The Bitcoin economy failure, taxation and accounting.
(ZHC0 will be an Altcoin. We will work to make it exchangeable for Bitcoin. Only by supporting Bitcoin can we ever hope to get an Altcoin like ZHC0 accepted as a real currency, and that is the experiment)
For Bitcoin to become part of the economy, and to become a currency for tax purposes, it needs greater adoption. It is no good receiving and holding Bitcoin, we need places to spend it as well. This means merchants. There are very few merchants who accept Bitcoin. So what is the single greatest reason merchants aren’t adopting Bitcoin?
To create an economy, I believe Bitcoin needs to be identified first in terms of taxation. The opposite is true, many are people are interested in Bitcoin first because it is anonymous and enables tax-free transactions. So there is a disconnection in terms of purposes. A failure.
Without merchants, there is no broader Bitcoin economy. Without clear taxation merchants get nervous, and dump Bitcoin in the ‘too hard basket’.
Merchants live with, eat and breathe tax. They are the primary tax collectors, be it through sales tax or by withholding income tax from their employees. They usually have no small amount of pride in being reliable and conscientious taxpayers.
Taxation isn’t easy. Merchants manage it through accounting software. Bitcoin complicates things. Most people would be running older account software, sometimes more than a year old, that might not incorporate recent changes to tax rulings to do with Bitcoin. Many people wouldn’t have software that identifies Bitcoin balances and transactions by name.
Ideally you want accounting software that manages and tracks your Bitcoin balances as if it was a currency, but handles its actual tax status according to your location.
In most places, Bitcoin is considered an asset that accrues capital gains and losses. It is NOT a currency, or money – which confuses people, especially as it is called a ‘digital currency’.
It is always best to go direct to the primary source of Bitcoin and tax information. In Australia, this is the Australian Taxation Office.
To complement this, there is much international information on tax compliance on other websites, information that goes into far greater detail than I could. Investopedia and the Bitcoin.It Wiki are both good resources to start with.
Perhaps someone can explain to me how Bitcoin, with a status of an asset subject to capital gains tax, can be treated as a currency within an accounting program without modifications to the program? This link to Bitcoin magazine sure confuses.
To wrap up, how about a large, reputable company provide a service that lets you convert the Bitcoin to dollars immediately, meaning you never actually receive, hold or have to account for any Bitcoin? Now this I understand, and I believe, merchants will as well.
While change is slow Bitcoin is becoming legitimate.