If you spent 2013 mining and bartering in Bitcoins you’ve probably got some questions about your tax return — but never fear, the IRS is happy to answer them.
In its first substantive ruling on virtual currency, the IRS announced Tuesday — Bitcoins, Dogecoins, Litecoins, etc. — would be treated as property instead of currency for federal tax purposes. (Via YouTube / weusecoins)
According to the release from the agency, “General tax principles applicable to property transactions apply to transactions using virtual currency.” (Via Internal Revenue Service)
So what does that mean if you’re not a certified public accountant?
Well, according to NBC “employers who pay in virtual currency must report it on tax forms — and employees are still subject to federal income tax and payroll tax. Independent contractors paid in virtual currency must pay self-employment and other taxes. And if the value of bitcoin increases, holders could have to pay a capital-gains tax.”
So, it doesn’t sound that different from what most people are doing now. And TechCrunch argues that the ruling doesn’t really mean that much at all. It notes, “In short, if you pay someone in bitcoin – in the same way you could pay them in gold – the wages are taxed accordingly.”
But according to Business Insider the ruling is a crucial one. They quote a Bitcoin tax expert who claims the ruling could make life more difficult for digital currency users. "Users will have to track their transactions and determine the amount of their taxable gain each time. It's quite a burden.”
CNN though, is more middle of the road, writing that the ruling might be a net positive in terms of legitimacy. “It's not a blessing or a curse by the U.S. government — but it is a sign that authorities are taking the digital money more seriously.”
Now if you’re unfamiliar with Bitcoin, it’s described as an anonymous, open-source and peer-to-peer payment system used to make electronic purchases anonymously. (Via RT)
So how is that property and not currency? According to Fox Business, though it acts like currency in some situations, the IRS says it doesn’t have legal tender status anywhere — thus it can’t be currency.
Other countries are also attempting to regulate virtual currencies like Bitcoin. Those include the United Kingdom, Germany and Singapore.