Bitcoin is Property, Not Currency, So It's Taxable, Says IRS

Bitcoin is Property, Not Currency, So It's Taxable, Says IRS

Bitcoins

Get ready to calculate your capital gains, Bitcoin's about to be taxed!

In general, the US government doesn't appreciate having any currencies domestically competing with the dollar. Now that Bitcoin has been exploding in value and popularity the last few years, a lot of people have been anxiously wondering what the government might say about it. Now, the IRS has broken the silence: Bitcoin isn't an actual currency, it's just property.

Apparently, that thing you can use to purchase stuff on Overstock.com and other places isn't actually money, just funfair tokens. As such, the taxman will treat it like stocks, bonds, or any other thing of worth that's not physical. That means that any transactions made using Bitcoin are subject to the same rules and regulations that you'd have to jump through to buy or sell stocks. If you want to purchase a cup of coffee using Bitcoin, you'll now have to work out the capital gains of the transaction and report it on your 1040 at the end of the year.

It seems obvious that Bitcoin might fit the dictionary definition of currency, but legal realms are allowed to play by their own rules. While the decree might come across as demeaning to Bitcoin enthusiasts, it might be the lesser of two evils. If it's a legal property, it's taxable, but if it's a legal currency, mining it might be illegal. Personally, I'm holding out until the feds make an official statement on the existence of Dogecoin.

Source: Forbes via The Guardian

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Because why the hell not? Pretty much everything else is taxed these days, I'm surprised they haven't started taxing breathable air just yet. I hear that's a pretty hot commodity right now.

This was predictable and inevitable. Governments see Bitcoin as a potential threat to their own fiat currencies (even though it's totally not) and aren't going to rush to embrace it when it's significantly easier to steal. Nor will they let people switch over to it and thus dodge their annual taxes. This was bound to happen.

Kross:
So they would not only have to assign a value to this "property" to tax it, they also have to somehow know who owns a particular Bitcoin "wallet"... Though I suppose the NSA could help track such details with their bulk data collection!

Technically you have to report your income for any job you work. If the IRS noticed that you were being paid X amount of money and that a decent portion of it was just "disappearing", then they'd have cause to audit and try to figure out where you're keeping it. Wouldn't be long before they figured you that you dumped some into Bitcoin.

But yeah, it's more typical government overreach.

IanDavis:
Personally, I'm holding out until the feds make an official statement on the existence of Dogecoin.

I laughed out loud at that comment. I can just imagine younger assistants of older executives at the IRS explaining to them what Dogecoin is.

"It's based off a meme about a dog."

"What's a meme?"

"And the dog is grammatically incorrect."

"What? Get out of my office!"

I was honestly expecting the bubble on bit-coin to pop by now. But this, along with some respectable institutions opening up "banks", it's difficult to see how it all might play out. For my part I'm rather wary of all this, I don't think things can go on as they are now before someone decides to throw a wrench in the works; and by the looks of it this will occur before the system collapses.

However a part of me calling back to my digimon playing youth hopes to one day buy things with "bits", which the name here obviously shares a similar root

I was wondering when the US financial world would speak up.

It is not just a problem in the US.
It is basically impossible to declare your taxes on profits from bitcoin trading in Germany as well. In theory it would work just like declaring profits from stock trading but because you don't really have receipts or other necessary documentation, you can't declare it. In the worst case this could mean you'd be committing tax fraud even if you wanted to pay your taxes on those gains.
(note: I didn't trade in bitcoins myself but a close friend did and she phoned the tax office but they didn't even know what bitcoins were and she couldn't produce the necessary documentation of her bitcoin transfers even if she wanted to because of the inherent anonymity of bitcoins.)

That isn't going to work for very long. IRS is kidding themselves if they think they can get away with calling it property.

synobal:
That isn't going to work for very long. IRS is kidding themselves if they think they can get away with calling it property.

Why? People only use bitcoin as a speculation tool, it more resembles a stupidly risky stock than a currency.

The capital gains tax rate is 15%, the foreign currency trading rate is 23%.

Y'all are arguing for the right to pay higher taxes...

synobal:
That isn't going to work for very long. IRS is kidding themselves if they think they can get away with calling it property.

would you rather them claim it as currency and therefor mining bitcoins would be illegal?

I mean, people already have to file taxes with stocks, which are also property, so why would Bitcoin be any different?

I thought people actually wanted it to be considered a currency of sorts. You cant have that and then not expect some sort of Government handling of it.

You cant have your cake and eat it as well.

mike1921:

synobal:
That isn't going to work for very long. IRS is kidding themselves if they think they can get away with calling it property.

Why? People only use bitcoin as a speculation tool, it more resembles a stupidly risky stock than a currency.

Not unlike Beanie Babies or Tulips... though I suspect now that they can tax the crap yeah.. I get the fealling there will be a few less folks accepting them in trade.

IRS Audits are nothing to sneeze at and if they think you've been skimping on taxes... they will pimp slap you so hard your children will be born with bruises. Uncle Sam, like any pimp don't like when his bitches be holding out on him.

Time to start storing our bitcoins on an offshore account.

Doesn't the legality of creating more units of a currency fall to the party that is responsible for the currency? If mining Bitcoins is illegal because it's considered a currency, exactly whose jurisdiction does that fall under if there's no government backing it?

They're probably going to continue considering it a tokens system because of that.

weirdguy:
Doesn't the legality of creating more units of a currency fall to the party that is responsible for the currency? If mining Bitcoins is illegal because it's considered a currency, exactly whose jurisdiction does that fall under if there's no government backing it?

They're probably going to continue considering it a tokens system because of that.

It would fall under the jurisdiction of any country you made transactions in. In that regard, being treated as property is the best thing that could have happened here. I don't know about other countries, but in the US it is illegal to produce ANY currency. The Fed holds the rights to mint US currency and the secret service is in charge of pursuing forgers.

Anyway... would cryptocurrencies just die already, please?

the goverment: we dont care until we think we might make money with it, and them tax it on top of that,

How is a typical Facebook game's pay-to-win currency regarded? Is that considered currency or property?

Neta:
How is a typical Facebook game's pay-to-win currency regarded? Is that considered currency or property?

It's considered property as far as I know, but that only matters if you resell it. So if you buy an enchanted waraxe of doom for $5 and sell it for $7, you'll be taxed the 15% capital gains rate for the $2 difference which is exactly what they are doing for Bitcoin.

Because this wasn't inevitable...

Well then, I don't wanna hear anymore arguments from Stazdas. I DID tell him they weren't money, and now someone spelled it out in black-and-white. Ironically, this technically means they ARE worth something...to the IRS. That makes it LESS than worthless to anyone else. Already dubious, you now have to fill out PAPERWORK and PAY THE GOVERNMENT for them. That coffin's so nailed now it may as weil be an Iron Maiden.

That... Pretty much makes sense. Bitcoins resemble stocks more than anything else to me right now, and there's probably a lot of problems with trying declare it as a foreign currency. Governments also aren't going to let people get away with not paying taxes of course (unless they're rich enough to avoid them), so property is likely the best solution for now. If they really catch on though, I suppose there'll have to be some completely new rules created for them.

As an aside, why exactly do people hate Bitcoins so much? A possible collapse would waste the money of lots of perfectly innocent people and it wouldn't help anyone as far as I can tell either. Wishing for it just seems petty, and kind of cruel. Is there some reasoning I'm not understanding here, besides "Argh! This is different so I hate it!"?

chimeracreator:

Neta:
How is a typical Facebook game's pay-to-win currency regarded? Is that considered currency or property?

It's considered property as far as I know, but that only matters if you resell it. So if you buy an enchanted waraxe of doom for $5 and sell it for $7, you'll be taxed the 15% capital gains rate for the $2 difference which is exactly what they are doing for Bitcoin.

There is a minimum value required before the IRS is interested, I think it was $600. Eve Online probably has a handful of transactions every year where someone ought to be filing a 1099, but not many other games.

Unless you're farming enough axes for it to count as employment, of course.

You buy something in pounds/dollars, you pay tax. Should be the same when you buy in bitcoin. Dont know whats so hard to understand? Problem is a lot of bitcoin is used illegally and is also online so that maybe be an area of difficulty for the government.

synobal:
That isn't going to work for very long. IRS is kidding themselves if they think they can get away with calling it property.

Um, if you keep money in a money-market account, it's treated as property as well, iirc. Non-us currency holdings have always been de facto treated more as property than as currency as such for tax purposes. There's nothing to "get away with", this is kind of the obvious conclusion here.

Edit: barter is taxable too, before someone tries the "if it's property then we're just trading it" fallacy.

Lunncal:

As an aside, why exactly do people hate Bitcoins so much? A possible collapse would waste the money of lots of perfectly innocent people and it wouldn't help anyone as far as I can tell either. Wishing for it just seems petty, and kind of cruel. Is there some reasoning I'm not understanding here, besides "Argh! This is different so I hate it!"?

Lately, I've been getting my hate on about shitty business practices, the act of the short-sighted who want huge and glorious amounts of cash at the expense of too much of the economy, which must be somewhat served for future business and commerce. This is the way business is suppose to work. You make a profit and you put in a little to 'seed' things and get business rolling for many happy returns.

Well, the whole thing about this is that Bitcoin trying to be real money when it was obviously not seemed to me like a way of taking advantage of people, to indeed by screwing with their real money and passing onto them the equivalent of...Pogs, Monopoly money, and so on. It looked more than different. It looked criminal. The drug-dealing and money-laundering allegations didn't help. The theory that it was a form of money marketing scheme (Pyramid and Ponzi were thrown about) didn't either. The ease by which things were hacked and the fact that it was unregulated made it far worse than real money too.

But I suppose the biggest issue here is that people are so gullible. Why DIDN'T anyone view this as a bad knock-off of stocks and bonds? Why DIDN'T they see it was more likely to fritter away their cash faster than a Las Vegas gambling chip? It seemed perfectly obvious to me that something that's barely manageable by the people in charge of it - not even a government or reputable credit source - should not be handled by the general public when its their cashflow on the line.

Some days, I can take how badly people screw up with a shrug, but - as you say - this one's fairly-serious. Yes, alot of people are going to suffer. That's not a wish. That's inevitable. If it could be avoided and everyone refunded when this goes down properly, that would be nice. But chances are, you can expect certain people in charge of handling the real money to get stubborn as hell, fight like hell in court, and cause more trouble than there is already. The lesser evil here is that you stop it before it causes more damage. The stock market has crashed before, causing a great deal of financial damage. D'you want to have to worry about this one too?

 

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