Taxation from variations in currency
Here is the technical guidance from the accounting standard FRS 23 (IAS 21) 'The Effects of Changes in Foreign Exchange Rates' which states: Exchange differences arising on the settlement of monetary items or on translating monetary items at rates   different from those at which they were translated on initial recognition during the period or in previous   financial statements shall be recognised in profit or loss in the period in which they arise. An example:  You agree to sell a product for $100 to a customer at a certain date. You would record the sale of this product on that date at $100, converted at the current FX rate (lets say £1:$1 for ease) in your profit loss account as £100. The customer then pays you several $100 days later, at which point the FX rate has fallen to £0.5:$1 and you only receive £50. You would then have a realised loss of £50 due to exchange differences, and this is charged to your profit and loss account as a cost. Due to double entry bookkeeping the profit/loss on the FX difference is needed to balance the journals of the transaction. I think there is a little confusion as to what constitutes a (realised) profit/loss on exchange difference. In the example in your question, you are not making any loss when you convert the bitcoins to dollars, as there is no difference in the exchange rate between the point you convert them. Therefore you have not made either a profit or a loss.  In terms of how this effects your tax position; you only pay tax on your profit and loss account. The example I give above is an instance where an exchange difference is recorded to the P&L. In your example, the value of your cash held is reflected in your balance sheet, as an asset, whatever its value is at the balance sheet date. Unfortunately, the value of the asset can rise/fall, but the only time where you will record a profit/loss on this (and therefore have an impact on tax) is if you sell the asset. According to the answers to this question, you generally aren't taxed on gains until you sell the asset in question. None of those answered specifically for the U.K., so perhaps someone else will be able to weigh in on that. To apply those ideas to your question, yes your gains and losses are taxable. If you originally traded something worth $100 for the bitcoins, then when you converted back to dollars you received $200, you would have a $100 gain, simply on the foreign exchange trade. That is, this $100 of income is in addition to any income you made from your business (selling goods).
From the IRS: You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). It's not just that the particular money you take from the IRA isn't taxable.  It's not counted as part of your income at all, so it won't have any effect on the taxation of other income. "Believe it or not, unless you directly contact an accountant with experience in this field or a lawyer, you may have a tough time getting a direct answer from a reputable source.  The reason is two fold.  First, legally defining in-game assets is exceptionally difficult from a legal/taxation stand point.  Who really owns this data?  You or the company that has built the MMO and manages the servers containing all of the data? You can buy-and-sell what is effectively ""data"" on their servers but the truth is, they own the code, the servers, the data, your access rights, etc. and at any point in time could terminate everything within their systems.  This would render the value of your accounts worthless! As such, most countries have overwhelmingly avoided the taxation of in-game ""inventory"" because it's not really definable.  Instead, in game goods are only taxed when they are exchanged for local currency.  This is considered a general sale.  There may be tax codes in your region for the sale of ""digital goods"".  Otherwise, it should be taxed as sale a standard good with no special stipulations. The bottom line is that you shouldn't expect to find much reliable information on this topic, on the internet.  Law's haven't been welled defined, regarding in-game content worth and taxing of sales and if you want to know how you should pay your taxes on these transactions, you need to talk to a good accountant, a lawyer or both." This question is really a variation of rent vs buy.  Try looking at it this way - If you bought it 50/50 and rented it out, what would you both get? Now, moved in, you are effectively collecting that rent, but half is your own money, half is from the partner.  Is the half you are getting the from the partner equal to 1/4 of the mortgage. This sounds convoluted, but once you spell all the numbers out, it would be clear.  Without the deal as you present it, you'd be paying the partner to 'live in his half.' The currency market, more often referred as Forex or FX, is the decentralized market through which the currencies are exchanged. To trade currencies, you have to go through a broker or an ECN. There are a lot's of them, you can find a (small) list of brokers here on Forex Factory. They will allow you to take very simple position on currencies. For example, you can buy EUR/USD. By doing so, you will make money if the EUR/USD rate goes up (ie: Euro getting stronger against the US dollar) and lose money if the EUR/USD rate goes down (ie: US dollar getting stronger against the Euro). In reality, when you are doing such transaction the broker: borrows USD, sell it to buy EUR, and place it into an Euro account. They will charge you the interest rate on the borrowed currency (USD) and gives you the interest and the bought currency (EUR). So, if you bought a currency with high interest rate against one with low interest rate, you will gain the interest rate differential. But if you sold, you will lose the differential. The fees from the brokers are likely to be included in the prices at which you buy and sell currencies and in the interest rates that they will charge/give you. They are also likely to gives you big leverage to invest far more than the money that you deposited in their accounts. Now, about how to make money out of this market... that's speculation, there are no sure gains about it. And telling you what you should do is purely subjective. But, the Forex market, as any market, is directed by the law of supply and demand. Amongst what impacts supply and demands there are: Also, and I don't want to judge your friends, but from experience, peoples are likely to tell you about their winning transaction and not about their loosing ones. But the US has a higher rate than any other OECD country. So you are still taxing profits from money that wasn't made in the US.  Obviously way more complicated, but it's pretty insane. It can be even worse for an individual. Oh, and imagine you'd like to start a sole propietorship overseas as a US citizen. You either renounce or have insane compliance costs. "You are not interpreting the table correctly. The $20K ""base rate"" that you think should have been eliminated is in fact the total tax for the whole bracket. You only dipped partially into the bracket, and the $3K reduction accounts for that. Look at the table again: What it means is that if you earn $100K, you will pay $6897.50 + 25% of (100000-50400) = $12400. If you earn $140000, you'll pay $26835 + (140000-130150) * 0.28 = $2758. So why the difference between $26835 and $6897.50? That's exactly 25% of $79500, which is the difference between $130150 and $50400 - the whole value of the bracket." The scenarios you describe are obviously easy to catch. It is reasonably defined in tax law, but more needs to be done to exert the spirit of the rules. The problem is that when international businesses are cross charging  there is limited information the tax offices have to argue the toss - for example a UK tax office cannot audit the accounts of its US parent in order to decide whether a cross charge representing license fees and marketing costs is fair - but these types of transaction are one of the primary mechanism for avoiding taxes. These are therefrom inferred by the UK companies accounts but not 'in the open' in the sense that they can be easily challenged with accurate information. And that is why it happens, people know about it, but it is still not easy to stop. Having taxes in USD gives the USD intrinsic value.  The US government already fights any attempt to have the petrodollar undermined (foreign exchanges that trade oil in currency other than USD).  It will have to exactly 0 interest in undermining itself by accepting anything but USD in taxes.