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IRS Rules Bitcoin Is Property (Not Currency)

Ahillock

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#1
IRS Rules Bitcoin Is Property (Not Currency)
Submitted by Tyler Durden on 03/25/2014 14:18 -0400

After less than three months consideration, the IRS has issued its statement clarifying th etax treatment of Bitcoins (and other virtual currencies) before the April 15th Deadline. The finding, summarized, is that Vitual currencies will be treated as property (not as a currency) which, as WSJ notes, means an investor who buys bitcoin would typically have a capital gain or loss when it’s sold. The price of Bitcoin is rising modestly on this news...




As Bloomberg explains:

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 with stocks, Bitcoin dealers would be subject to different rules that wouldn’t allow for capital gains treatment.

Bitcoin miners would have to report their earnings as taxable income with a value equal to the worth on the day it was mined. If they mine as part of a business, they would have to pay payroll taxes as well.


And here is WSJ's Q&A:

How is virtual currency treated for federal tax purposes?

Bitcoin and other virtual currencies are treated as property, not as a currency. Therefore, an investor who buys bitcoin would typically have a capital gain or loss when it’s sold but wouldn’t have foreign-currency gains and losses.

If a taxpayer receives a payment in virtual currency, is it considered income?

Yes, the fair-market value of the currency (in U.S. dollars) on the date the payment was received is considered to be income. For more information on exchange rates, see the notice.

Does a person who makes a payment using bitcoin have a gain or loss on the transaction?

Yes, typically. For example, say a person buys $5,000 of bitcoin, which then doubles in value. If she then uses the bitcoin to pay a $10,000 tuition bill, she could have a $5,000 taxable capital gain on the transaction.

This clarification means that people who use bitcoin in small amounts, such as to buy a meal, could face onerous record-keeping issues.

Is a person who “mines” a virtual currency considered to have received income?

Yes, and if the taxpayer engages in mining as a trade or business, self-employment tax is often due.

Does virtual currency that’s paid by an employer in return for services meet the definition of wages for payroll-tax purposes?

Yes, and it’s also subject to income-tax withholding.

Must payments made in bitcoin be reported to the IRS?

Yes, if they meet the requirements for information reporting on payments made in property. Typically, the threshold is payments of $600 or more.

Will taxpayers be penalized for having treated bitcoin transactions in a different manner before today’s notice?

They could be, especially if they underpayed tax or didn’t report income, or both. But the IRS noted that penalty relief “may be available” to persons who were required to file information reports but didn’t, if there’s a reasonable cause for the nonfiling.

http://www.zerohedge.com/news/2014-03-25/irs-rules-bitcoin-property-not-currency
 

phideaux

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#2
IRS Rules Bitcoin Is Property (Not Currency)



Submitted by Tyler Durden on 03/25/2014 14:18 -0400


After less than three months consideration, the IRS has issued its statement clarifying th etax treatment of Bitcoins (and other virtual currencies) before the April 15th Deadline. The finding, summarized, is that Vitual currencies will be treated as property (not as a currency) which, as WSJ notes, means an investor who buys bitcoin would typically have a capital gain or loss when it’s sold. The price of Bitcoin is rising modestly on this news...


As Bloomberg explains:




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 with stocks, Bitcoin dealers would be subject to different rules that wouldn’t allow for capital gains treatment.
Bitcoin miners would have to report their earnings as taxable income with a value equal to the worth on the day it was mined. If they mine as part of a business, they would have to pay payroll taxes as well.


And here is WSJ's Q&A:

How is virtual currency treated for federal tax purposes?
Bitcoin and other virtual currencies are treated as property, not as a currency. Therefore, an investor who buys bitcoin would typically have a capital gain or loss when it’s sold but wouldn’t have foreign-currency gains and losses.

If a taxpayer receives a payment in virtual currency, is it considered income?
Yes, the fair-market value of the currency (in U.S. dollars) on the date the payment was received is considered to be income. For more information on exchange rates, see the notice.

Does a person who makes a payment using bitcoin have a gain or loss on the transaction?
Yes, typically. For example, say a person buys $5,000 of bitcoin, which then doubles in value. If she then uses the bitcoin to pay a $10,000 tuition bill, she could have a $5,000 taxable capital gain on the transaction.
This clarification means that people who use bitcoin in small amounts, such as to buy a meal, could face onerous record-keeping issues.

Is a person who “mines” a virtual currency considered to have received income?
Yes, and if the taxpayer engages in mining as a trade or business, self-employment tax is often due.

Does virtual currency that’s paid by an employer in return for services meet the definition of wages for payroll-tax purposes?
Yes, and it’s also subject to income-tax withholding.

Must payments made in bitcoin be reported to the IRS?
Yes, if they meet the requirements for information reporting on payments made in property. Typically, the threshold is payments of $600 or more.

Will taxpayers be penalized for having treated bitcoin transactions in a different manner before today’s notice?
They could be, especially if they underpayed tax or didn’t report income, or both. But the IRS noted that penalty relief “may be available” to persons who were required to file information reports but didn’t, if there’s a reasonable cause for the nonfiling.

http://www.zerohedge.com/news/2014-03-25/irs-rules-bitcoin-property-not-currency
 

Mujahideen

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#3
What if I were to get paid in bitcoin?

How would I be taxed on that? Would I be forced to convert my bitcoin to FRNs?
 

phideaux

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#8
What if I were to get paid in bitcoin?

How would I be taxed on that? Would I be forced to convert my bitcoin to FRNs?
You would owe income tax on the fair-market USD value of your winnings on the day you received them. No need to convert into USD if you already have enough USD to pay the tax.
 

Goldhedge

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#10
Denmark Declares Bitcoin Trades are Tax-Free
Tom Sharkey | Published on March 25, 2014

It seems like the United States is not the only country making important decisions about bitcoin in the middle of its tax season.

Shortly after the US Internal Revenue Service (IRS) declared that it would treat digital currencies as property for tax purposes, the Tax Board in Denmark has ruled that gains and losses from casual bitcoin trading are not subject to taxation.

Politiken reports that Denmark’s top tax authority met today to discuss digital currencies and how to approach their taxation, and the Tax Board concluded that any gains made from bitcoin trading are exempt from being taxed by the Danish government, and similarly any losses from trading are not deductible.

A long-awaited decision


The Danish government has been under pressure to decide the fate of digital currency taxation for months, according to Michael Popp-Madsen, a member of Denmark’s bitcoin community.

The increasing popularity of bitcoin and other digital currencies combined with uncertainty about their tax status in Denmark has brought a lot of attention on the Tax Board to decide one way or another whether bitcoin will be taxed.

Said Popp-Madsen:

“They have postponed this decision since December and were originally supposed to come to a conclusion in January. Today is the first time they have made a decision, and I think that’s a sign that the Tax Board was unsure how to approach bitcoin.”​

Popp-Madsen says that he ultimately thinks the Tax Board made the best decision, and that it may have had a hard time trying to tax digital currencies anyway, given their cryptographic nature.

Bitcoin transactions considered “purely private”

Part of the reasoning behind the Tax Board’s decision to keep bitcoin gains and losses exempt from taxation is that since digital currencies don’t exist in a physical form, they can’t be considered “real” money to be taxed by the government.

Hanne Søgaard Hansen, the chairman of the Tax Board, explained the organisation’s decision:

“We see the outcome of bitcoin transactions as a result of something purely private. Therefore, any gains on bitcoin are tax-exempt, and losses are not deductible.”​

The exception to this new ruling is for businesses whose primary focus is in digital currencies. Businesses who directly trade with bitcoin as their primary function must declare their winnings and losses to the government.
Community reaction

Denmark’s decision to make bitcoin winnings tax exempt (and losses non-deductible) strikes a contrast against the US’s decision to classify bitcoin as property for tax purposes.

Members of the bitcoin community quickly voiced their opinions on reddit, comparing the decisions made today by the US and Danish governments:

Denmark Bitcoin tax free

As more countries around the world start to take notice of digital currencies, different regulatory approaches are being seen.

While governments may disagree about how much regulation is necessary, one government official in Japan recently called for an international effort in approaching bitcoin regulation.

Christiansborg Palace image via Shutterstock.

http://www.coindesk.com/denmark-declares-bitcoin-trades-tax-free/
 

searcher

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#11
[h=1]IRS Slams Bitcoin With Retroactive Tax Rules... Is Gold Next?[/h]


Submitted by Tyler Durden on 03/26/2014 18:01 -0400



Submitted by Simon Black of Sovereign Man blog,

Bitcoin tax rules finally came to the Land of the Free yesterday. And I have to imagine there are some not-too-happy campers this morning, if they even know about it.

Bitcoin taxes were inevitable. I’ve written about this numerous times, and have even gone so far as to predict that the government will probably mandate special Bitcoin reporting on foreign disclosure forms.

A number of other countries, from Germany to Singapore, have already issued their own tax rules on Bitcoin and related virtual currency transactions. And yesterday the IRS finally issued their own.

Here’s the quick summary:




1) While a number of governments (including the United States to a degree) have officially pronounced Bitcoin to be a ‘currency alternative,’ the IRS disagrees.

2) According to the IRS, Bitcoin is -property- and should be taxed as such… similar to, for example, a piece of rental property or collection of fine wine.

3) This means that the sale of Bitcoins is taxable based on capital gains. If you bought Bitcoins at $1 and sold them at $501 several years later, you would have to pay long-term capital gains tax on the $500 difference, currently 23.8%.

4) If you hold Bitcoins for shorter periods of less than 1-year, you can be taxed at ordinary income tax rates on your gains.

5) To the extent that you mine Bitcoins as a trade or business, the Bitcoin income from mining activity is not only subject to income tax, but also self-employment tax.

6) If you trade your Bitcoins for some other property that exceeds your cost basis, you are subject to tax. This is a huge ruling that effects all the ‘Bitcoin millionaires’ out there– early adopters who purchased Bitcoins at a dollar or less.



So let’s say you were one of the first Bitcoin adopters and bought 5,000 bitcoins at $0.05. Last year when Bitcoin was valued at roughly $1,000 in paper currency, you traded 250 of them for a brand new Lamborghini.

The IRS would say that you had a cost basis of $12.50 for those 250 coins. But you traded them for other property with a fair market value of $250,000. This means you have a taxable gain of $249,987.50.

Naturally, the US government is happy to go back in time and thrust all sorts of interest and penalties upon you if you didn’t comply with the law.

According to their ruling, “failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722.”

What’s most interesting about this new set of rules is what they might mean for gold.

If you’ve ever read Currency Wars (a fantastic book by my colleague Jim Rickards), you may recall early in the book when Jim suggests a potential outcome for gold.

Imagine– paper currencies go into freefall. Gold soars. Anyone who bought gold early sees sizeable profits (in paper currency)… at which point the government steps in after the fact and sets up new tax rules to confiscate a substantial portion of those gains.

Think it can’t happen? These Bitcoin rules certainly establish a precedent.


http://www.zerohedge.com/news/2014-03-26/irs-slams-bitcoin-retroactive-tax-rules-gold-next
 

Ag lining

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#12
SO, if silver is property and Bitcoin is property and you try to pay/trade for merchandise, within US borders, with either "property"……. isn't that worth of a visit from the Secret Service?


Source:
http://www.dailypaul.com/159927/fbi...l-tender-compares-creating-coins-to-terrorism

FBI finds Gold and Silver coins to be "illegal tender"; compares creating coins to terrorism
Submitted by sevendst19 on Sun, 03/20/2011 - 08:41

http://charlotte.fbi.gov/dojpressrel/pressrel11/ce031811.htm

From the article:
“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism,” U.S. Attorney Tompkins said in announcing the verdict. “While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country,” she added. “We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.”

Basically, they're saying it would be bad for the government if people started to not accept Federal Reserve notes and instead demanded something of real value in their transactions like gold and silver, it would take away their power to inflate and steal from your savings.
 

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#13
IRS Slams Bitcoin With Retroactive Tax Rules... Is Gold Next?




Submitted by Tyler Durden on 03/26/2014 18:01 -0400



Submitted by Simon Black of Sovereign Man blog,

Bitcoin tax rules finally came to the Land of the Free yesterday. And I have to imagine there are some not-too-happy campers this morning, if they even know about it.

Bitcoin taxes were inevitable. I’ve written about this numerous times, and have even gone so far as to predict that the government will probably mandate special Bitcoin reporting on foreign disclosure forms.

A number of other countries, from Germany to Singapore, have already issued their own tax rules on Bitcoin and related virtual currency transactions. And yesterday the IRS finally issued their own.

Here’s the quick summary:




1) While a number of governments (including the United States to a degree) have officially pronounced Bitcoin to be a ‘currency alternative,’ the IRS disagrees.

2) According to the IRS, Bitcoin is -property- and should be taxed as such… similar to, for example, a piece of rental property or collection of fine wine.

3) This means that the sale of Bitcoins is taxable based on capital gains. If you bought Bitcoins at $1 and sold them at $501 several years later, you would have to pay long-term capital gains tax on the $500 difference, currently 23.8%.

4) If you hold Bitcoins for shorter periods of less than 1-year, you can be taxed at ordinary income tax rates on your gains.

5) To the extent that you mine Bitcoins as a trade or business, the Bitcoin income from mining activity is not only subject to income tax, but also self-employment tax.

6) If you trade your Bitcoins for some other property that exceeds your cost basis, you are subject to tax. This is a huge ruling that effects all the ‘Bitcoin millionaires’ out there– early adopters who purchased Bitcoins at a dollar or less.



So let’s say you were one of the first Bitcoin adopters and bought 5,000 bitcoins at $0.05. Last year when Bitcoin was valued at roughly $1,000 in paper currency, you traded 250 of them for a brand new Lamborghini.

The IRS would say that you had a cost basis of $12.50 for those 250 coins. But you traded them for other property with a fair market value of $250,000. This means you have a taxable gain of $249,987.50.

Naturally, the US government is happy to go back in time and thrust all sorts of interest and penalties upon you if you didn’t comply with the law.

According to their ruling, “failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722.”

What’s most interesting about this new set of rules is what they might mean for gold.

If you’ve ever read Currency Wars (a fantastic book by my colleague Jim Rickards), you may recall early in the book when Jim suggests a potential outcome for gold.

Imagine– paper currencies go into freefall. Gold soars. Anyone who bought gold early sees sizeable profits (in paper currency)… at which point the government steps in after the fact and sets up new tax rules to confiscate a substantial portion of those gains.

Think it can’t happen? These Bitcoin rules certainly establish a precedent.


http://www.zerohedge.com/news/2014-03-26/irs-slams-bitcoin-retroactive-tax-rules-gold-next
This sucks but this was bound to happen at some point and yesterday (the day of the IRS announcement on Bitcoin) was that point. When the IRS sniffs a potiential new source of revenue, then they will make an attempt to make sure that they pay their "fair share" and yesterday's IRS stance on Bitcoin is the first step on getting people to pay their "fair share" of taxes on their bitcoin profits.
 

917601

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#14
More confusion...so who fills out the required Form 1099 ? Under this ruling,it seems Bitcoin will have to start issuing out forms or statements for tax purposes?