From Crypto-currency to Crypto-property – Bitcoin

Last week the Internal Revenue Service (IRS) gave another status to the controversial crypto-currency. “The notice provides that virtual currency is treated as property for US federal tax purposes. General tax principles that apply to property transaction apply to transactions using virtual currency,” explained the IRS news release. The decision passed on Tuesday took effect immediately. Failure to comply will result in fines.images (25)

This probably marks an important step in the short history of the virtual currency – Bitcoin will not be considered as a currency anymore but as property. From now on, Bitcoin’s millionaires will have to report their Bitcoin incomes like any other citizens in the United States.

In a more practical way, the ruling means that any Bitcoin transactions will be considered and treated as subject to capital gains or losses and therefore subject to the appropriate tax rate. Bitcoiners will have to pay higher taxes when the virtual currency’s exchange rate increases, the same way they will be able to deduct a loss when Bitcoin’s exchange rate goes down. The IRS turned the crypto-currency into a crypto-property. This will have a visible and real impact on the way Bitcoiners relate to their Bitcoin wallet on a daily basis. Every kind of transaction such as buying a coffee, a tee-shirt or a WordPress font will be taxable. However, the tricky part is that each transaction will have to be studied and calculated properly to figure out if there were any capital gains or loss on this and that transaction.

The IRS published a “Virtual Currency Guidance” answering all sort of questions. For instance, “wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer and are subject to federal income tax withholding and payroll taxes” or again “payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.” Bitcoin miners are also included into this decision and will have calculate the gross income on the mined Bitcoin.

download (36)

With this ruling, Bitcoin made another step toward regulation and therefore toward a potential mainstream acceptance. This forward movement had been launched last year when different rulings indicated a positive trend in regard to Bitcoin. However, worth mentioning that at the exact same time Bitcoin is making another step away from its core principle – to be an unregulated currency.

In the future, Bitcoin wallets should probably offer an automated calculation of the capital gains or losses thus making it easier for Bitcoiners to pay their taxes and respect the law.


gBitcoin Weekly Closing Price Chart from 2013 to 2014



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s