Sales Tax on Payments Made with Bitcoin
Learn how sales tax works for Bitcoin transactions.
Hi. Welcome to Will's Whiteboard. I'm Will. Today we are going to talk about Bitcoin and sales tax. So when someone uses Bitcoin to buy something. If you don't know what Bitcoin is, there are a lot of great resources out there for you. We are going to focus on the tax today.
So Bitcoin has been gaining popularity and been in the media more and more in the past couple of years. Unless you're a Bitcoin aficionado or you've really researched it, you might have some questions about how it works related to tax, or you might even have some misunderstandings.
There's some businesses that think "Awesome, this is a new opportunity for us. If the market is going to be there, we want to start accepting Bitcoin." Overstock.com, for example, is accepting Bitcoin as a form of payment, and within the first two months that they did this, they did a million in sales of Bitcoin transactions. But some businesses think that the scenario with Bitcoin looks a bit like this.
In other words, that they can accept bitcoin and be there for the market and earn potential profit without having to do a lot of paperwork, less paperwork or maybe even no paperwork when it comes to sales tax. Well, it turns out, that's wrong. The way that the rules are written on the state and local level, basically any type of currency that you get to receive a good, most times you have to remit sales tax on that to the government. So you do have to do paperwork.
In fact, when it comes to Bitcoin, it's even a little bit more burdensome because most states won't accept Bitcoin as sales tax payment. So when you take bitcoins for a transaction, you've got to convert it into dollars, if you are in the U.S., then calculate the percentage of sales tax and then remit that to the government. So it can be almost the opposite here where there's a lot of paperwork and who knows about the profitability.
That is, unless you use a technology like AvaTax that automates sales tax for you. See AvaTax works with currencies like dollars, and it also works with Bitcoin, which is a virtual currency. That way if you have sales tax automated, you don't have to worry about the paperwork and you can focus on the profit. I hope this helps explain bitcoin and sales tax.
Thanks very much. I'll see you next time.