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I am thinking about selling software subscriptions with Bitcoin. I am in the U.S but I am a non resident alien. My income will not be U.S based because I am selling to everyone around the world.

  • Do I have to start a company to sell my software ?

  • Am I subject to any tax in the U.S ?

  • Let's say I made 10 bitcoins with my sales, and bitcoin went 2x after that. How are they going to tax me when I'm getting paid in bitcoin(and not converting my sales immediately into USD)?

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    "Let's say I made 10 bitcoins with my sales, and bitcoin went 2x after that." Two issues: #1 use the value of Btc at time of sale for the sales income you record on your tax form. #2 if the Btc change in value afterwards and you sell them then record a capital gain or loss. – RonJohn Feb 4 '18 at 21:30
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    As a non-resident alien what is your actual status in the US? Consider if you are resident for tax purposes. (Selling to anyone in the world does not of itself make your income not US based). – DJClayworth Feb 4 '18 at 23:12
  • Minor nit: you aren't selling software with bitcoin, you are just selling software, and you happen to accept bitcoin as payment. – chepner Feb 5 '18 at 15:05
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Publication 519 discusses the filing requirements for resident and Nonresident aliens.

If your income is subject to U.S. tax, you will owe income tax based on the dollar value of the bitcoin when you receive it. This value may be different for each sale as the value of bitcoin in dollars fluctuates. However, if you set a price in both dollars and bitcoin, and allow purchases in either, then you can stipulate that the value of the bitcoin price is the same as the dollar price.

The value of the bitcoin can then grow tax free (I guess "tax deferred" would be a better term) until you convert it. (Note that buying something, including another cryptocurrency, counts as converting it.) When you convert it, you will owe capital gains tax on the increase in value from the time you received it (again, if you are subject to tax).

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    "This value may be different for each sale as the value of bitcoin in dollars fluctuates." and the current (downward) volatility in the price of Btc is why so many companies have stopped accepting them. – RonJohn Feb 4 '18 at 21:44
  • "The value of the bitcoin can then grow tax free" or fall, of course. – TripeHound Feb 5 '18 at 7:56
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The IRS provided guidance for this exact scenario. From https://www.irs.gov/newsroom/irs-virtual-currency-guidance:

Q-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?

A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.

Q-4: What is the basis of virtual currency received as payment for goods or services in Q&A-3?

A-4: The basis of virtual currency that a taxpayer receives as payment for goods or services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. See Publication 551, Basis of Assets, for more information on the computation of basis when property is received for goods or services.

In short, for tax purposes, if you recieved 0.1 BTC were worth $1,000 at the time of sale (you would presumably have a dollar valuation for this sale) it will be as if they paid you cash and you immediately bought some BTC at this price. You must track the value and amount of BTC of each individual sale, as each lot will have unique costs basis.

Unless an entity outside the US took possession of the coins on your behalf, this would almost certainly be considered US-based income regardless of where the buyer lived.

  • How does he know whether a sale he makes online counts as a sale that would require US sales tax? What if he establishes a company headquartered somewhere outside the country, say, a tax haven? – schizoid04 Feb 10 '18 at 1:29
  • There is no (federal) "US sales tax," but the US does have an income tax, so if the poster was directly enriched by the sale while living in the US this would be considered income and be subject to the same taxes as all other income (which, I concede, there is insufficient information to determine as non resident alien, the method of payment being irrelevant). A setup that could be used to avoid/defer this taxation (e.g. foreign holding companies) would be very intentional, requiring enough legal assistance to make asking such a question here superfluous. – B. Johnson Feb 10 '18 at 21:40
  • You're right; I was thinking of state sales tax (Assuming he's in a state that has sales tax)... I don't know how easy /difficult it would be for him to get out of paying that for a business selling software, if he lives in a state that charges sales tax (i.e would his business have nexus in that state?) – schizoid04 Feb 11 '18 at 2:05

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