With April 15 looming, plenty of Bitcoin barons have been wondering how to treat their newfound crypto-fortunes. Does it count as capital gains? Is it taxed like a currency? Is it taxed at all? Well, on Tuesday, the Internal Revenue Service announced definitively that Bitcoin is property, and will be taxed as such.
Here’s the IRS statement. This is not a new problem. Bitcoin has been around for over five years now, and people have been making money trading the cryptocurrency the whole time. However, in the past year or so, we’ve seen the value of a single bitcoin skyrocket from just a few dollars to over $US1,000 and back. All the while, the government hasn’t taken a firm stance on how exactly which kinds of bitcoin activity will be treated in the eyes of the taxman. Most experts have agreed all along that bitcoin should be taxed, but an official policy was absent — until now.
As authorities start to crack down on alleged money laundering schemes involving bitcoin, the IRS is getting serious about collecting taxes (it’s what they do!). In a notice, the IRS offered a quick Q&A about how bitcoin should be taxed. To answer the questions above, bitcoin profits do count as capital gains, and it is considered property, not currency, as far as taxes are concerned. In effect, the government is treating bitcoin the same way they treat your baseball card collection. If you mine bitcoin fulltime (really?), you should pay the standard tax for self employment.