Today I learned that exchanging btc for goods and services must be taxed as a realization event: Reddit - Bitcoin - I am a tax attorney, here are my answers to the most common questions about the taxation of bitcoins https://www.reddit.com/r/Bitcoin/comments/1uccfz/i_am_a_tax_attorney_here_are_my_answers_to_the/ “Because I've seen a lot of misinformation on this point, I want to make myself perfectly clear. If you own bitcoins that have appreciated in value, you cannot use them to purchase goods or services without realizing gain. Such a purchase is an accession to wealth. It puts you in the same position as if you had first sold the bitcoins for cash and then used the proceeds to purchase the goods or services directly. Yet, one would be a taxable transaction while the other would not? The IRS would never tolerate such a blatant loophole, and neither would the courts. In fact, this exact argument has already been rejected for other types of assets. The outcome for bitcoins will be the same. Unfortunately, this has some serious implications for the future of bitcoin. I have to question the effectiveness of bitcoin as a medium of exchange when the user has to calculate his or her tax liability on every single transaction. As the saying goes, the power to tax is the power to destroy, and this is no exception.” Considering Tesla’s move to allow purchasing using btc, seems like that would be a terrible idea bc you’d be paying double taxes, capital gains and sales tax. What do others think about this tax implication? #bitcoin
Your USD doesn't +420% in a month. Buy USDC if you don't want to deal with capital gains. As for the tax calculations, sounds like a good start-up idea. I'll buy the app.
Cointracker already does this.
So IRS should let me deduct inflation as negative cap gains as my USD dropped value.
Hehe standard deduction sorta already provides that.
While it isn't double taxation it is a huge inconvenience when filing taxes
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It’s not double taxation. Sales tax and capital gains tax are two separate things. One is levied on investments and the other sales. And that tax implication exists with anything, like if you were selling stock to buy a car.
Right, so you are paying cap gains taxes to buy a car. Why would anyone do that? If a car is worth 40k after sales tax and 1btc is worth 40k, the purchase of the car with btc would cost more than 40k bc you have to factor in cap gains taxes based on the diff you bought and sold. If you realized for a profit, you owe more taxes to the IRS. I would simply use usd to buy a Tesla to not have to deal with extra tax of realizing btc.
If you transfer all your wealth to btc, any transaction made with btc must have taxes paid in usd. That would be nightmare for Tesla to handle, no? Thus in order to use btc as a “currency” in the US, you would still need a stockpile of USD to pay sales, income, and cap gains taxes.