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The IRS Wants a Bit of the Bitcoin Pie

by on March 26, 2014 3:58 am BST
 

Bitcoin was first gained allure as a crypto-currency that was out of reach of governments and central banks. However, the IS Internal Revenue Service (IRS) wants part of the bitcoin pies after a a near 50-fold appreciation. The US government is looking to treat bitcoin as property for tax purposes while applying rules used for stocks and barter transactions.

The virtual currency was created in 2008 by an anonymous programmer, known as Satoshi Nakamoto, looking for a currency alternative that was deregulated. The popularity of the somewhat invisible currency has exploded since 2013.

According to the IRS, bitcoins held for more than a year then sold would garner a maximum tax rate of 23.8 percent, while those bitcoin traded less than a year would receive a whopping 43.4 percent tax rate. Bitcoin capital losses will be able to get deducted from ordinary income, up to $3,000 per year.

For investors with losses, U.S. tax law allows taxpayers to subtract capital losses from any capital gains. They can also subtract up to $3,000 of capital losses a year from ordinary income.

The IRS will require information reporting similar to how the tax agency receives notification of stock transactions and payments to independent contractors. Nina Olsen, a national taxpayer advocate, said it was the responsibility of the government to fully state how and when taxpayers must inform the public about new rules. “The lack of clear answers to basic questions such as when and how taxpayers should report gains and losses on digital currency transactions probably encourages tax avoidance,” said Olsen.

The IRS motto “what’s yours is mine.” Not even unregulated, decentralized crypto-currencies fall pray to IRS outstretched hands. Oh, and for those in the drug trade and corporate cheats, money made during drug deals and embezzled funds are taxable according to the tax code.