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).