IRS: Bitcoin Is Property, Not Currency 273
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.'"
This seems like good news (Score:5, Interesting)
...as you can offset a drop in the value of your bitcoins as a tax deduction.
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I had to type in a CAPTCHA to access Mt Gox.
And... Summoned the old ones!
"tyltylnc tymrkth"
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I had to type in a CAPTCHA to access Mt Gox.
And... Summoned the old ones!
You knew RMS was lurking before you even started...
Damn, was hoping to trick RMS into posting "Was Not!"
Re:This seems like good news (Score:5, Interesting)
Only if you sell them at a loss. So if you want to take a loss in order to deduct part of that loss, knock yourself out. That'll show them.
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Oh that's great news! Because that means I can give the property value assessor the finger! I don't owe the IRS any increased taxes due to my property's appreciation since I haven't sold it at a gain! WOW!
Don't have to pay the tax (Score:5, Informative)
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And only if you had made a capitol gain somewhere else.
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Yes. But if you had to sell a couple to pay for Christmas and they were lower in January than when you bought them, it's nice to take that loss on your taxes.
Also, this confirms that if you keep your bitcoins over a year and then they go up enough for you to retire, you can live on them tax free the rest of your life (unless the lowest tier changes rates).
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I wonder if anyone is really stupid enough to base their retirement plans on bitcoin investment.
Re:This seems like good news (Score:4, Informative)
...as you can offset a drop in the value of your bitcoins as a tax deduction.
As most of us who went through the dot-bust can tell you: only if you have gains to offset. If you have net losses, you can only take them at $3000/yr.*
TFA doesn't seem to have a link to the actual IRS ruling - WTF Bloomberg? New to the intarwebs? We do links here!
Not all capital gains are the same. If BTC is treated like stocks, that's great - most people will pay 15%* on long-term gains. Compare that to gold/silver, which are taxed as collectibles, with a 28% gains rate!*
*Don't take tax advice from random internet strangers like me - consult your tax professional.
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TFA doesn't seem to have a link to the actual IRS ruling - WTF Bloomberg? New to the intarwebs? We do links here!
http://www.irs.gov/pub/irs-dro... [irs.gov]
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It's exceedingly awful news. It may grant bitcoin legitimacy but it greatly trashes its value as a currency. In order to be legally compliant, you need to keep records of the price at which you acquired it. Use it to buy something and now you need to get a FMV for bitcoin when you make the purchase so that you can report capital gains or losses. Failure to do this and you're suddenly engaging in tax evasion.
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So...just like stocks/shares then? Or any other property you own.
Sounds to me like you think the IRS got it right.
if unknown == jail (Score:2)
You CAN commit tax fraud. What happens next IS unknown, it could be jail ...
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Also you can sell $3001 worth of bitcoins to your friend in some other country for $1 .. and well, what happens next is unknown.
Actually, it's not the amount of money you sell your property for, it's what the "fair market value" is at the time of sale.
Just like the stock that you give to your friend in some other country, you must report the "loss" relative to the FMV from some well known exchange (say like a quote on the close of day of Nasdaq if the stock was listed there). Since there (still) exists some well known exchanges for Bitcoin, I imagine that it would be prudent to use a well established FMV for bitcoin as well..
Of cou
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Of course you could just manufacture your own Bitcoin FMV on your date of sale and use that as the basis of your "loss" report to the IRS on your tax return instead. .. and well, what happens next is unknown.
Audit. I'm quite certain that a majority of tax filings that involve Bitcoin in the first year or three will involve audits.
This IRS ruling is a nightmare.
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Which I suggest you do ASAP..
This makes perfect sense (Score:3)
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.
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I don't believe that is right. From my understanding of the 2 possible ways of treating Bitcoin, it can either be treated like a commodity (property) and taxed at capital gain rates or it could be treated like a currency with gains taxed at the normal rates -- but with a $200 gain per incident exemption. Please see the "Characterization of Income from Bitco
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Either way would make it inconvenient for those wanting to follow the rules, but if they had treated it like a foreign currency at least the $200 gain exemption would have taken the burden of keeping records off of many purchases.
True, though it would've made it worse for people with large amounts. With this ruling, gains realized after >1 yr of holding bitcoin are taxed at capital-gains rates, while with the alternative ruling that bitcoin is currency, large gains would've been taxed at ordinary income
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Thanks for the correction.
Technically. (Score:2)
Its just a barter system, so that makes sense.
Still dont like the idea of the Feds trying to tax me more, but the concept of property is sound at least.
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Its just a barter system
This applies to any currency, unless you are dealing in chocolate coins.
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Its just a barter system
This applies to any currency, unless you are dealing in chocolate coins.
Actually, I like your example.. BitCoins are almost EXACTLY like trading chocolate coins, except they are not filled with chocolate..
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That would be my understanding.
Probably really bad news for bitcoin, actually (Score:3, Interesting)
Re:Probably really bad news for bitcoin, actually (Score:4, Insightful)
If they'd ruled it was a currency, you'd still have to deal with taxes and a raftload of paperwork (plus a whole slew of specific regulations for currency exchange to boot). You can't have a legitimate medium of exchange *and* be free of taxes and paperwork, they're (if you'll pardon the pun) two sides of the same coin. That's been one of the deep flaws in the thought processes of Bitcoin fanboys all along - the failure the recognize that along with real world legitimacy comes all the other baggage of the real world.
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More like bad news for other cryptos (Score:2)
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
Now you've got me wondering (Score:2)
That seems very common-sensy, but it just raises questions/flames about what you're contrasting it to. Right away, you ought to be thinking, "If I did the same thing with Euros or Pesos, how would that differ?"
What about other crypto-coins? (Score:4, Interesting)
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.
Re:What about other crypto-coins? (Score:5, Informative)
No, the ruling specifies "virtual currency" without naming any specific currency, Bitcoin is only used as an example.
Linkage:
IRS press release [irs.gov].
Full text (PDF) of IRS Notice 2014-21 [irs.gov] (which includes a FAQ).
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So wait, you have to declare your World of Wacraft gold too?
Cost Basis? (Score:2)
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Gold (Score:2)
Gold is taxed exactly the same way.
Long-Term vs. Short-Term (Score:2)
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Not if they treat it as a collectible.
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Ouch. Those are taxed at 28%, IIRC.
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It would have seemed sane to only tax ***coins when cashed out or exchanged for a good.
An analogy I heard for the current IRS guidance is that it's like taxing furniture makers for the full price of a couch (minus material + labor costs) when they combine wood, cloth, and padding. Furthermore they must calculate the price based on the current sale price of the couch in furniture stores.
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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 b
Hmm (Score:2)
So if you take payments in bitcoin, they will be taxed as property, and not as currency?
Interesting, and messy.
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There's no non-messy way to do this.
Either all your transactions get taxed (the way they picked), or you always pay the high personal income tax rate.
If virtual currencies stay popular it's highly likely that Congress will write some new rules that make more sense, but also force virtual currencies more into the normal, highly regulated, fairly transparent (especially to cops) financial system.
I don't believe in imaginary property (Score:3)
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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.
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Not a currency, and instead merely a speculative instrument on par with stocks. Bitcoin is done.
I'm going to agree with others here. BitCoin is NOT done, at least not because of this. It is now just something you can own and trade as you see fit. For tax purposes it is treated as any other unregulated asset (Like trading in racing cars, or buying and selling small businesses.)
BitCoin was never really a "currency" (Officially). Some wanted to claim it was, but legally it never was or could be one. Best you could say was it was just property. The only thing this IRS action does is to solidify the fa
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You can still do that legally. But if you don't report it on your tax forms, and it counts as a capital gain, and they catch you you're gonna be in trouble.
Whether they'll be able to catch you is the tricky question. With most capital-gains they do it because there's a paper trail. Local property tax authorities know when you bought your house, how much you paid, etc. Federally-regulated banks report stock-sales. If Bitcoin doesn't stay popular they may not bother developing ways to track your ass down and
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Re:At last (Score:5, Funny)
Selling human beings, especially heroines is illegal and generally Frowned Upon. Sort of like selling heroin except worse.
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Selling heros, however, is an everyday occurrence, especially in delis.
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That's becasue the IRS does not actually care where the income comes from.
Only under court order do they report what you do to any other agency.
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Considering what they blow our tax money on, I can't really see the "common good".
Unless owning a bank has become very common lately.
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Considering what they blow our tax money on, I can't really see the "common good".
Not sure if you're just being playfully facetious or if you've actually been drinking the silly-juice. Just in case it's the latter, keep in mind that while there is a lot of inefficiency in government, the vast majority of it is still net positive. I don't like the heavy-handed Middle East adventurism, but it does get us cheap oil by keeping OPEC in check. I don't like our unsustainable social security policy, but it gets rol
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I'm sure you sleep well at night knowing that you have cheap gasoline for your auto. Who cares what harm this "adventurism" causes to the region or whether it is morally wrong.
Perhaps you missed the part where I said, "I don't like the heavy-handed..." (or perhaps you took my lack of expletives to mean I don't mean "heavy handed" in a strong enough sense, but I can't be responsible for your misinterpretation)
You should be less critical of people who actually want to *do something* about overreaching federal
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Are you really insinuating that the wholesale murder of hundreds of thousands of innocent civilians is eclipsed by the benefit of cheap oil?
No, I said the exact opposite. I said that in my opinion the cost is greater than the benefit. Your reading comprehension is terrible.
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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.
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You are mixing two different issues.
If you've ever touched a road, you wouldn't be asking that stupid question.
Discussing government waste is legitimate, but completely off topic.
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Not sure I agree. when the topic is taxes, government waste is definitely on topic....because it calls into question how much they actually need. We are talking about the government that is handing out money left and right to militarise local police all over the country and fund useless project. We are talking about a government that seems to have no problem placing orders for more equipment than the military asks for (C-130s anyone? Congress has only approved 5000% more be purchased than were ever requeste
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So you'd consider a debate about things like socialism and other government money topics relevant to this conversation?
I doubt it. This is just about the legal classification of bitcoins, not about how tax money is spent *at all*.
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Goddamn cheapskates can be obsessive. And not smart-obsessive.
If you do some actual math you'll note that any individual program is a rounding error in terms of a $Trillion budget. You'll also note clever assholes can provide plenty of rationales why even obvious spending programs suck. Remember the "volcano research" gaffe?
As for the programs you mentioned, for God's sake do some actual research. You're wrong about the C-130. It's one of the reasons that we can do the things we do, and in the context of th
the topic is MORE federal taxes. libraries are loc (Score:2)
It was a response to saying MORE federal taxes are a good thing. More federal taxes do not result in more libraries.
Libraries, police, firefighters, most roads ... virtually all of the things pro-tax people put forth as good things paid for by taxes are mostly paid for with the ~ 8% local and state taxes. The feds take four times as much of your money and it doesn't go toward any of those things. Federal taxes do, however, pay for the NSA, billion-dollar bombers, and handouts to campaign contributors.
Re:the topic is MORE federal taxes. libraries are (Score:4, Insightful)
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.
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Hush, why shouldn't we be able to evade tax for a change?
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Despite common perception, the IRS is actually pretty reasonable to work with, if you're not trying to cheat them out of their Congress-determined fair cut.
The difficulty comes in determining exactly what that fair cut is, given all the many ways to get income, and the many more ways to hide that income.
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The difficulty comes in determining exactly what that fair cut is, given all the many ways to get income, and the many more ways to hide that income.
And I'd like to point out that this difficulty is due to the tax code and the patch work of laws the IRS is tasked with enforcing. We've been doing social engineering using the Tax Code for far too long and as all things governmental, it is hugely complex spaghetti mess of laws and unintended consequences which is beyond the average tax filer's ability to understand.
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The problem is how the US Government, and especially Congress, works.
The US government has a lot more power-brokers then pretty much any other government. That means that a) when power-broker #97 has a reasonable-sounding idea that only adds one little wrinkle to tax law he can get it through and b) no one power-broker can say "fuck this, let's iron out the wrinkles" and actually have it happen.
If this was Canada and Speaker Boehner could fire half his caucus simply be refusing to sign their renomination pa
Re:If BITC are property.. (Score:5, Informative)
What makes you think no tax applies to a barter transaction?
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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.
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your lawmakers, state and federal, have a different opinion of the subject. Also the IRS.
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I don't disagree, I was merely answering the question as to what OP's rationale may be.
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they may find out from the other half of the participants in transactions; then you are in the proverbial deep doo-doo
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Well then, they haul you into court. They state their opinion, you state yours and the judge decides who is right.
Tax court. They aren't going to risk this in a judicial court.
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It doesn't matter. Bartering with anything of value imposes a requirement upon all involved parties to report the transaction and compute the value in the fiat currency.
The only ways I see this working is if you barter or trade totally within a virtual world, where no other currency is accepted for trades. So it would be impossible to assign a value to any of the items or virtual currencies traded. Or you could figure out how discount coupons work, where they say "Cash value 1/20th of one cent".
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No, you're supposed to pay your taxes in the form the government with the military SAYS you're supposed to pay your taxes regardless of what you personally use for a medium of exchange.
See: Split Tally Sticks, especially their use in England, for an example. It is still the longest in-use form of currency in history. Started by King Henry I around 1100, they persisted until 1826. [wikipedia.org]
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Ok, so if I decide to live without any currency whatsoever, and I live entirely on bartering, and I trade my cow for 20 chickens, am I supposed to send a chicken or two to the government?
No. You are supposed to send the market value of that chicken in the form of the accepted fiat currency. Which means dealing with the established financial systems, banking, etc.
That's how they keep you in the company town. And if you try to escape the plantation to a free state, we have treaties that oblige them to send you back. There is no sanctuary.
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The government can't force me to use currency if I don't want to.
How many chickens would you like to bet on that?
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Re:If BITC are property.. (Score:5, Informative)
Not so fast. The IRS does tax barter transactions.
http://www.irs.gov/taxtopics/t... [irs.gov]
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I'd think that that would have sounded stupid in your head, so you wouldn't have posted it. What went wrong?
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Sad story but that's exactly what I did. I saw Bitcoin mentioned on Slashdot, read a bit about and went "meh".
Knowing myself I would have gathered about one million of them, thinking they'd be worth one dollar at the most some day.
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Many people at the beginning bought them with cash from companies that are no longer in business. It might be a little hard for the IRS to track.
"Not in business" could make it easier. A bankrupt entity isn't able to hire a lawyer to stop the IRS from going through it's paperwork.
Moreover the IRS doesn't actually need records. What it needs is proof you got money and you didn't put it on your tax forms. If they get your bank records they'll know exactly how much money you made when you sold Bitcoins from when you deposited it. They will tax your ass on that full amount. Plus penalties, and interest. Any attempts to talk them down will result in extr
Re:This didn't require any ruling. (Score:5, Informative)
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How does the IRS handle foreign currencies? What about stores and restaurants near the border that accept Canadian currency? Is it the exchange value at the time of sale?
Gains made in foreign currency are also taxable events when you exchange them and yes they are done based on the value at the time of exchange (when dealing in foreign currencies you keep records of your exchange rates). The government doesn't care what currency you accept or trade in, you report based on your profits and losses in the country you are doing business.
Goatse spam (Score:2)
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It would be more sane to write the filter to detect a lot of punctuation with few regular letters.
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defaulting on the gold dollar has marked the beginning of the end of USA economy
You saying there has been no economic growth in the US sense the depression? No jobs created in that period. No increase in property and assets?
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And as has been pointed out elsewhere - you can do the barter thing - but you'd still better come up with something your government considers money to pay taxes on all that bartering, 'cuz the government isn't interested in a couple gallons of goat milk or a few dozen eggs, or borrowing your car on the weekends. Savvy?
Please stop. You're making my brain hurt. (Score:2)
Nothing has changed much. Don't mess with the US Government - it's about like a mouse messin' with a gorilla.
Do /. a favor - please read the Wikipedia article (Score:2)
Until you have done that, please stop posting here on /. IQ's used to be a lot higher when UID's were lower. *Sigh*
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/Oblg.
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