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IRS: Bitcoin Is Property, Not Currency
An anonymous reader sends this news from Bloomberg:
"The U.S. government will treat Bitcoin as property for tax purposes, applying rules it uses to govern stocks and barter transactions, the Internal Revenue Service said in its first substantive ruling on the issue. Today's IRS guidance will provide certainty for investors, along with potential income-tax liability. Under the ruling, purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of income for the coffee shop. ... Under the IRS ruling, Bitcoin investors would be treated like stock investors. Bitcoins held for more than a year and then sold would pay 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. For investors with losses, U.S. tax law allows taxpayers to subtract capital losses from any capital gains. They can also subtract up to $3,000 of capital losses a year from ordinary income.'"
...as you can offset a drop in the value of your bitcoins as a tax deduction.
Quite the opposite. Since the value of Bitcoins can fluctuate, just like stocks, it not only makes sense for the government but it also makes it a legitimate and legal market in the USA.
Get free satoshi (Bitcoin) and Dogecoins
Would it surprise you to know that selling heroine illegally falls under the same set of guidelines? This does not legitimize anything. Bitcoin is no more a currency than junk penny stocks are.
In effect, the IRS is treating Bitcoin like any other "foreign" currency, which amounts to the same thing as treating it as property. When you sell (i.e., spend) Bitcoin, you're realizing a profit or loss, depending on the value it had when you received (bought) it, compared to the value it had when you sold it.
IANAA, but as I read this, it means that if you get paid for work in Bitcoin, you would pay tax on its value at that time, and that value would be considered your cost-basis for future sales of Bitcoin, so you don't get taxed twice on the cost-basis amount.
If it weren't for deadlines, nothing would be late.
Selling human beings, especially heroines is illegal and generally Frowned Upon. Sort of like selling heroin except worse.
Faster! Faster! Faster would be better!
This is actually good news. Tax on Bitcoin legitimize the currency.
Riiight. I can see all those Bitcoin miners heading out to get their tax forms right now so they can declare their coins.
No sig today...
What makes you think no tax applies to a barter transaction?
>Just let it go already. You didn't mine Bitcoins at the beginning and now you're pissed off because you're not rich.
I'd think that that would have sounded stupid in your head, so you wouldn't have posted it. What went wrong?
I would think this is really bad news in disguise for bitcoin, because it discourages the use of bitcoin for commerce both because of the tax issue and because of the reporting requirements. (Who wants to deal with computing a wash sale just to buy a cup of coffee?) If people are inspired to sit on bitcoin until they cross the 1-year capital gains threshold, that behavior change could move bitcoin one step away from use as a currency, and put it in the same illiquid category as gold or bearer bonds.
The ruling is more about what forms you need to fill out when your report your taxes. There are separate formulas for currency than for property. Bitcoins don't have some of the complexity that foriegn currencies do.(exchange rates, trade agreements) So the property forms are less work for the IRS.
What makes you think no tax applies to a barter transaction?
The fact that no treasury notes change hands, if I were a bettin' man.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
your lawmakers, state and federal, have a different opinion of the subject. Also the IRS.
Did they just write "Bitcoin" in the new law or something more general that can include anything? Otherwise, Bitcoin is now regulated but LiteCoin, DogeCoin and all the other coins are not.
Get free satoshi (Bitcoin) and Dogecoins
Not so fast. The IRS does tax barter transactions.
http://www.irs.gov/taxtopics/t...
Yep, you don't have to pay capital gains on the appreciation of your property. Not the same thing as property tax. Property tax is dealing with the property's "current value". Since you are still holding the property, no capital gains (or losses) have occurred (yet).
I don't see why it would be any different than any other business that writes off the cost of electricity and equipment.
The really attention-grabbing thing about the IRS guidance is Question 8 under the FAQ, which reads:
Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer
resources to validate Bitcoin transactions and maintain the public Bitcoin
transaction ledger) realize gross income upon receipt of the virtual currency
resulting from those activities?
A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value
of the virtual currency as of the date of receipt is includible in gross income. See
Publication 525, Taxable and Nontaxable Income, for more information on taxable
income.
(emphasis in the original)
This sounds like an enormous amount of record keeping for individual miners to keep track of.
First off if you're in a state that actually spends only 8% of it's SDP you're in a minority. Most states are in 9% or 10% range. More people live in one state that's above 11% (Cali) then all sub-9% states combined.
The Feds support a lot of state-level spending through indirect programs. Student aid like Pell Grants, Race to the Top money, and support for police allows a lot of libraries to be built.
The NSA, billion-dollar-bombers, and campaign contributors only actually add up to a small fraction of the Federal budget. A huge chunk is transfer payments set up before most campaign contributors were born. Medicare and Social Security alone are a majority of Federal spending in the 2010-2019 period. Medicaid is another fairly large chunk, this year ObamaCare subsidies kick in, with Pell grants, Earned Income Credit, military retirements, the VA, etc. I'd estimate 2/3-3/4 of Federal spending is simply the Feds shuffling money from the accounts of some Americans into the accounts of American who American voters have decided deserve the money more.
The "Billion-dollar-bombers" could be gotten rid of easily in theory. In practice those pesky American voters tend to look on defense cuts as encouraging Putin to be Hitler Mk. II, so it's unlikely they'll be cut. Whatever it's other crimes, the NSA budget is a rounding error (literally: $11 Billion is under 1/3 of a percent of the total) on the Federal total. "Handouts" to campaign contributors tend to be exaggerated. There's generally no quid-pro-quo. What happens is the company that would be a shoe-in if the government decided to study the effect of dung beetle blood on the flu virus finds a candidate who supports studying dung beetle blood and sends him a check. If Congressional votes could actually be easily bought then we wouldn't have a DRIC project, we'd have a second span to the Ambassador Bridge.
Which means that when Federal spending cuts get talked about proposals tend to be both ambitious and vague (ie: every Paul Ryan "budget" ever) or specific and miniscule (like your proposal, which the NSA's 0.31% off Federal spending). The specific/miniscule cuts that could actually get passed would almost certainly include most support for states and cities because Congress doesn't get yelled at when Jindal has to expel scholarship students from Louisiana State.
"I don't believe in imaginary property" was a popular anti-IP catchphrase here on Slashdot. It seems like it could apply here too.
There's specific rules governing this with stocks. First-In-First-Out would mean your appreciation (and gain/loss) is based on the oldest coin still in your wallet. Last-In-Last-Out does the opposite, and all the numbers are based on the coin you purchased most recently. You could also figure the average cost of the coins in your wallet and use that as your basis. You get to pick which method you use.
It looks like you could switch from LIFO to FIFO and back from year to year. The sole restriction seems to be that you can only use each coin once.