairness is defined by law? Interesting idea. By "fair share" I mean, unsurprisingly, a share that is fair. Corporations are subject to taxation. A corporation that makes healthy profits, in part driven by publicly funded infrastructure, should be required to give back to maintain said infrastructure.

Typically corps accused of avoiding tax earn no profits after their myriad coats are applied, that's how they avoid taxes. While governments could probably do more to charge corps tax, this is a complex grey area and there is no simple way to define fair or collect taxes as accounting rules are so complex. If you tax revenue you penalise new companies, if you tax profit it is easy for corps to find costs or transfer funds to shield profits.

They play lots of shell games to hide the profits, yes, and it is complex. I'm more talking more about the big picture than specifics because, as you point out, this is an involved topic which involves a great deal of money. A lot of effort has gone into creating arguments to justify the idea that workers should have to pay all costs of public infrastructure.

I would say "intent" of law, rather than what actually happens. e.g., the reason we call tax loopholes, "loopholes", is because the consensus is that they're being used to defeat the intent of law. Megacorp with a shell company of zero employees in Ireland using the double irish[1] I think means the company isn't paying their "fair share".

1. http://en.wikipedia.org/wiki/Double_Irish_arrangement

Do you pay sales tax on all of your internet purchases?

In New York, we can opt pay a flat yearly "Use tax" for an unlimited number items purchased over the Internet from outside of NYS that cost less than $1,000 each. For me, it's about $100, and yes I pay it.

Items purchased online in NYS are subject to sales tax at the time of the transaction, and the burden is on the vendor to collect it.

Thank you.

Pretty sure you're supposed to. . . . .

Yes, but most people only do so for purchases where the website forces you to at the time of purchase (i.e. the company operates in your state).

Good point.

The IRS thinking might be: (a) People who order on Overstock using Bitcoin are likely to be dodging a small amount of tax. (b) People who dodge a small amount of tax in one transaction are more likely to be dodging a large amount of tax on another transaction.

Therefore, an Overstock order in Bitcoins could be a 'red flag' that causes the IRS to look into your other tax arrangements.

Good point. This seems to be the killer argument against Bitcoin.

Why would someone choose to significantly complicate their tax return (or break the law by not declaring the capital gain) when they could simply pay in dollars?

I wonder if at some point Coinbase will have to start filing 1099s (or forex equivalent) any time someone pays for an item with Bitcoin.

Treating Bitcoin as an asset that has a basis and carries capital gains is a good way to make buying things with Bitcoin unpalatable. It would be like having to send your credit card statements to the IRS. (As if they don't already have those)

Credit card processors must report proceeds paid to merchant accounts, but with Bitcoin I could see someone like Coinbase eventually having to report both sides.

Hopefully bitcoin is another straw on the camel's back moving the US towards consumption based taxation.

> moving the US towards consumption based taxation

Why would we want such an unfair regressive tax that hurts the poor and middle class?

A consumption tax doesn't need to be regressive. There are already exemptions in state sales taxes for some "necessities" (i.e. food, internet, electricity). If the basket of exemptions is large enough, then the poor would pay basically no sales tax.

That doesn't make it not regressive, it simply makes it easier on the bottom few. A consumption tax by its very nature is regressive, you pay taxes only on what you spend and rich people by definition spend far less than they earn while non rich people spend far more of their earnings. A consumption tax is a huge massive tax cut for the people who need it least, the rich, no thanks.

" rich people by definition spend far less than they earn"

This is not necessarily true, and it's certainly not "by definition".

It's absolutely true, you aren't rich if you spend more than you make, unless of course you're getting pedantic about "earn" but I include wealth and holdings in earnings as well. I didn't mean "earn" in the wage sense, just in the amount of money you make/inherit/whatever regardless of how.

You can be rich if you spend as much as you make.

The idea that you have no money in the bank doesn't mean you're not wealthy. Maybe you spend it all on antique Ferraris.

That's not spending, that's investing, you still have the wealth; you can resell those antique Ferraris. Money is not wealth, it's a medium of exchange, assets are wealth and converting money into assets isn't spending, it's wise money management.

If poor people are paying no sales tax and rich people are paying some sales tax, then the tax can be classified as regressive. The more money you make, the more you spend on non-necessities, the higher your tax rate will be.

> The more money you make, the more you spend on non-necessities, the higher your tax rate will be.

Wrong measure; the correct question is on what percentage of your income will you pay taxes and by definition being rich means you're spending far less than you make so your taxes go down, massively. That they go up a tiny little bit when you spend some money on non-necessities is meaningless compared to tax free money you're now allowed to save which being rich means most of your money.

My definition of rich is being able to afford more than is needed. Poor people pay no tax, rich people pay some.

That's a cop out and addressed nothing I said.

1) If you consume the same amount of resources/services I do, and you happen to make more money than me, how come is it "fair" for you to pay more taxes?

2) What is the point of being rich and not use that wealth? Percentage-wise, a consumption-based tax could take more from the "poor and middle class". In absolute terms, not so much.

3) Incentives to saving - economically debatable for a government, but I'd guess that debt hurts "poor and middle class" more than any tax.

4) Good for the environment. Imagine if China actually had to start paying for things like carbon credits.

> If you consume the same amount of resources/services I do, and you happen to make more money than me, how come is it "fair" for you to pay more taxes?

Because of the marginal utility of money and the burden of taxation. A 10% tax hurts someone living on the margin far more than someone living with excess and thus the burden is not shared fairly. Taxation of income is more fair than taxation of consumption because the burden is shared more equally. Not the "amount", the "burden".

> Percentage-wise, a consumption-based tax could take more from the "poor and middle class".

Which is what matters.

> In absolute terms, not so much.

Irrelevant, see above.

> Incentives to saving - economically debatable for a government

Not their job.

> Good for the environment. Imagine if China actually had to start paying for things like carbon credits.

Not on topic, this doesn't require consumption taxes.

The problem with changing "amount" for "burden" like you do is that we stop talking about something objective and start thinking in subjective terms. And I really don't want governments to be subjective, especially when there is a better measure available and can be used.

I think you will find that it will be in addition to income and all the other taxes.

It's not an addition. Capital gains taxes already exist. But the more complicated calculating your taxes gets, the more incentive there is for tax reform.

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