Latest News: Technology |  Celebrity |  Movies |  Apple |  Cars |  Business |  Sports |  TV Shows |  Geek

Trending

Filed under: News

 

Taxing Bitcoin: IRS Review Will Have Big Implications For Investors In Virtual Currency

Jan 7 2014, 2:56pm CST | by

10 Updates
 
 

Comments

Full Story

Taxing Bitcoin: IRS Review Will Have Big Implications For Investors In Virtual Currency

By now most everyone has heard of Bitcoin. But exactly what is it? And how should it be taxed?

Bitcoin is usually described as virtual currency. That’s useful shorthand, but is it really money? And should it be taxed as if it is? Or is it a capital asset? How about a commodity? And then there is the matter of using this quasi-cash to avoid taxes and regulation altogether.

The IRS says it is studying the matter but has yet to issue any guidance. Until it does, it is anyone’s guess how Bitcoin should be taxed. Most users/investors will simply pick what is most beneficial to them when they file their 2013 returns.

At the moment, Bitcoin and its cousin currencies have had far more success generating buzz than facilitating commerce. Yet, the idea of online money can’t be ignored.

Curiously, the motivating force for the IRS to issue guidance may be an effort by Cameron and Tyler Winklevoss (best known until now for their legal battle with Mark Zuckerberg over Facebook ) to create an exchange-traded fund to track Bitcoin prices. The twins are awaiting SEC approval for their ETF but their very request raises important tax policy questions that need to be answered.

Back in November, Mindi Lowy and Miriam Abraham of PriceWaterhouseCoopers wrote a terrific review of the current state of play for Tax Notes Today (requires a subscription).  They concluded that for now virtual currency would probably be viewed as a capital asset since it has limited use as real money. However, should these vehicles gain wider commercial acceptance, they’d more likely be treated as actual currency for tax and regulatory purposes.

The distinctions are not trivial.

If Bitcoin is a capital asset (the Winkelvoss ETF would treat it that way), long-term gains and losses would be subject to preferential capital gains rates (23.8 percent for high-income taxpayers). However, losses of more than $3,000 could only be used to offset other gains and not ordinary income. Separate rules may apply to professional traders.

What if Bitcoin is a currency for tax purposes, the same as, say a euro? In that case, profits from sales would be taxed as ordinary income, with a top rate of 39.6 percent, though all losses could offset other income.

Either way, the mere act of buying something would likely be a taxable event. As Lowy and Abraham note, this would be something of a surprise to consumers.

Similarly, mining Bitcoin (the process of obtaining the currency by solving a math problem) would also trigger tax. Taxing bitcoin would also require users to track cost basis—not so easy at the moment, although Bloomberg has begun publishing prices.

Then there is the matter of using virtual currency to avoid all tax—as well as other laws. Last Thursday, the Wall Street Journal’s Danny Yadron wrote a fascinating piece about Cody Wilson, the guy who made himself famous by posting online instructions for making plastic guns from 3-D printers. Wilson says he is working on software called Dark Wallet that would defeat the government’s ability electronically track Bitcoin transactions. While Wilson and others see this as a Libertarian protection against government, others see it as simply a way to make it easier for people to deal illegal drugs or evade taxes.

For now, Bitcoin is little more than a marketing fad, an ideological metaphor, and a sandbox for speculators. But virtual currency isn’t likely to go away. It would be useful if users didn’t have to guess at its tax treatment.

Source: Forbes

 

iPad Air Giveaway. Win a free iPad Air.

You Might Also Like

Updates


Sponsored Update

Update: 10

4 Firms In Iskandar Malaysia Get Facilitation Fund Totalling RM16.2 Million

Source: Malaysia Today

(Bernama) – Four companies have received the facilitation fund amounting to RM16.2 million from TERAJU@Iskandar Malaysia in an information sharing programme on business opportunities and ...
Source: Malaysia Today   Full article at: Malaysia Today 5 days ago, 7:42am CDT
 


Advertisement


Update: 9

Selangor’s Watergate about to explode

Source: Malaysia Today

Anwar brought Wan Azmi to meet Khalid to try to resolve this matter. Anwar supports the RM2.5 billion claim but Khalid is stubbornly sticking to the figure of RM250 million.... R ...
Source: Malaysia Today   Full article at: Malaysia Today 6 days ago, 4:12am CDT
 

More From the Web

Update: 8

GLCs told to provide RM7 billion to develop Bumiputera firms

Source: Malaysia Today

(The Malaysian Insider) – Putrajaya has directed government-linked companies (GLC) to generate RM7 billion in business opportunities for Bumiputera firms this year, Prime Minister Prime Minister ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 17 2014, 2:05am CDT
 

Update: 7

Rafizi shows proof of Putrajaya’s hand in contentious carpet-trader loan

Source: Malaysia Today

Eileen Ng, The Malaysian Insider PKR lawmaker Rafizi Ramli today revealed documents to prove Putrajaya interfered in the RM32 million Bank Rakyat loan to ‎controversial businessman Deep ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 16 2014, 2:16am CDT
 

Update: 6

PAS MP claims Bank Rakyat loaned carpet-trader RM215m, interest free

Source: Malaysia Today

(Malay Mail Online) – Controversial businessman Deepak Jaikishan (pic) was given a whopping RM215 million interest-free loan from state-owned Bank Rakyat, a PAS lawmaker alleged today, despite Put ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 14 2014, 5:52am CDT
 

Update: 5

MRCB, Nusa Gapurna and PKNS settle suit over RM3 billion PJ Sentral project

Source: Malaysia Today

(The Malaysian Insider) – Malaysian Resources Corp Bhd (MRCB), Nusa Gapurna Development Sdn Bhd (NGD) and PKNS Holdings Sdn Bhd have reached an out-of-court settlement over the ownershi ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 21 2014, 2:53am CDT
 

Update: 4

Story behind Syed Mokhtar’s ‘RM2.25 billion tax-exempt’ Bernas deal revealed, says PKR MP

Source: Malaysia Today

(The Malaysian Insider) – An innocuous written reply in Parliament has provided a peek into the cosy relationship between the Najib administration and Malaysia’s best-known businessman, Tan Sri Syed Mokhtar... READ M ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 15 2014, 12:56pm CDT
 

Update: 3

Constitutional monarchy still murky concept

Source: Malaysia Today

After the RM4.5 billion land sale, the Sultan of Johor secured a 15% stake in MOL Access Portal (MOL) for RM396 million and took a 20% stake in Berjaya Time ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 14 2014, 12:37am CDT
 

Update: 2

Sultan of Johor’s RM4.5 bil backlash?

Source: Malaysia Today

Has Sultan Ibrahim of Johor’s succession of big money deals over the last six months caused the tide of public opinion to turn against Johor’s royal palace? KiniBiz examines the... R ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 11 2014, 8:49am CDT
 

Update: 1

Putrajaya denies carpet dealer given interest-free loan

Source: Malaysia Today

Eileen Ng, The Malaysian Insider Putrajaya today refuted allegations that Bank Rakyat had allowed carpet dealer Deepak Jaikishan to repay a RM32 million loan without interest following interventi ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 11 2014, 5:44am CDT
 

Shopping Deals

 
 
 

<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

Comments

blog comments powered by Disqus

Latest stories

Nina Dobrev is Not Dating
Nina Dobrev is Not Dating
Nina Dobrev got linked to a record of three guys at Comic-Con 2014: Orlando Bloom, Benjamin McKenzie and Derek Theler. Is she dating any of them? No.
 
 
 Dollar Tree acquires Family Dollar for $8.5 Billion
Dollar Tree acquires Family Dollar for $8.5 Billion
In a move to position itself better against Walmart, Dollar Tree acquires Family Dollar.
 
 
The Hobbit: The Battle of the Five Armies Trailer Released
The Hobbit: The Battle of the Five Armies Trailer Released
Peter Jackson released yesterday evening the trailer for the final Hobbit movie. Watch the The Hobbit: The Battle of the Five Armies Trailer below.
 
 
Freddie Prinze Jr Calls Kiefer Sutherland Unprofessional, Former Colleagues Respond
Freddie Prinze Jr Calls Kiefer Sutherland Unprofessional, Former Colleagues Respond
Over the weekend at San Diego Comic-Con, Freddie Prinze Jr called '24' action star, Kiefer Sutherland, "unprofessional" while putting the man on blast for being short. Sutherland, Fox officials, and former 24 actors respond.
 
 
 

About the Geek Mind


Read more about The Geek Mind.