That isn't even close to true in the US.  If you earn income in ANYTHING it is taxable when the income is earned.

For example lets say you make a website for me and I pay you in a 1 oz gold coin (hypothetical value at time of transaction $1,700)? What is your tax liability?  By your logic nothing until you sell the coins.  The reality is you have gained income (by IRS definition) of $1,700 at the point I give you the coins.   When you sell the coins you may also incur a capital gain (or loss) but that is independent of the income.    What about unique items?  You build a luxury house for me and I pay you with a Rembrandt original valued at $2.8 million.   Your tax liability?  $2.8 million in income.  It doesn't matter how you get paid, it is income, and it is taxable.


How about pure barter of services?  Your make a website for your dentist and he fills in your cavity.  Once again both of you gained taxable income.  The amount taxed is the "fair market value" of the services.   Income is always taxed at the point it is earned.  It doesn't need to be paid in dollars.  If you receive anything of value for just about any reason it is taxable.  For example say you win a car in a sweepstakes.  Yup you owe taxes on the income value of the car.  $50K car = $50K in income seen by the IRS; have your checkbook ready.   Obviously your casino chip claim is false.  One could simply use casino chips as a proxy (i.e. live in Vegas and pay all your bills by casino chips) and never incur any taxes on casino winnings for life.

More on IRS & Barter:
http://www.forbes.com/2009/11/11/irs-tax-barter-exchange-income-personal-finance-wood.html


http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Bartering-Tax-Center

For a second think about it this way.  If income wasn't taxed until converted to dollars it would be trivially easy to never pay any taxes ever for your entire life by never converting to USD.   i.e. I trade you 1000 shares of xyz inc for 20 oz of gold.  I then take the 20 oz of gold and trade them for a years worth of dedicated server hosting.  The webhosting company trades the 20oz of gold for food at the local grocer to feed his family for the next two years.  Nobody has any income?  Nobody has any taxes?  Really does it even seem plausible the IRS didn't notice this massive loophole.



The only time that taxable events are limited to the time of sale is on capital gains.   So if you purchase a gold coin (or oil futures, or home, etc) for $1,700, and the price of gold goes up to $1,800 how much taxes are due?  That's right; none.  The event is a capital gain and only becomes taxable when the asset is sold.  5 years later you sell the gold coin for $2,000 and incur a $300 capital gain which is taxed based on the year you sold the coin.

Note the two can be combined.  Going back to the website.  Say gold was worth $1,700 at the time the site was made.  You incur $1,700 taxable income.  You pay your taxes, and decide not to sell the coin.  You keep it for a couple years and sell it for $2,000.   You incur a $300 capital gain.  Why $300 and not $2,000.  The $1,700 becomes your basis because it was treated at income at the time you acquired the coin.  On the otherhand say gold tanks to $1,200.  You would have $1,700 income when paid in gold and a $500 tax deductible capital loss on the year you sold the coin.  It is possible both events could occur in the same year but they are independent events.

This is actually the same in Canada. in fact I would be interested to see if there is a jurisdiction where this is not the case.

The difference is taxable, very likely as a capital gain or loss. It is basically the same as if one obtained the fair market value of the coins in the national currency and then immediately purchased the coins.

Great contribution. I've been saying this all along. Those of us who are operating legally pay taxes on BTC gains the exact same way we would with any other currency. Certainly a lot of people use BTC to avoid taxes, but for legitimate corporations operating within the confines of the laws and regulations of a state, there is nothing complicated about paying taxes on BTC.

Our accountant had never heard of bitcoin, but was able to work with it in about two minutes. Smart BTC financial services companies, and anyone who makes a profit from BTC, will pay their taxes to the penny. No doubt at some point our industry will have a lot of government scrutiny... if it doesn't already. Everyone who will survive long term will have complete records of all transactions, and tax returns to prove everything was paid.

The powers that be will be angry with Bitcoiners either way because it's going to remove the ability they have to underhandedly tax you through inflation

You'd have to talk to a tax accountant to be sure, but I believe that in the U.S. the IRS sees the difference between a "hobby" and a "business" as a matter of profit motive.  If you can demonstrate to the satisfaction of the IRS that you are engaging in the activity with a profit motive, then it can be considered a business and you can deduct any losses from other income you earn.  If you can't demonstrate to the satisfaction of the IRS that you are engaging in the activity with a profit motive, then the IRS considers is a hobby, and you can only deduct losses up to the total of your hobby income (losses incurred with the hobby offset income from the hobby, but not other income).

In the United States, at least, the reverse is true. You can use hobby losses to offset hobby profits. Of course, you can't just deduct hobby losses. Otherwise, my hobby would be driving expensive cars and eating expensive food and every car I bought or meal I ate at a nice restaurant would be tax deductible.

For example, if you raise prize cows as a hobby, and then you sell one of those cows for $8,000, that is a hobby profit. It is taxable. However, if you spent $4,500 on feed and supplies to raise the cow, you can deduct those hobby losses against the hobby profit.

If you mine Bitcoins as a hobby, you can file your hobby losses so that if you do make a profit when you sell those Bitcoins, you can offset some of those profits with carried over losses.

Not so much controversial as just flat out wrong. Additionally, a professional financial planner is not credentialed in this area. If you want advice you can legally rely on then seek out a tax attorney who retains a CPA.


BlackHeartFund, I think this is a very conservative way to operate and would recommend it. Unfortunately, your accountant likely did not thoroughly research the topic because Bitcoin and taxes results in some pretty thorny legal and tax issues. However, the result is likely that you will only be slightly overpaying taxes due so I doubt it is that big of an issue.

For those who want to operate extremely conservatively Bill Rounds, a practicing CA attorney, put together A Lawyer's Take On Bitcoin And Taxes which is a 31 page primer and has 108 legal citations. And really it is just a basic guide to save you about $2,000 worth of research from your accountant/tax attorney.

Additionally, it makes several extremely conservative assumptions, which would be legal conclusions and are not currently found in the law, that result in several reasonable ways to treat BTC. In almost all cases, the result is a slight overpayment of taxes due, having an extremely defensible position and the legal reasoning backed up by plenty of sources.

If you wanted to be particularly aggressive with your taxes then you could challenge some of those presumed assumptions. Ironically, one particularly aggressive approach is actually one most likely to be chosen by a tax court because then the court would not have to decide a legal issue which is a presumption of several other methods.

Currently, there are lots of unsettled issues with regards to Bitcoin and taxation and there are several extremely conservative approaches to take.

The trouble with this analogy is that the ordinance in question covers all sorts of pets from fish to snakes to elephants. So arguing if the dog is a dog or a prairie dog becomes moot. Arguing whether Bitcoin is a "commodity" or a "currency" or a "foreign virtual currency"  or "money" or even a "security" does not change the fact that income earned in Bitcoin is taxable.