IRS- In the Tax System Bitcoin Is Property, Not Currency

House · Mar 25, 2014

FFS. It was only a matter of time :/

Today's IRS guidance will provide certainty for Bitcoin investors, along with income-tax liability that wasn't specified before. Purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of gross income for the coffee shop.
The IRS, faced with a choice of treating Bitcoins like currency or property, chose property. That decision could reduce the volume of transactions conducted with the virtual currency, said Pamir Gelenbe, a venture partner at Hummingbird Ventures, which invests in technology businesses.
"It's challenging if you have to think about capital gains before you buy a cup of coffee," he said.

The IRS ruling means Bitcoin investors will be treated like stock investors. Bitcoins held for more than a year and then sold would face the lower tax rates applicable to capital gains -- a maximum of 23.8 percent compared with the 43.4 percent top rate on property sold within a year of purchase.
"The Internal Revenue Service's guidance today provides clarity for taxpayers who want to ensure that they're doing the right thing and playing by the rules when utilizing Bitcoin and other digital currencies," Senator Thomas Carper, a Delaware Democrat, said in a statement.
For investors with losses, U.S. tax law allows taxpayers to subtract capital losses from any capital gains. They can also subtract as much as $3,000 of capital losses a year from ordinary income.
If Bitcoin were treated as a foreign currency, ordinary -- not capital gains -- tax rates would apply. Losses would be easier to deduct, however.

Bitcoin miners will have to report their earnings as taxable income with a value equal to the worth on the day it was mined. If they mine as part of a business, they would have to pay payroll taxes as well.

The IRS will require information reporting similar to how the tax agency receives notification of stock transactions and payments to independent contractors.
"The danger is the creation of an electronic black market, similar to the cash economy," Joshua Blank, a tax law professor at New York University, said in a December interview. "That's what the IRS wants to avoid."
The ruling takes effect immediately and covers past and future transactions and tax returns. The IRS said in the notice that it may offer relief from penalties to people who engaged in transactions before today and can show "reasonable cause" for underpayments or failure to file
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Bloomberg

heartastack · Mar 25, 2014

"The danger is the creation of an electronic black market, similar to the cash economy,"

uhh.. isn't that exactly what the above will encourage?

2ds · Mar 25, 2014

It doesn't matter, they have legitimized it. People will just find a way to subvert their attempt to tax it now.

goldpelican · Mar 26, 2014

Conversely, Denmark just ruled that Bitcoin is not to be taxed for individuals - so investment gains and losses are considered "private", and not taxable or claimable.

Earthjade · Mar 26, 2014

Why the frack are the Dutch buying worthless gold when they could be riding high on tulip bulbs?

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IRS- In the Tax System Bitcoin Is Property, Not Currency

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