Paying with bitcoin

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student
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Paying with bitcoin

Post by student »

I am not investing with bitcoin. I am just trying to see how paying with bitcoin works. Are there any tax consequences when paying with bitcoin? Suppose I bought $100 in bitcoin, and it grew to $125. If I purchase an item and pay with $125 in bitcoin. Do I have to pay capital gain of $25? It seems not as capital gain is due when it is sold with a profit, not when you spend it.

Edit:
It seems that I was wrong. I found this on the internet. It seems difficult to keep track.

"Using Bitcoin, bought from someone, to buy goods and services

For example, if you withdraw Bitcoin from an exchange to your personal wallet and make a goods purchase with it, then you are liable for capital gains taxes."
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nisiprius
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Re: Paying with bitcoin

Post by nisiprius »

The Motley Fool website has an article. I am not giving any kind of advice or evaluating the quality of theirs, I am quoting some of the words I found at this URL:

https://www.fool.com/taxes/2021/01/10/did-you-sell-or-spend-bitcoin-in-2020-heres-what-y/
While the IRS acknowledges that bitcoin and other cryptocurrencies can be used to pay for goods and services in many cases, and can be readily exchanged for U.S. currency, it treats it a bit differently than foreign currencies for tax purposes.

Specifically, the IRS classified bitcoin as property. This means it is treated the same as if you bought a piece of artwork and sold it for a profit, or if you sell a stock for more than you paid. If you bought, sold, spent, or even mined bitcoin in 2020, here's a primer on how it could affect your tax bill....

Did you spend bitcoin? It could get complicated

Here's where it can make your tax return really complicated. When it comes to bitcoin and other cryptocurrencies, you might find yourself owing taxes simply for spending bitcoin to pay for goods and services.

Because the IRS taxes bitcoin as property, not as a currency, spending it is considered to be a capital transaction. According to the IRS's guidance on the matter, "If the fair market value of property received in exchange for virtual currency exceeds the taxpayer's adjusted basis of the virtual currency, the taxpayer has taxable gain."

Here's what this means. Let's say that you bought $100 worth of bitcoin and its value rose to $300 over the next year. If you use your bitcoin to buy an airline ticket that would sell for $300, you have a $200 taxable gain on the purchase. Conversely, if you spend bitcoin that you paid more for, you could have a loss for tax purposes.
Last edited by nisiprius on Mon Jun 14, 2021 6:35 pm, edited 3 times in total.
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Topic Author
student
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Joined: Fri Apr 03, 2015 6:58 am

Re: Paying with bitcoin

Post by student »

I was going to try it for fun. Maybe I won't. Too complicated.
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JonnyDVM
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Re: Paying with bitcoin

Post by JonnyDVM »

Yes. You would be responsible for paying capital gains on any realized increase in value when trading the asset class that shall not be named.
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LadyGeek
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Re: Paying with bitcoin

Post by LadyGeek »

I removed a post speculating on the usefulness of bitcoin. Cryptocurrency as an investment is off-topic. See: Greater Fool Investing Strategies
Eventually, one runs out of greater fools. - Burton Malkiel

Discussions of investment strategies based on securities or physical assets that have no underlying value or negative expected long term returns are prohibited. Examples include: cryptocurrencies; lottery tickets; tulip bulbs; Ponzi, pyramid, and multi-level marketing schemes; affinity frauds; and market manipulation schemes.
And this post by the site owner: New Forum Policy Prohibiting Discussions of Cryptocurrency, Market Manipulation Schemes, etc as Investing Strategies
Note - This policy is limited to discussions of investing strategies. Discussions of cryptocurrencies in other contexts is still acceptable, for example for money transfers or microtransactions or the current thread on crypto trades and tax loss harvesting.
Members may have crypto in their portfolio. The discussion may proceed as long as the strategy for managing crypto aligns with "Investing Advice Inspired by Jack Bogle". For example, selling crypto to purchase stocks or bonds.

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