by Sheren Javdan
April 9, 2014
The Internal Revenue Service (IRS) announced today that it would tax Bitcoin as property rather than currency. This announcement comes just before the April 15 tax deadline looming around the corner. The news clears up any and all confusion surrounding the controversial Bitcoin just in time for taxes.
Bitcoin is a computer-generated form of currency that is not issued by any central government or bank; it is sold through online exchanges. Merchants accept Bitcoin because they do not have to pay fees associated with accepting credit cards and middlemen.
Marketplaces known as “Bitcoin exchanges” are available for the purchase and sale of Bitcoins using all different types of currencies. Once acquired, persons can send Bitcoins to eachother using their mobile phones or computers.
The controversy surrounding Bitcoin is regarding its unknown future. Because Bitcoin is unregulated, governments are anxious about how it will be taxed. With all the buzzing media, the industry was in anticipation of some guidance by the government. Until recently, users have purchased, sold and traded their gains with little fees and oversight. As a result, the IRS’ announcement on Tuesday was not a surprise.
The new announcement requires Bitcoin users to report the fair market value of the currency as part of their income and treat it as property tax subject to capital gains taxes. In addition, the web exchanges that purchase and sell Bitcoin must provide annual transaction reports to their customers.
Despite its shortcomings, the IRS announcement was a breakthrough for this computer-generated digital property. As a result of its recognition, Bitcoin has become an authorized and acceptable source of value.
In addition, Bitcoin users will also benefit. Property, such as Bitcoin, has a inconsistent shifting value rather than stable currency, when items are purchased using the Bitcoin, users will have a capital gain or loss. Capital gains and losses are taxed at a lower rate than the higher income tax rate.