The bitcoin / crptyo currency... ethos? (not sure what word to use there) seems to continuously collide into the reality of living in a society.
That doesn't make them incompatible, but it does perhaps provide some lessons for everyone on why financial systems are the way they are as it is, and how you can't just jump on a technology and escape.
At the very least it has all been an interesting thing to learn from.
At the very worst it is a blight on the environment.
27kWh of energy burned per transaction, with a maximum scaling limit on the order of 5 or 6 transactions per second. If everybody in the world used Bitcoin, then you'd be entitled to your one transaction every few decades.
If cryptocurrencies saw serious use, Bitcoin would self-limit at a sustainable level and new currencies would be invented to deal with those issues. The biggest problem with cryptocurrencies is that US dollars are actually pretty good.
>The bitcoin / crptyo currency... ethos? (not sure what word to use there) seems to contentiously collide into the reality of living in a society.
That technolibertarianism is rampant throughout the tech industry and not just in the crypto space. Ignoring laws is viewed as being perfectly fine as long as you label it "disruption". I don't see much difference in peole running unlicensed hotels out of their condo with the help of Airbnb compared with a crypto trader dodging taxes.
Well technically it does. Just not if you buy from coinbase where they need a lot of your personal information plus you'll be most likely buying with a debit/credit card.
If you pay someone for cryptocurrency in cash and they send to a wallet you have set up by yourself there is not really any way to prove that it's yours.
Also, the fact that Coinbase is in the US legal jurisdiction gives its clients confidence they would be made whole if anything untoward were to happen.
If the untoward event is solely in USD, perhaps, but not if it's in crypto. Exit scams, hacks, rogue employees, etc, could still hit a US exchanges' crypto holdings and the government probably cannot or will not compell a roll back, supply expansion, etc, on a major blockchain.
If anything is actually protecting clients against crypto theft, it's the exchange's privately-purchased insurance rather than the government. Although I wouldn't rely on that for much either as insurers are rarely eager to pay out.
The 'wealthy' and corporations have the finances to pay for accountants and attorneys to set these things up. Most of them are taking advantage of what is legally already there, but no where near common knowledge. Wading through tax code is a struggle at best.
It depends where you do your transactions. If you do it on CoinBase, yes, you are going to be tracked. There are many other options though where you don't have to provide ID.
From my experience, it's not really a matter of getting tracked. It's a matter of whether you can explain your income conclusively, which isn't easy if you don't report all transactions.
Right now it's pretty hard to live on cryptocurrency alone. Which means at some point you will need dollars (or Euros or whatever), and that transaction is almost always traceable to a person.
I don't know a lot of people who only have cryptocurrency income. Most people have a regular job, but then decide to put a % of their savings into crypto. You can use your job income to pay for transactions. If there are any cryptocurrency income, it's then up to you how to manage that. Put that into traditional finance (then declare it), hold (not selling, so there are no capital gains, so no tax), or use crypto to buy products that are outside traditional finance
This is true with cash too. You can take part of your income into cash and make anonymous transactions with cash, and maybe even profit from them in an untraceable way.
But you better hope it is truly untraceable, and that no one else involved in that transaction makes it traceable, otherwise the IRS will come for you.
Same with crypto, except it is a lot easier for someone else to make you traceable since all the transactions can be traced to their origin on the blockchain. If someone you transacted with files US taxes, it's not that hard for the IRS to trace that back and ask who the BTC came from. It would only take one person turning on you for you to get caught.
I'm not a lawyer or accountant but I'm fairly sure if someone pays you in cryptocurrency (or beer or gift cards or frozen shrimp or anything else) you owe taxes on the dollar value of that cryptocurrency in the year that you earn it, and of course if no withholding was taken out of it by the one who paid you you also probably owe quarterly estimated taxes.
I can't tell if you're acknowledging this, or if I am mistaken about this but I don't think you can legally avoid income taxes by being paid in kind. My understanding is if you're a US citizen you have to pay Uncle Sam on everything you earn not just every dollar. Otherwise we'd all just take our paychecks in krugerands.
I did not state that it was not tax fraud. I was just replying to the person above who states that the government will find you whatever you do. There are multiple ways so the government is not aware of what you are doing in cryptocurrency.
> The math behind crypto doesn’t magically make you immune to government oversight.
Not legally, but the math always gives you a stronger presumption of innocence than you'd otherwise have.
The economics are the same as gold mining, where what gives gold value is the fact that the expected returns from mining it are always negative. With gold, the concept is basically just that different types of sand have different weights, so due to a quirk in physics if you shake up sand the the heavier types of grains go to the bottom of your bucket. The fact that you can't ever reverse entropy like this (predictably) profitably is what secures its value. Similarly, with crypto what secures its value is that electricity cost of mining always outweighs the expected value of the crypto mined.
Anyway because the expected returns are always negative, it's much harder than it would otherwise be to identify people who have actually beat the odds to make money. Maybe not with Bitcoin due to the design of the ledger, but certainly with other cryptocurrencies.
If you Google for people who have made the money money mining gold, there are literally zero results. Why? Because the expected negative value makes it exceedingly difficult for the IRS to convict folks who are cheating on their taxes.
Obviously no, the math doesn't prevent them from shooting your dog and carting you away to a jail cell but your assumptions about enforcement are naive.
The typical MO for tax evasion is to just not report your side gig (crypto or otherwise), hope you don't get caught and play dumb and pay up if you do get caught. This doesn't change whether it's crypto or doing under the table work which is the point I'm trying to make here. You either pay up front the right way or have a chance of not paying at all (tax evasion) but if you get caught doing that you pay slightly more for not paying up front. Anyone who is being charged with tax evasion is doing something very stupid.
It should be obvious but the people who've revived these letter should play dumb (if applicable) and pay up at this point since clearly the IRS knows that they owe more than they've paid.
It's hard to prove intent after you receive a letter from the IRS telling you to do something then you don't?
The nice thing about the IRS is that intent is pretty irrelevant. You make money, you don't pay taxes, your wages get garnished and your bank accounts seized for taxes, fees, penalties and interest. There's no messing around with the IRS, intent not required. If they can show intent you go to prison.
[edit] The difference with under the table work is that you get cash, then you spend the cash and not a record was made, then you've got the IRS forensic accountants on your ass if you do it too much. With crypto if you want to get your purchasing power back you pretty much have to go through a fiat gateway, every transaction there is logged, and likely reported.
I am not sure if you're obligated to pay US federal income tax or not (either non-US resident/citizen living in the USA or US's resident/citizen in expat).
If the IRS sends a formal letter to you, their intention is pretty clear that they found something wrong with your tax situation. I have had a couple of official letters from them for the last 4 - 5 years. Some of which I owed them money and I had to either pay (with penalty) or if allowed, file a amendment soon after. For others, they said I had errors in my filing and they gladly return a few dollars for me.
The first time I had to deal with them, I was surprised that the IRS is very professional, patient and courteous to me! I believe if they assume you're not trying to cheat taxes, they will help you to solve your case.
It make sense in cases where people get rich overnight (vested options, bitcoin gains or what nots) and they already spent a huge chunk of that income without setting aside for tax. If that is the case, they will soon realize they need a sizable portion of that overnight gain to pay tax soon.
Unless you're a crypomillionare with little other income (most of whom are probably smart enough not to risk it) the paying up part shouldn't be too hard.
I can't stress how common this is with cash only side gigs. People hope they don't get caught and if they get caught they play dumb and agree to pay X per month to settle the bill.
They need to show intent or get you to lie to them if they want to put you in prison (which they don't because they want your money instead).
Intent or playing dumb maybe only matters as a defense against tax evasion charges, but everyone is liable to pay taxes and associated penalties for late/non-payment, even on an under the table side gig.
