Cryptocurrency and Taxes

[Frankly]

I haven’t been following this so forgive my ignorance but if your transactions are done using BitCoin how would the IRS and others know how much they were for?

I understand that illegal transactions for drugs or terrorism would be scrutinized but how?

And why wouldn’t more people, especially Libertarians and anti-Federalists be conducting most of their honest daily business using cryptocurrencies? How come it’s not more widely used?

 

[kev74]

I have no idea how that stuff works.

I like using cash for all my shady transactions.

 

[Frankly]

I have no idea how that stuff works.

I like using cash for all my shady transactions.

Since I'm certainly already on the list(s) I write my question more as a way to deprive the government of revenue rather than to engage in anything immoral.

 

[masterswimmer]

This topic is a Pandora's box of cryptocurrency issues.

In response to the overwhelming number of businesses worldwide that now accept cryptocurrency, the IRS has now determined we can trade cryptocurrency as part of an IRA.

My thoughts on this, the ONLY reason the IRS now recognizes this form of retirement savings is because they realized it's happening whether they like it or not and are losing millions of dollars of tax revenue by not recognizing it. The US dollar is already a fiat currency, but the gov has control over it. Cryptocurrency is also a fiat currency, but .gov has no control over it. This is their way of getting their cut.

A good example of this is illegal gambling, illegal drug sales, prostitution, etc. All these activities are illegal (yeah I know prostitution is legal in parts of Nevada). The IRS tax code says income from these sources needs to be reported. LOL Who in their right mind that participates in these illegal activities would report the income? Just take a look at how Al Capone was caught. Tax evasion.

Pay to play is the bottom line. If you're now caught trading in cryptocurrency without paying da man, tax evasion could be in your future resume post.

 

[kev74]

Since I'm certainly already on the list(s) I write my question more as a way to deprive the government of revenue rather than to engage in anything immoral.

Sorry. I'm just being a smart ass.

Some smaller retailers will overlook sales tax if paid in cash. Local second hand transactions are also tax free in cash. If someone were to buy a used vehicle, they could easily understate the sales price to minimize tax paid. Cash is king!

On line, usually purchasing from out of state sellers will be sales tax free.

For now, the state isn't paying too much attention to paypal type transfers or out of state sellers, so I don't really see the need for the bitcoin stuff. I also don't see any online transactions as being anonymous, so again, one more thing I don't understand about bitcoin.

 

[Frankly]

Right now I'd expect a hardcore libertarian to favor using BitCoin (or some other form) over US Dollars for idealogical reasons... the government shouldn't have a hand in the markets, anti-Hamiltonian, anti-Federalism. In fact I'm surprised that there isn't more of it happening. Or maybe there is and it's just quiet because the media is clueless or colluding to downplay it.

And I understand if you're a legit practitioner you aren't going to post all the details on a public forum where I could be an agent (Yes, of course I am).

I'm just curious in broad terms, if I could get paid in BitCoin and buy things with BitCoin and save using BitCoin.... well I know in practical terms it isn't something you could do 100% but why wouldn't you do it at least as a supplement?

 

[masterswimmer]

Primarily because the dollar is relatively stable. The things you purchase with your dollar are relatively stable (excluding commodities (especially oil)).

Now change your means of currency to these cryptocurrencies and you're adding a level of instability and speculation to your purchasing power that has only been rivaled during the great depression.

 

[GOPerfect]

No clue. For now, I am more than fine using the US dollar for my normal transactions. Bitcoin is made up and can disappear like a fart in the wind

 

[Airborneguy]

I have two friends in finance who know a ton about crytocurrencies and both told me they will soon crash, not to buy into it.

In the end, once governments outlaw them, they are worthless (to law-abiding citizens at least). Any holdings will immediately become valueless other than on the black market.

My one friend approves transactions in the billions of dollars range and the other invests billionaires' money. They are absolutely adamant that cryptocurrencies are not the "future" of money. The true value of money will always rely on government backing and the current crypto's don't have that.

 

[speedkills27]

No clue. For now, I am more than fine using the US dollar for my normal transactions. Bitcoin is made up and can disappear like a fart in the wind

Since we're not on the gold standard, the dollar is just as made up. Just a buncha ones and zeros on a computer screen, now it is backed by the US government but that just means the crash would be more sever and wide reaching.

I have two friends in finance who know a ton about crytocurrencies and both told me they will soon crash, not to buy into it.

In the end, once governments outlaw them, they are worthless (to law-abiding citizens at least). Any holdings will immediately become valueless other than on the black market.

My one friend approves transactions in the billions of dollars range and the other invests billionaires' money. They are absolutely adamant that cryptocurrencies are not the "future" of money. The true value of money will always rely on government backing and the current crypto's don't have that.

Wouldnt your friends then have an interest in keeping the Dollar as the main currency? Not trying to be conspiratorial but if major retailers Like Amazon, and Apple trade in Bitcoin its only a matter of time before cryptos become common place. All that being said I AM FAR FROM BEING AN EXPERT but i have listened to some talks about cryptocurrencies and some experts believe Bitcoin will be replaced by a more secure a private currency. The problem with bicoins is that each transaction is recorded in the public ledger. The ledger has no names or identifying info but it does record X amount of bitcoins were transferred, because of this,and the infinite amount of manpower and resources available to the .gov, it might be possible in a criminal case to connect the dots of who, what, were, when. Just my

 

[Airborneguy]

You mentioned the key point in your response to Goperfect. Our dollar is backed by the US government, ie, the US military. Bitcoin is backed by... nothing. When the government stranglehold on money (sort of necessary like it or not) is threatened enough, they will shut it down.

My friends both deal with numerous currencies. One works for citicorp in their India department. It's not just the US dollar. I'm no expert either, but what they always say makes perfect sense: bitcoin doesn't have a military.

 

[speedkills27]

You mentioned the key point in your response to Goperfect. Our dollar is backed by the US government, ie, the US military. Bitcoin is backed by... nothing. When the government stranglehold on money (sort of necessary like it or not) is threatened enough, they will shut it down.

My friends both deal with numerous currencies. One works for citicorp in their India department. It's not just the US dollar. I'm no expert either, but what they always say makes perfect sense: bitcoin doesn't have a military.

We have the strongest military in the world but if a wheelbarrow full of cash wont buy bread what good does that do the american people? When the US finally defaults on its debt bayonets and bullets wont help. People will go back to gold and silver as has been done for thousands of years. They cant shut bitcoin down unless they shutdown/firewall the internet. Bitcoin is just a solution to an algorithm, it holds value in the digital world because of the massive amount of computing power the algorithm takes to solve (at least thats my understanding). Just like the US Dollar its just numbers on a computer screen, so from here untill the lights go out, cryptos will hold some sort of value

 

[holdover]

Hackers are a bitch. The system is way to vulnerable.

Permit me to issue and control the money of a nation, and I care not who makes its laws!-Amschel Rothschild

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. . “Paper is poverty. It is the ghost of money and not money itself.”– Thomas Jefferson, 1743-1826

“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.” – James Madison, 1751-1836

“A power has risen up in the government greater than the people themselves, consisting of many and various powerful interests, combined in one mass, and held together by the cohesive power of the vast surplus in banks.” – John C. Calhoun, Vice President (1825-1832) and U.S. Senator

I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe. – Abraham Lincoln

Whoever controls the volume of money in any country is absolute master of all industry and commerce. And when you realize that the entire system is very easily controlled, one way or another by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” – President James Garfield, 1881.

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before morning.” – Henry Ford, circa 1925

 

[GOPerfect]

I'll continue to use the $

 

[CaseHardened]

The initial appeal of Government Coins and Bills was that they either HAD intrinsic value (silver, nickel, copper), or were backed by same.
Of course those days are long gone.

BitCoin, etc, are backed by nothing; and never were. Just like today's Government Money.

So in actual fact, today all monies depend solely on the reputation and stability of the issuer.

If America (or Europe), mishandles its responsibilities, their money could be valueless. As is Venezuela's "Bolivar" today.

And if there is a serious hack, or even a Power Outage, Bitcoins are worthless.

As long as the USA remains stable, I prefer US Currency.

But if I could I'd buy Physical Silver as well. There may come a time that Coin or Bar will buy you Bread !

 

[Frankly]

Well considering the US dollar has $21 trillion in debt and hundreds of trillions in mandates against it... if our dollar reflected it's realistic value it would be worth a lot less than it is right now. We just go fiddling on in faith that the sun will rise tomorrow.

I'm just surprised that the cryptocurrencies aren't getting more popular. How much of a stretch would it be for Apple to build it into their Apple Pay system and boost an international universal currency? Seems like the next step.

 

[CaseHardened]

Well considering the US dollar has $21 trillion in debt and hundreds of trillions in mandates against it... if our dollar reflected it's realistic value it would be worth a lot less than it is right now. We just go fiddling on in faith that the sun will rise tomorrow.

I'm just surprised that the cryptocurrencies aren't getting more popular. How much of a stretch would it be for Apple to build it into their Apple Pay system and boost an international universal currency? Seems like the next step.

The truly ironic thing is there have been studies.

Studies that calculate the TOTAL COST to America of Illegal Immigration over the past 30 years.

EVERY PENNY of our National Debt would be eliminated if this FN Country had simply ENFORCED IMMIGRATION LAW !!

We should ALL be much angrier than we are.

 

[1911guy]

The truly ironic thing is there have been studies.

Studies that calculate the TOTAL COST to America of Illegal Immigration over the past 30 years.

EVERY PENNY of our National Debt would be eliminated if this FN Country had simply ENFORCED IMMIGRATION LAW !!

We should ALL be much angrier than we are.

Arrrrrrrrrrrrrrrr. That be the crux of the problem, lads.

 

[Acer-m14]

i only deal in uncut and polished diamonds from a military Intelligence over seas .. go for the free toaster if you can ..

 

[zerohedge]

I haven’t been following this so forgive my ignorance but if your transactions are done using BitCoin how would the IRS and others know how much they were for?

I understand that illegal transactions for drugs or terrorism would be scrutinized but how?

And why wouldn’t more people, especially Libertarians and anti-Federalists be conducting most of their honest daily business using cryptocurrencies? How come it’s not more widely used?

Bitcoin is 100% transparent. Nothing is hidden from anyone. In fact, you can see how much bitcoin wealth everyone owns and any transactions they make. The government has invested heavily in blockchain tracking software and can easily follow transaction history. It's basically the perfect currency for finding tax cheats. The only caveat is that the wallet owners are anonymous. So for regular folkes like you and I, we can easily see that the wealthiest bitcoin owner has ~$350MM in his wallet and every purchase they make. However we have no idea who that person is in real life. The government identified this issue as well and now enforces 'Know-your-customer' and Anti-money laundering laws on all bitcoin exchanges operating within the US. Hence, if you want to take fiat USD from your US bank account and trade them for bitcoins on a US exchange, you are going to need to show government issued ID. Now the IRS can match up those anonymous wallet owners. Bingo, tax enforcement problems solved!

Now, with all that being said, Bitcoin is not the only cryptocurrency. It is only the first and currently the largest by market share but shrinking. Bitcoin paved the way but it has many flaws that will doom it in my opinion.

However, I do not believe that cryptocurrencies in general will ever go away. In fact, some newer currencies like Monero have very interesting features. Monero, unlike bitcoin, is 100% anonymous (hidden wealth, hidden ownership, hidden transactions) and will use an i2p routing protocol to even hide it's internet traffic signature, essentially making it impossible to stop or regulate.

However, until you are paid in cryptocurrencies like Monero and make all of your purchases with them, you will still have the problem of going from USD to that cryptocurreny or back to USD. That remains the primary "attack vector" for governments right now. Case in point, China in the last week.

Regardless, let's not understate the value in protecting your wealth in a means that can never be taken from you by force. You can create a paraphrase "the purple cat jumped high over the green shinning moon!", commit it to memory and use that to generate your wallet behind which you may store all of your personal wealth. That wealth can never be seized using civil asset forfeiture, stolen from under your mattress, taken in divorce or bankruptcy, etc. You and you alone would only know the secret phase and nothing could legally compell you to provide it. In the case of Monero, without the pass phase even the existence of the wallet or the amount of stored wealth would be unknown to all. Plausible deniability. Yet you could access that wealth world wide or even transfer it world wide even from jail by just providing others the phase or from your own phone.

I know of no other form of wealth storage like that. Whether cash in your pocket, stocks, gold bars, or even ammo buried in the backyard.

I work for one of the world's largest hedge funds and even though we don't invest, yet, in cryptocurrencies, us 'finance people' definitely follow them and some of us are personally invested. Yes, it is very volatile. Many will likely go to zero. But in the long run, don't be surprised if the next generation knows of nothing else than cryptocurrencies. Even with fiat USD, honestly, what percentage of your wealth do you even see in cash or transact in cash anymore. Everything is electronic these days. It's not a big stepping stone to change the denomination. No doubt, this has huge and disastrous ramifications for banks and governments. I would expect them to be the biggest naysayers.

 

[Acer-m14]

Bitcoin is 100% transparent. Nothing is hidden from anyone. In fact, you can see how much bitcoin wealth everyone owns and any transactions they make. The government has invested heavily in blockchain tracking software and can easily follow transaction history. It's basically the perfect currency for finding tax cheats. The only caveat is that the wallet owners are anonymous. So for regular folkes like you and I, we can easily see that the wealthiest bitcoin owner has ~$350MM in his wallet and every purchase they make. However we have no idea who that person is in real life. The government identified this issue as well and now enforces 'Know-your-customer' and Anti-money laundering laws on all bitcoin exchanges operating within the US. Hence, if you want to take fiat USD from your US bank account and trade them for bitcoins on a US exchange, you are going to need to show government issued ID. Know the IRS can match up those anonymous wallet owners. Bingo, tax enforcement problems solved!

Now, with all that being said, Bitcoin is not the only cryptocurrency. It is only the first and currently the largest market share but shrinking. Bitcoin paved the way but it has many flaws that will doom it in my opinion.

However, I do not believe that cryptocurrencies in general will ever go away. In fact, some newer currencies like Monero have very interesting features. Monero, unlike bitcoin, is 100% anonymous (hidden wealth, hidden ownership, hidden transactions) and will uses an i2p routing protocol to even hide it's internet traffic signature, essentially making it impossible to stop or regulate.

Howver, until you are paid in cryptocurrencies like Monero and make all of your purchases with them, you will still have the problem of going from USD to that cryptocurreny or back to USD. That remains the primary "attack vector" for governments right now. Case in point, China in the last week.

However, let's not understate the value in protecting your wealth in a means that can never be taken from you by force. You can create a paraphrase "the cat jumped over the moon!", commit it to memory and use that to generate your wallet behind which you may store all of your personal wealth. That wealth can never be seized using civil asset forfeiture, stolen from under your mattress, taken in divorce or bankruptcy, etc. You and you alone would only know the secret phase and nothing could legally compel you to provide it. In the case of Monero, without the pass phase even the existence of the wallet or the amount of stored wealth would be unknown to all. Yet you could access that wealth world wide or even transfer it to others even from jail by just providing others the phase.

I know of no other form of wealth storage like that. Whether cash in your pocket, gold bars, or even ammo buried in the backyard.

I work for one of the worlds largest hedge funds and even though we don't invest, yet, in cryptocurrencies, us 'finance people' definitely follow them and some of us are personally invested.

and out of no where ...

 

[zerohedge]

Hey. If I'm going to stop being a lurker and finally make a post, might as well answer the OPs question. No?

 

[Frankly]

and out of no where ...

He's been around and liking various posts for a while now. And I actually learned something.

Truth is anyone here could be Cuomo. Look at all the spelling mistakes, incorrect info, vaguely recited regulations....

 

[Uzi]

Given the option of the current rate of $1,000,000 worth of bitcoins or US currency bills..... I'm going to pick the Bills. Trends die out, the internets cryptocurrency fad can be swept away or be nothing in one second. There's no insurance or reliability and it's not even close to being widely used or most importantly, accepted in comparison. More of a hobby/trend.

 

[masterswimmer]

US dollar is a fiat currency. It is backed by nothing other than the good faith of the USA

Cryptocurrencies are also a fiat currency. They are backed by, ummmm, weeeellll, nothing. Virtually just like the US dollar, realistically speaking.

Difference is, at least in a total SHTF scenario, teotwawki, I can use US dollars to start my campfire. I'd like to see anyone do that with a Bitcoin!

I'm sticking with the old reliable US dollar.

 

[BerettaGuy]

$300m in cryptocurrency accidentally lost forever due to bug

Nuff Said

 

[livingston]

$300m in cryptocurrency accidentally lost forever due to bug

Nuff Said

On Tuesday Parity revealed that, while fixing a bug that let hackers steal $32m out of few multi-signature wallets, it had inadvertently left a second flaw in its systems that allowed one user to become the sole owner of every single multi-signature wallet.

 

[kev74]

To quote Rick Perry, "Woopsie."

 

[BerettaGuy]

I came across this video on Bitcoin because it has been in the news lately. Is it a bubble I think so. What is the warning sign that the bubble is about to pop? When "everybody" is getting in the pool. You only have to watch the first half as it repeats. Very informative.

 

[Robin]

What ever happened to Frankly?
Robin