Skip to comments.What the IRS Bitcoin Tax Guidelines Mean For You
Posted on 03/26/2014 6:05:50 AM PDT by Errant
The US Internal Revenue Service finally announced its guidance for virtual currencies yesterday, explicitly referring to bitcoin (see the announcement here and notice here). The increased clarity provided three weeks before the end of the US tax year - will come as a relief to many who were scared to get involved in bitcoin, commercially. But what does it mean for different members of the bitcoin community?
US businesses wanting to get involved in bitcoin have been waiting for this for a while. As recently as January, US Taxpayer Advocate Nina Olson pressured the IRS in her annual report to Congress, telling it that it needed to publish guidance. The lack of rules was a serious problem, she said, and many businesses would be surprised to hear that capital gains could be imposed on bitcoins.
Well, now, thats official: in its guidance, the IRS has said that bitcoin should be treated as property, making it subject to capital gains tax. That has significant ramifications for different kinds of businesses and individuals dealing in bitcoin.
(Excerpt) Read more at coindesk.com ...
They don’t need to make it illegal... just treat it as a commodity and tax the hell out of it as a barter exchange. Also, force people to keep accurate records of all transactions, which defeats the anonymous transaction feature.
From Business Insider:
“The IRS has ruled Bitcoin should be treated as property, not as currency, for tax purposes.
According to Bitcoin tax expert Tyson Cross, this will create a significant burden on Bitcoin users, as every transaction they ever make using the digital currency will have to be reported in some way.
That would not be the case if it had been ruled a digital currency.
“Users will have to track their transactions and determine the amount of their taxable gain each time,” he told BI in an email. “It’s quite a burden. The rules on taxing foreign currency provide an exception for ‘personal transactions’ for that very reason. It would be great to have that exception (or something similar) apply to bitcoins as well.”
But Cross adds the IRS’ guidance may not stand forever. The Treasury Department should now begin developing formal regulations tailored to digital currencies.
“That typically begins with a request for public comments, which was included in the notice,” he said. “Tax professionals can then identify issues and advocate possible solutions. So between now and the issuance of actual regulations (which takes years), there’s ample opportunity to shape the tax treatment.”
The agency says anyone who holds the currency will have to calculate its value from the date it was received to determine whether a gain or loss was realized, and report the result.
If you’ve done any Bitcoin mining, the fair market value of the virtual currency as of the date of receipt is includible in gross income.
If it’s going to come into widespread public acceptance ... things like this are inevitable. AND ... things like this INCREASE the public acceptance.
We now have an imaginary tax on an imaginary currency, developed through imaginary entities because someone decided they could realize a fantasy
algore is PISSED !
The record "keeping" isn't an issue, since it's all electronic. Moving it over to a tax app, might be a lot work tho. Anonymity never was a strong feature, even from its creation.
This will be burdensome for the little miner guys working out of their homes, unless this first guidance is greatly amended. They are also the ones that process the transactions.
I see someone building an app that will take all of the transaction data, pull in the historical price records (that's brings up another question: the price of record for determining value), and offer the ability to export all a your tax filing software!
What’s insane, it the amount and number of taxes “We The People” are subjected to. Land of the free my ass...
If I'm correct ( and I believe I am), that this is all an invention and the tool used is a miner, then the same mining concept and technology is surfing these threads (not only on FR) and conglomerating the suggestions
And what makes anyone think the honcho in this whole thing is NOT an obama created EO appointee of some "foreign finance commissioner" (that y'all thought was a legitimate, if useless office, etc.)
"tax the hell out of it "
"force people to keep accurate records of all transactions"
Do you work for the IRS? If not; I'm sure they would love to hire you!
And what makes anyone think the honcho in this whole thing is NOT an obama created EO appointee...
Because bitcoin was created by "geeks" who are not known for their worship of centralized control over anything. That's not to say that in the future, some government or central bank will not take the technology and attempt to use it to their advantage. But again, there is that competition thing from all the other digital currencies.
Is this a parody?
Lol, what do you all think airline “skymiles” and credit card “cash back” programs are?
in a round about way, they are alternate currency to skirt the IRS.
You mean they’re not marketing incentives???
I said, that’s what the IRS will do, not what I want them to do!
Also, that if the government doesn’t like anonymous crypto-currencies, it doesn’t have to outlaw them, it can simply tax them and create onerous record-keeping requirements.
It’s not my desire or recommendation... it’s my assessment.
Don’t forget compounded interest
They trade it as property. What is the big deal. I track when I buy them, and I track when I dispose of the asset. Just like I do with stocks, business assets, and, if I were ever to buy gold and silver, bullion.
it means a 20-24% cap gains tax, that’s what it means
i’m still trying to understand why the fedgov deserves anything, let along a quarter of every transaction
As long as you are buying and selling them, it isn’t an issue. It’s when you’re mining them that creates issues. For instance, the value at the time they were mined. Who’s to say what the value was (i.e., which exchange value at the time). Seems to me the proper way to handle that would be to tax the asset at time of sell, instead.
Yeah, I’m trying to understand that too. Sure is a strong incentive to go Galt.
Now we have a very real tax on an imaginary currency, developed through imaginary entities because someone decided they could realize a fantasy. Can I write off my Beanie Babies as a capital loss?
City, County, and state tax assessors are going to love this.
The last line makes sense. I’ve seen people, even here at FR, define bitcoin mining as hard work, one saying it was the hardest work he did.
If you do work, and get paid for it, that is income, and of course it should be reported as income.
And unfortunately, bitcoin’s value moves wildly. It isn’t a ‘currency’ in that sense, it is like gold. So like gold, once you have bitcoin, you will need to remember what you paid for it, and when you sell it, or exchange it for money to use to buy something, you will have to see if you had a gain or a loss, and will pay capital gains or incur capital losses.
This did however get me wondering how the IRS handles currency trading. Those are real currencies, but I can’t imagine the IRS just leaves large currency gains on the table, so it seems they would be trying to collect taxes there somehow.
Except of course that is how lefties like George Soros make their money, so maybe the IRS isn’t that interested.
As long as you are buying and selling them, it isnt an issue. Its when youre mining them that creates issues. For instance, the value at the time they were mined. Whos to say what the value was (i.e., which exchange value at the time). Seems to me the proper way to handle that would be to tax the asset at time of sell, instead.
I tend to agree that the record keeping is typical of what is necessary for investments. And while I agree it would be more convenient to tax mining gains at time of sale, the mining operators will just start issuing statements to hashers indicating the USD value based on some consistent price source. In fact, I think this will be required under the IRS rules.
Businesses and investors are used to dealing with these rules and will handle bitcoin as an investment in stride. The real problem is that users of money do not regularly deal with these issues. This will kill consumer adoption of Bitcoin as an everyday payment method.
I predict IRS will be issuing updated guidelines...
Call me crazy, this just looks like a fiat currency death warrant to me. We shall see.
Is this going to be like a stock? If you buy it and it goes down and you sell it at a loss you can’t buy it again for 60 days if you want to claim the loss.
The value for every minute of every day is well known from large exchanges, and the time is stamped right into the reward transaction in the chain which will be there forever, or until spent rewards are culled in which case they should have been taxed.
No need. The transaction where you bought it is in the chain with your public key in it. The time of the transaction is in the block. The value at that time can be looked up by an exchange that keeps track.
I see bitstamp.net has a daily price available, that’s probably good enough for the IRS.