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, that’s 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 ...
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.
Examining the IRS Response to the Targeting Scandal (Live thread)
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.
Errant:
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.
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.
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