The only effect of not using USD to conduct financial transaction has on your taxes is that it makes them more complicated. It will not reduce your tax burden one iota. (In the US, of course)

At least one reason is that a big chunk of crypto value is being driven by wealth flight out of the PRC. A lot of the dollars propping up BTC's valuations represent trade deficit dollars that would otherwise be leverage for a plausibly hostile government.

Surely the feds are aware of the scale of money laundering being done in the cryptocurrency world, but I'm guessing they'd prefer to see that being laundered by western criminals than leveraged by China.

The IRS taxes bitcoin.

As an asset, so your gains are taxed. The variability creates a tax nightmare, since the price isn't stable.

Is there more information on this? The IRS are planning on adding this question to form 1040:

"At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

How literal is "currency?" I would consider currency different than "assets" from a tax perspective. Can anyone provide some clarity or articles which provide any?

It is on form 1040 this year, just under the address: https://www.irs.gov/pub/irs-pdf/f1040.pdf

The IRS's instructions state:

> Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, or a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency. The IRS uses the term “virtual currency” to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency. Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes.

Yikes.

Based on that description, WoW gold would qualify...

Video game currencies are definitely sitting around the line. I don't know anything about WoW gold, so I can't say if it crosses the line into virtual currency. However, given that searching for "WoW gold" had the entire first page of results being nothing but people selling it, I do feel like it rather deserves to cross the line into virtual currency.

I mean if you sell wow gold it’s taxable. It’s income and taxable at your bracket.

If you use it purchase items in games it’s probably not. Especially if those items can’t be purchased directly. It’s similar to gift cards. Especially if you purchase items from the publisher, who pays tax on the income.

If you start using it to buy pizza it’s on the other side of the line. It’s an asset, and could be potentially taxable as an asset.

This might be helpful for you:

https://www.irs.gov/individuals/international-taxpayers/freq...

If you're familiar with buying/selling stocks, it's treated pretty much the same.

why would the variability does create a tax nightmare? You are only taxed when you sell at a specific price

Spending it on a purchase is considered to be the same as selling it at a specific price. If you use bitcoin as a currency, then you have to report every transaction on your tax report, including the price that you acquired the bitcoin at, and its price at the time that you used it to purchase something.

I recal a thread on /r/personalfinance where someone bought Bitcoin, directly for another altcoin after the Bitcoin value went up, the end-of-year happened, then in January the altcoin value tanked. If both happened in the same year that person could use the loss of the altcoin to offset the gain of the bitcoin. But since they were in separate years, they had to come up with some huge amount of money to pay taxes on the gains from bitcoin (gains that were wiped out by the drop in value from the altcoin).

To do this properly, everytime you use bitcoin to buy something you should sell enough bitcoin (for cash) at the same time to generate enough cash to cover the tax on the main transaction (assuming bitcoin went up in value from when you acquired it).

We have to do that with securities too. You sell, you report. If my Bitcoin wallet was hosted with some financial company like Coinbase, I'd want/expect them to send me a 1099-B reporting those sales to help me with my taxes, just like Schwab sends me a 1099-B for stock transactions. But if not, just keep a record of the transaction in your own documents, showing the price of Bitcoin when the transaction happened, and that should be enough for the IRS.

I think rashkov is talking about trading Bitcoin directly for goods and services, as originally intended.

If you did that, you'd have to report every purchase on your taxes as a separate asset sale.

That doesn't seem unreasonable. If I traded you a share of TSLA for a laptop, the IRS would treat it similarly, no? Bartering transactions are taxable.

Yes completely taxable.

The difference being most people don’t trade Tesla shares for laptops.