US holders of Bitcoin have something to celebrate today as the IRS has made a ruling on the tax handling of Bitcoin, classifying it as an asset subject to capital gains tax instead of a currency subject to income taxation. This means everyone who has been buying it on the way up (for more than a year) will be taxed at the lower long-term gain rate, and those who got in more recently and are down can sell for a capital loss and take the writeoff if they so choose. The ruling makes sense as Bitcoin is clearly an asset class, but it also highlights the coming confusion (over the next decade or two, in my estimation) about what actually constitutes a currency, because I think that will be a very different thing from what we recognize as currency today. Check it out and let me know if you think the IRS got it right:
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Seems like a finger in the eye...the IRS is officially saying Bitcoin is not a currency. And they're willing to forgo tax revenue to make that statement.
Interesting. It can be used as a currency but is a commodity. Just like gold. 'The man' has made his ruling.
One question: if these are anonymous, how is the gov't supposed to collect taxes? Pardon if this is an ignorant question, but it seems pertinent. I can buy guns and drugs anonymously from anywhere in the world with these....how is the IRS going to keep track of who owes who what under which jurisdiction?
I don't understand how this will work either.
Whose to say all that cash I withdrew from the bank didn't go to buying bitcoins as opposed to buying drinks at the bar?
If these same bitcoins lost 50% of their value that I want to write off for taxes…who can prove that? Maybe I'm missing something too but I don't see the IRS poring through bitcoin addresses to determine the exact transactions you did with your bitcoins...
Yeah, makes no sense. If I went and bought a luxury watch for $20,000 in bitcoin but claim I had losses on Bitcoin instead, write-off $20,000 and still own a luxury watch. Everything is anonymous and the only thing my bank sees is $20,000 was withdrawn for bitcoin and did not return.
This is nothing to celebrate for bitcoin holders. The IRS is essentially declaring that bitcoin is taxable but unusable. Sure you can "barter" bitcoin for products however or sell it in a market based situation. However this will severely harm the market business market cant accept bitcoin, how will you factor in taxation on sales if you are accepting barter? This essentially will kill any further acceptance of bitcoin in commercial use.
Consider me unclear on how this is a positive for Bitcoin. In what sense was the IRS deciding between charging ordinary income tax rates and capital gains taxes? No one is being paid wages in Bitcoins (please, spare me an article about the one exception), so of course one doesn't pay income taxes on an asset you've purchased with post-tax dollars.
Knowing that, stacking on the double-tax on capital gains just made this an even less attractive mode of transacting: unlike holding fiat currencies, when the value appreciates, you will pay taxes on the gains. What sane individual honestly wants to keep track of the realized gains / losses from their purchases of / transactions with Bitcoins? Every time I go to the store now, if I use Bitcoins, I must calculate the gain / loss on the Bitcoins I'm exchanging for goods?
Excellent points. Given the volatility of BTC as well, this could be quite a pain in the ass. Of course, if you make a mistake and somehow underestimate what you owe by 0.5% I'm sure the IRS will be right there with a fine and an audit waiting for you.
This creates a few problems.
anyone know if can i write off bitcoin losses on my taxes now?
I cannot see a US government entity backing Bitcoin as a currency as it doesn't have the full faith and backing of the Federal Government.
Are these transactions untaxed like Ebay/Amazon? What if I'm in another country when I purchase....who do I pay taxes to? This doesn't seem likely to box BTC in, no?
I am just wondering how they can actually tax it. If they cannot even trace criminal activities that use bitcoins, how can they trust that people will report truthfully how much bitcoin they have...
I think in order to cash out or buy BTC from an exchange (bitstamp, coinbase, ect.), it has to be linked to a bank account. Additionally, in order to make purchases on some exchanges, they require a significant amount of ID verification like proof of residence, SSN, ect. Then again, these are for some exchanges, I wouldn't know about others.
I think Bitcoin has made it to the mainstream but it has sort of lost its appeal as the price
I think this discourages the commercial adoption of BTC as a transaction medium because it potentially forces merchants to hold BTC on the books for > 1 yr to get to the long term capital gains tax rate, thus discouraging the outflow of BTC back to potential users. Good luck tracking it, though.
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