Thoughts on Bitcoin and Taxes - how does this make any sense? \ stacker news ~bitcoin

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Thoughts on Bitcoin and Taxes - how does this make any sense?

1563 sats \ 29 comments \ @028559d218 3 Oct bitcoin

So in North America for example (and I imagine a lot of other places are similar) 'selling' Bitcoin for fiat or government money... and 'spending' that Bitcoin are treated the same tax-wise.

To government 'spending' that Bitcoin with a vendor that takes Bitcoin directly... and 'selling' it for dollars/euro/yen to have fiat is taxable for 'capital gains'.

At what price did you 'acquire' the Bitcoin and at what 'price' did you part with it? And what's the difference? OK well you owe taxes on a % of the difference...

OK well how the **** does this work in a world with increasing Bitcoinization and adoption?

As demonstrated here on StackerNews lightning allows the sending and receiving of small amounts of money very quickly and cheaply. Basically 24/7 - 365 to anyone.

Imagine this scenario:

You dollar cost average into Bitcoin every day with an exchange - set it and forget it - let's say 10$.
You take a percentage of your income from your 9-to-5 job and it gets automatically deposited into Bitcoin when you get a paycheck.
If you have any spare cash you buy more Bitcoin with the exchange... or using peer-2-peer methods with friends or family. It's at random intervals and all paid to your lightning node.
You also exclusively use that same lightning node your self-hosted lightning node & channels to buy your groceries, put gas in your car and pay for online services - cloud storage, movies, Netflix, TV, a VPN maybe a newspaper etc. And this is addition to using NOSTR almost daily to send and receive Sats to other Bitcoiners.

While this is going on... you receive sats on StackerNews for posts or comments... (a really sharp post may net over 10000 sats WoW!) You also generously zap other posts and comments with those same Sats because we're all Stackers here and using Bitcoin is fun.

Back to real life: On the way to work (your 9-to-5) you buy yourself a coffee, paid over lightning of course, with your own lightning node and channel. All the while you continue to get a small number of Sats continuously over StackerNews and NOSTR. You also have a podcast and blog... and you get a few sats from those as well.

Using Bolt 12 (to come out next year on LND) you have subscriptions and recurring payments to OTHER podcasts and even Blogs you subscribe to. Pay by the minute, pay for the minutes, or even pay for the article it's your money it's faster and more instantaneous it's your money and it's sound.

That same day as the coffee and the DCA, and the recurring payments... you stop for gas and see your friend Joe from work and realize you owe him 20$ for gas (he gave you a ride the other day) and he takes lightning on his phone so you send him the Sats by scanning his QR code. You also buy yourself some gas to get your car filled up.

Work is the usual, and you're getting ready to leave when you realize... 'oh crap' this week is Mother's Day (!) and you didn't get your mom anything so you order her some flowers to be delivered in a few days (over lightning of course because the flower people want to take Lightning).

On the way home from work you check your phone and see your paycheck comes the next day (how could you forget?) where most of it goes to your Lightning Node (using invoices from Bolt 11 you approve) or possibly using Bolt 12 via QR code automatically. You check your phone - yup you could use those sats your channel is mostly empty buying flowers those flower people are Pirates!!

And you also remember you had set up with HR... so that eventually a paycheck goes to cold storage and is sent economically when the Cold UTXO is big enough (TX fees are around 30$). It gets withdrawn to your cold storage/long-term-savings. For the kids college of course years later.

After you get home you go out for an hour or 2 with the Mr or Mrs to get a glass of wine or beer at the local bar... paid from that same lightning channel you just got paid to from your job. You walk home (local bar) and are going to bed when you realize that your 10$ DCA is about to go through - you don't care what the 'price' is it's just money you use it everyday.

In the above example, which is technically possible today, your paycheck is paid directly to your lightning node, you pay many of your bills and expenses from your lightning node, you spend directly from that lightning node and you use lightning for micropayments frequently for online content. Bolt 12 allows for subscription payments or recurring payments... and once you have a channel set up you rarely have to touch on-chain. It just goes on in the background all the time.

Gas, groceries, small amounts of money to and from friends (owing friends for gas) all of it is instantaneous via lightning dozens if not hundreds of times a day.

Now back to 'capital gains'. In this possible future world... Bitcoin is far more greatly adopted and also a lot less volatile however the price continually changes throughout the day. Goes up or down just less.

If you have to track every time you 'received' Bitcoin, countless times throughout the day and every time you 'spent' Bitcoin, countless times through the day... to calculate capital gains you would need to know the exact exchange rate of each and every Bitcoin transaction! It would be NUTS! You could literally have dozens if not hundreds of transactions a day.

How the **** is that supposed to be practical? If my online magazine subscription renews every Sunday at 2 AM via lightning, I'm supposed to look back and check the exchange rate of Bitcoin at that time for the 11.99$ equivalent (just in SATS) and for when I 'acquired' that Bitcoin? What if I acquired it 2 years prior on StackerNews?

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165 sats \ 3 replies \ @versieboer 3 Oct

I use bitcoin every single day. I do not track any of the cost basis stuff on fiat<>bitcoin conversion rates. It's not worth my time to. I think about it often. If the taxman wants to chase me down for my 1000s of daily life transactions, go for it. I will refuse to pay any taxes on my tiny bitcoin transactions. When the governments can just print infinite money, why pay taxes?

I don't care about taxes anymore. The whole fiat system is screwed. Bitcoin is the solution.

My wallets and nodes are secure and I will never allow access into them by anyone, for any reason.

Once you go all-in on bitcoin, you become sovereign.

They can only control you if you use their money.

22 sats \ 0 replies \ @Brickman914 3 Oct

Your my new hero today. 🤝

1 sat \ 0 replies \ @bestpartofthechimkin 4 Oct

🎯

1 sat \ 0 replies \ @028559d218 OP 3 Oct

I feel like a crazy person... but I agree. Bitcoin is just... better money. Full stop. I feel like it's crazy how Bitcoin and studying it has changed my perspective on... dollars. They're just pieces of paper, they're not 'real' money even though they pretend to be short term.

Using lightning every day loading the channel myself moving back and forth on-chain buying real things... knowing that what I'm sending (sats) is scarce and transparent is just wild.

45 sats \ 1 reply \ @gunson 3 Oct

"The most important ways in which I think the Internet will affect the big issue is that it will make it more difficult for government to collect taxes” — Milton Friedman

"I think that the Internet is going to be one of the major forces for reducing the role of government. The one thing that's missing, but that will soon be developed, is a reliable e-cash - a method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A." — Milton Friedman

0 sats \ 0 replies \ @028559d218 OP 3 Oct

Never heard that quote before. Thank you

21 sats \ 0 replies \ @sagars209 3 Oct

well i think the best thing that can ever happen to a bitcoiner is a boating accident !!

21 sats \ 0 replies \ @BeeAye 23 Oct

i think your btc strategy needs to not include putting anything related to it on the annual confession form

1 sat \ 1 reply \ @stack_harder 3 Oct

anyone thinking of trying to declare tax on some sats made on stacker and bought a coffee with with is not a bitcoiner.

the gov just expects you to 'do the right thing' and report it all.

one day if you get enough sats you can move to a no bitcoin tax location and make bigger purchases

1 sat \ 0 replies \ @028559d218 OP 5 Oct

We should be able to do the 'right thing' and use our sats on Coffee without penalty. Earn the sats on SN, spend them on Nostr, save them for coffee... it's just the people's money. No declarations should be required. People are taxed enough already.

1 sat \ 1 reply \ @Coinsreporter 3 Oct

It's kinda too much of a headache. I'd definitely not do it this way. Instead what I'd prefer is spending the degraded shit money as usual and buy Sats and hold them forever.

I'm in India and upto now I've never given a single penny to the government. I also believe, I can forever evade taxes, if I can only hold Bitcoin for years. I'm eying that at one point, I might have to fight the system if they catch me. But, I'm sure, they won't catch me, until I deliberately confess my holdings.

0 sats \ 0 replies \ @028559d218 OP 3 Oct

I understand what you're saying... buy and hold forever. But then what happened to peer-2-peer digital cash? 'Hodling is using' yes but it's only 50%. The other 50% is spending in reasonable amounts on value-oriented mainstream goods and services.

Eventually when the subsidy goes down... transaction fees have to make up for it. Right now they're at 26 cents they're low enough for spending and lightning channels...

0 sats \ 1 reply \ @mrsu 4 Oct

This is why they want to eliminate cash. I imagine regular cash-in-hand workers like gardeners and taxi drivers don't bother to declare every penny they earn to the taxman. I actually prefer to frequent cash only businesses for this reason, as I know they likely don't declare everything.

0 sats \ 0 replies \ @028559d218 OP 5 Oct

It's funny to me... that the most private and anonymous transaction method, paper cash, is the government default. Governments, at least openly, never complain about cash being used for crime.

0 sats \ 1 reply \ @SwapMarket 3 Oct

Spend directly with the vendors that don't doxx clients. The state will never know. Or move to another country if you want to buy something big.

0 sats \ 0 replies \ @028559d218 OP 5 Oct

Not that many vendors out there. I would like to know what long-time Bitcoiners think... how does this environment compare to that of 4 of 5 years ago? Places to spend sats, 'adoption' etc?

0 sats \ 1 reply \ @hasherstacker 3 Oct

3 sats \ 0 replies \ @025738dda8 3 Oct

It is not a theft. It is a robbery.

0 sats \ 0 replies \ @DarthCoin 3 Oct

Only slaves pay taxes. If you consider yourself a slave, so be it. I don't and I do not pay any taxes.

0 sats \ 2 replies \ @a40ecaacec 3 Oct

In a Bitcoin world, you’re unlikely to receive a traditional paycheck once or twice a month. Instead, you’ll probably be "streamed" money daily or hourly. To save on fees, this could be done through a shared node or ecash. If you don't care about fees, directly to your own Bolt12 address.

0 sats \ 1 reply \ @028559d218 OP 5 Oct

This makes sense to me. However it also makes sense that paychecks that people would get are still paid 1-2 times a week. I really like the idea of a paycheck to 'fill up a lightning node' for the following 2 weeks. It's like a checking or spending account... and the on-chain is a savings account.

0 sats \ 0 replies \ @a40ecaacec 7 Oct

Imagine a small Bitcoin community where every business has its own LN node, covering the entire supply chain from producers to consumers. In that world, traditional payment terms like net 15 or net 20 may become obsolete. Because the instant settlement nature of Bitcoin, enables immediate transactions.

The concept of “debt” changes significantly. Producers receive immediate payment when a business buys goods from them. Similarly, businesses get instant settlement from buyers. Paychecks can also be settled instantly, eliminating the need for employers to owe employees money for weeks or even a month.

A short payment term is also possible. For instance, a producer can have a smart contract with a business, receiving instant payment for every product sold. Part of the payment goes directly to the producer, part to the employee, part to business expenses, and the rest to the employer’s wallet.

0 sats \ 6 replies \ @OT 3 Oct

There is software for working out this kind of stuff. I personally haven't used it though.

What you describe would be a headache. I think it might be better to use averages. Example would be what is the average price of BTC/USD for the month of September. How many sats came in? How many of those sats got sold? Keep it simple. If they call you in, print out a physical book of spread sheets so they can waste days to find out you owe $10 in taxes.

0 sats \ 5 replies \ @028559d218 OP 3 Oct

It would be crazy... and really difficult to keep up with. We're not talking that much money anyway, especially with regard to the microtransactions.

In addition any spreadsheet you kept on a computer... would be a privacy honeypot. It would be every single transaction every cup of coffee, bottle of beer, 5$ friend or expense...

Imagine a vending machine that takes lightning or you buy a 1.50$ coke (with equivalent sats) on it. That gets reported and thrown in the book?

I believe that hyper-bitcoinization is a real possibility one day - years from now. Is every dick and joe going to keep track of all their expenses for literally every time they spend or earn money? Like in a little book LOL

1 sat \ 3 replies \ @OT 3 Oct

If you use the same LN wallet it should be easy. Some LN wallets have built in fiat conversions. So all you have to do is download the monthly spreadsheet and put some equations on there.

I haven't been accounting these small zaps back and forth. If they ever pulled me up on it I might have to pay like $20 in taxes. It wouldn't be worth it for them to come knocking in my door.

22 sats \ 2 replies \ @028559d218 OP 3 Oct

I haven't spent much either. But I feel it's the principle of it.

I understand if people are buying really 'lavish' things - things they wouldn't normally spend dollars or euros on. Ridiculous cars or watches and crap... I'll give the IRS that.

But for small daily expenses there shouldn't be taxes on any of this stuff.

I've been reading about a 'legal foreign currency' argument where under 200$ of 'gains' won't be taxed. But I don't know if that's actually true.

639 sats \ 1 reply \ @supertestnet 3 Oct

I am one who promotes the position that bitcoin is foreign currency and therefore taxpayers don't have to report gains from expenditures where the gain is less than $200. It is worth noting that the government has produced guidance on how to assess whether someone "really" qualifies for the de minimis exemption or is just trying to evade taxes by "claiming" to use a "currency" as money that just happens to have appreciated rapidly in price.

To make this assessment, they say to apply metrics "substantially similar to" the following:

(1) Does the person live in a country that calls that currency its money?

(2) Does the person keep any records denominating their day-to-day cash flow in that currency?

(3) Does the person keep any records denominating their monthly income and expenses in that currency?

(4) Does the person borrow that currency or loan it out?

(5) Does the person sell any goods or services for that currency?

(6) Does the person price those goods and services in that currency and price other financial decisions in that currency?

(7) Has the person been doing this a long time or does it look like they just started doing it when the tax authorities started watching?

(8) Do they have a lot of volume associated with treating that currency as their money or are they just doing it a little bit so they have something to point to?

These metrics, under slightly more formalized language, are outlined in this legal text: https://www.law.cornell.edu/cfr/text/26/1.985-1

Specifically, the section "Facts and circumstances," also called section (c)(2) of that document. In the original document, the metrics are listed as A---H rather than 1---8.

This legal text and these metrics are cited later in the same document (see "examples") to determine whether someone who claims to use a foreign currency -- and therefore gets special treatment in their taxes -- really qualifies or is just evading taxes:

"[Suppose] The currency of Country A is [called] LC. [Suppose] All of [someone's] purchases, sales, and expenses are [denominated] in...LC. [And suppose] The laws of [Country] A require [residents] to keep books and records in...LC... [In that case] LC is the currency of [the aforementioned person] under United States generally accepted accounting principles. This determination is based on facts and circumstances substantially similar to those set forth in paragraph (c)(2) of this section."

Source: https://www.law.cornell.edu/cfr/text/26/1.985-1

In the example they are specifically talking about an example case where someone lives in a foreign country but pays taxes in the USA and therefore claims the local currency (LC) deserves special tax treatment. With bitcoin, its a bit different assuming you live in the USA, but this still shows those metrics are the ones to apply to determine whether you really receive and spend bitcoin as a currency or just claim to do so to evade taxes.

Therefore, I recommend building up records to satisfy the metrics:

Keep some receipts denominated in bitcoin (e.g. paid lightning invoices probably qualify) to show you use it as part of your daily cash flow.

Print out your wallet history on a monthly basis, including bitcoin purchases that you send into your wallet, and write an executive summary each month so you can show you record your monthly income and expenses in bitcoin.

I don't know how you can borrow bitcoin and lend it; no one seems to offer that kind of service, and I'm not sure what you would use borrowed btc for. But maybe think about ways to do that, and if you can think of a use case, bring it up at a bitcoin meetup and make a microlending community that uses bitcoin for financing.

Make a webshop and sell legal stuff for bitcoin; I sell my workshop courses in bitcoin (supertestnet.org/workshops.html). And keep records so you can show it's a normal money for you.

Price those things in bitcoin.

Build a reputation of doing so for a long time.

Do it a lot.

And then, if you get audited for not reporting your bitcoin expenditures (the ones less than $200), show the assessor all your evidence that according to the government's own metrics, it's a currency for you, so you qualify for the exemption. And if the IRS sues you anyway, show your evidence to the judge.

If bitcoin is really your money, show it. Keep evidence of it. We can win.

0 sats \ 0 replies \ @028559d218 OP 5 Oct

Thank you testnet for your comment. It's a lot to think about. I use bitcoin on lightning on a daily basis, for SN maybe even for Nostr... and I look for places to spend it on things I would purchase anyway with fiat money.

0 sats \ 0 replies \ @Brickman914 3 Oct

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