Legalized Theft Season: Shedding Light on Bitcoin Taxation - #216
TL;DR - Navigating taxation on a Bitcoin standard can be a roadblock for those wanting to live on Bitcoin. This guide sheds light on Bitcoin taxation.
Dear reader,
It’s that time of year again: the season of legalized theft.
For those wanting to live on a Bitcoin standard, knowing how to handle taxes can be a roadblock.
While I’m not a tax professional — and you should seek professional advice — my aim is to shed a little light on the subject and hopefully demystify the excuses.
Living on a Bitcoin standard means Bitcoin is your base money
You earn, save and spend, as much as you can, in Bitcoin. You set your savings in Bitcoin (in an offline wallet). You use Bitcoin to buy goods and services either directly in Bitcoin or you convert Bitcoin to other currencies as needed.
What puts people off from adopting a Bitcoin standard is taxes. When people don’t know enough about a subject they tend to shy or shun away from it. Fear of a thing is the hold back, not the thing itself.
Understanding taxes
Taxation is theft.
Taxes are the toll we pay on the road of life. We want to live, we pay the tax… or else. “They” say it’s to pay for services, but we know where it really ends up - war, bribes, and more.
Income tax is a penalty for being productive. It disincentivizes people to build, create and provide goods and services over time. People argue that the world runs on fiat and that they don’t want to be taxed on their Bitcoin usage. They don’t understand that they are taxed no matter what.
You’re taxed when you earn, buy something, sell something, or save. Many don’t see the tax theft as it’s often done via their income withholdings, after the good or service has been sold, or in the form of inflation.
Inflation is a hidden tax, caused by monetary policies, so you are taxed just for holding fiat.
At least with Bitcoin, fiat price appreciation can help to offset the loss.
Taxation on Bitcoin
Bitcoin is seen as property, similar to real estate, stock or collectibles.
When you sell Bitcoin and the fiat price appreciates, you pay a fee on the “profit”. When you sell Bitcoin and the fiat price drops, you get to claim the loss. Learn to harvest those losses while you can.
When you earn Bitcoin as income, the fiat price is recorded in US dollars, not in terms of how much Bitcoin you’ve received.
Example:
The average net salary in the US is around $50,000 per year (Bureau of Labor Statistics). If someone is paid bi-weekly, they would receive around $1,923.08 per paycheck.
If someone is paid in Bitcoin and the price of Bitcoin is $30,000 at the time of payment, they would receive 0.064 BTC.
However, when they file their income taxes, they would report their earnings in US dollars, not in Bitcoin. So, even though they received 0.064 BTC, they would report $1,923.08 on their tax return.
Note:
Earning in Bitcoin benefits you both ways: a price increase yields more purchasing power, while a decrease allows you to claim a tax write-off.
Navigating Taxes on Bitcoin
Navigating taxes on Bitcoin can be challenging, but there are a few things you can do.
Use a wallet that helps you keep accurate records
Keeping track of Bitcoin transactions can be a pain, but there are options like Phoenix Wallet, Blue Wallet, Sparrow Wallet, and Edge App which export your transaction history in the form of a spreadsheet.
If you want to manually track your transactions, I made a spreadsheet which you can use for free here.
Once exported, bring that into your accounting software or accountant.
Note:
Another option is to use exchange platforms like Coinbase or Cash App to track and report expenses easily. Privacy may be compromised, but convenience is gained.
Consult with a tax professional
Consult with a tax professional who is versed in Bitcoin. It’s good to find them early on in order to create a strategy that works best for your situation.
File tax returns on time
The general rule of thumb is to file early, but if you don’t have the time, file for an extension. Remember, “penalty by fee means legal for a price”.
Use KYC FREE Bitcoin
At the root, acquiring Bitcoin privately and discreetly is best. Bitcoin is peer-to-peer cash. No middleman. Reporting is up to you.
Conclusion
A little knowledge is a powerful thing. Don't let taxes be an excuse to avoid using Bitcoin. Stay informed and keep detailed records to avoid IRS surprises. Remember, tax treatment will change, but it's up to us to demand it.
Let's make our voices heard by using our Bitcoin.
Until next time,
Rare Passenger
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Please correct the heading that says “Use KYC Bitcoin” to “Use KYC Free Bitcoin”, which is what I believe you meant to say. Thanks for the article!