Bitcoin to be Taxed

Yesterday, the Internal Revenue Service issued a formal statement declaring Bitcoin property, as opposed to currency, for taxing purposes. An article in CNN Money explains that the IRS has decided payments worth at least $600 (in Bitcoins) will be taxed in the same way as any other property transaction taxed by the agency. This includes any payment with Bitcoin, gains acquired by investing in it. and income from producing Bitcoins on your computer (known as “mining”). Additionally, “If you pay your employees with bitcoins, that would have to go on your staff’s W-2 forms, and they would have to pay federal income tax on it. Paying an independent contractor? They have to put bitcoin payments on their 1099.” Notably, the IRS acknoledges that Bitcoin surely functions like real currency, but its lack of legal tender status means that there is no jurisdiction over it as such.

The IRS, the and United States in this sense, has joined many countries in the attempt to regulate Bitcoin as it becomes increasingly utilized/traded. The United Kingdom, Germany, and Singapore are among other countries that have put forth this effort as well. In the near future, we should expect to see many other countries joining in the attempt to regulate Bitcoin — assuming it continues to grow in relevance as it has been recently.

In fact, a Wall Street Journal article explains the growth in Bitcoin awareness and confidence. Pollster Harris Interactive outlined the thoughts of 2,039 people around the U.S. It found that 48% have heard of Bitcoin, but most of them don’t trust it enough to invest in it. In fact, only 13% said they would choose bitcoin as an investment over gold. Personally, I am surprised even 13% would choose to invest in it over gold; I figured it would be less. Additionally, results indicate a correlation between increased awareness and decreased trust. It seems that the more people learn what it is, the less they trust it enough to invest in it (hypothetically, of course). Interestingly, respondents in western states proved to be more likely to have heard about Bitcoin, but only 7% of those who knew about it said they would chose it over gold when investing.

Thus, the increase in Bitcoin’s popularity is eminent, though people’s trust in it is still very questionable. However, in pure numbers, it is gaining ground quickly. This decision by the IRS is not necessarily negative for Bitcoin-ers. In fact, I think it’s a positive step for those who want to see it grow in the future. A government attempt to regulate it means that it is being acknowledged as a significant “property” and that the US is taking notice of the increased popularity of Bitcoin. As of now, I find it almost impossible to convince me to invest in it, but all the power to those who do. Regulation may not be an investor’s idea of a positive step, especially when their investments are being taxed, but this move by the IRS is important as it creates a form of acceptance and acknowledgement (as property, though).

6 thoughts on “Bitcoin to be Taxed

  1. lippmanb

    I think that this is could be one of the government’s first steps to come to terms with the situation that is Bitcoin. In fact, the government is taking advantage of it. I am interested in seeing what happens in the future. I do thnk that this is a better alternative to declaring it illegal.

  2. nickcoll

    I think this tax is actually going to beneficial to bitcoin even if it goes against one of bitcoins main goals of governments not having control over it. The fact that governments are beginning to tax bitcoin could actually cause people to trust it a little more since there is now a little bit of regulation.

  3. alexfigu@umich.edu'alexfigu

    In terms of being a negative for investors, I think fundamentally the taxation on Bitcoin is against many of the values on which many investors in Bitcoin believe in. Many of the non ideological bitcoin investors have backed out of their investments as news came about the security issues with bitcoin and Mt Gox. I think many of the people that are currently still invested in Bitcoin believe heavily in the libertarian values of the currency and the IRS’s new taxation on Bitcoin may hurt its pro-libertarian position.

  4. fanglue

    The taxing purposes for bitcoin will be a great move of government regulations over the digital currency. Bitcoin now is still mainly used for speculation or investment. There will be many policies to be implemented in order to gradually complete its normal use.

  5. psseo

    Very interesting story about Bit coin. I like your reasoning that this new movement of taxation for Bit coin is not necessarily interpreted as bad for Bit coin. As you explained well, this reveals the importance of Bit coin. But I also think that once it is regarded as a good rather than currency by government. I guess it will be more difficult to get currency status later.

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