Is it possible for a U.S. citizen to evade income tax by being paid in Bitcoin?
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1This topic is also covered on money.SX for example money.stackexchange.com/questions/86833/…– dave_thompson_085Commented Nov 27, 2017 at 21:37
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8I suspect that you might be unaware that evade has a specific meaning with regard to tax collection. Evading taxes is making a deliberate illegal act in order to not pay taxes that you owe. Avoiding taxes is taking legal actions to lower the amount you owe. Is it possible to evade taxes by illegally using bitcoin to obfuscate a transaction? Absolutely it is. Is it legal tax avoidance? No.– Eric LippertCommented Nov 28, 2017 at 6:55
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I would also see this money.se question which specifically covers income tax for wages in this scenario.– JoeCommented Nov 28, 2017 at 15:45
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3I feel like in 99% of cases of questions beginning with "Can one avoid paying US income tax by..." the answer is probably no.– ShufflepantsCommented Nov 28, 2017 at 16:28
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2 Answers
No. You have to pay taxes no matter what currency you are paid in, or for that matter, in most barter transaction as well. You would have to pay taxes even if you were paid in goats.
Also, the counter-parties in transactions in which you are paid in Bitcoin and earn money often have an obligation to file information tax returns to the IRS.
If you don't report the income, both you and any counter-party subject to reporting requirements could be liable for the tax as well as for penalties and interest and possible criminal charges as well for intentionally evading taxation and filing false tax returns.
answered Nov 27, 2017 at 18:10
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4Here is the IRS Virtual Currency guidance; irs.gov/newsroom/irs-virtual-currency-guidance & more detail; irs.gov/pub/irs-drop/n-14-21.pdf. "For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency." Commented Nov 27, 2017 at 19:46
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15@Bakuriu: You don't pay taxes in goats. You pay taxes in cash based on the fair market value of a goat.– cHaoCommented Nov 27, 2017 at 21:33
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2Sure you can pay taxes in goats; if you're in a country that accepts goats as legal tender for paying taxes. Commented Nov 27, 2017 at 21:54
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10@Bakuriu FWIW, the goat example isn't as far from reality as you would think. I have been paid for services as a lawyer in my own private practice in the 21st century in Colorado, in livestock (pre-slaughtered thank goodness) and yes, I did report it on my tax return for the year. (It was the year of the crash in 2008, and none of my clients had a lot of cash on hand to pay me.) Commented Nov 27, 2017 at 22:01
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4@RyanCavanaugh Thousands of people in the legal marijuana industry have hundreds of thousands of dollars in tax liabilities each but have to deal in cash because they aren't allowed to set up bank accounts. It has nothing to do with being highly impoverished, but does have a lot to do with being unbanked. An arbitrary $1,000 a day limit is a huge problem for them. Also, FWIW, the IRS does not in fact accept goats as legal tender, nor do Idaho's tax collectors (unless they are foreclosing on tax liens, in which case both accept them). Commented Nov 28, 2017 at 3:20
Taxable income (Merriam-Webster) as defined by the IRS is
...generally speaking, is the gross income of an individual or corporation, less any allowable tax deductions. Your taxable income is, in other words, the amount of your income that is subject to income tax. What is taxable income? | US Tax Center
So if you have a good accountant, you may not have to pay much or all on your income depending on your deductions. But that's more of an accounting question.
But income that is paid in Bitcoin is still income; it doesn't matter if you keep the funds in Bitcoin or convert them to US dollars, it's still income. Even in Idaho.
And the people and/or businesses who pay you have to keep tax records and report your income. For annual amounts less than $600, Form 1099-MISC doesn't need to be filed by the employer, but the payee still needs to show the income on their tax return.
The web has many accounts of people who fall into the trap of thinking that paying income taxes is illegal because tax policies are not clearly outlined in the Constitution. And they may also feel that Bitcoin itself is a currency outside the realm of the law, and when that earned Bitcoin is not converted to a traditional currency, such as the US dollar, it is outside the law. But if that Bitcoin is income as defined in the dictionary, it is subject to income taxes. People who evade paying income taxes run the risk of an audit and prosecution for not paying taxes. Read Tax protester statutory arguments - Wikipedia.
answered Nov 27, 2017 at 18:49
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4Bitcoin isn't defined as "income", it is defined as "property". Commented Nov 27, 2017 at 19:48
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6@digtalfire Yes, and as with any other thing of value paid as wages, including property, the payment is "reported by the employer on a W-2 and is subject to federal income tax withholding and payroll taxes," as stated in your linked ref.– UpnorthCommented Nov 27, 2017 at 21:18
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2FWIW, the Idaho Supreme Court recently tried to rule that it didn't have to follow federal law, by the US Supreme Court in a swift and unanimous per curium opinion quickly overruled that holding. Commented Nov 27, 2017 at 22:04
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3@DigitalFire income is a net transfer of property from one party to another. Either way the federal government isn't interested in letting you define your way into tax evasion Commented Nov 28, 2017 at 2:04
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2@ChenStatsYu The same way you work out how many goats you think is a fair wage for the work you did: by considering the current cash value of goats. This has all already been discussed above. Commented Nov 28, 2017 at 14:49