From Business Insider:
“The IRS has ruled Bitcoin should be treated as property, not as currency, for tax purposes.
According to Bitcoin tax expert Tyson Cross, this will create a significant burden on Bitcoin users, as every transaction they ever make using the digital currency will have to be reported in some way.
That would not be the case if it had been ruled a digital currency.
“Users will have to track their transactions and determine the amount of their taxable gain each time,” he told BI in an email. “It’s quite a burden. The rules on taxing foreign currency provide an exception for ‘personal transactions’ for that very reason. It would be great to have that exception (or something similar) apply to bitcoins as well.”
But Cross adds the IRS’ guidance may not stand forever. The Treasury Department should now begin developing formal regulations tailored to digital currencies.
“That typically begins with a request for public comments, which was included in the notice,” he said. “Tax professionals can then identify issues and advocate possible solutions. So between now and the issuance of actual regulations (which takes years), there’s ample opportunity to shape the tax treatment.”
The agency says anyone who holds the currency will have to calculate its value from the date it was received to determine whether a gain or loss was realized, and report the result.
If you’ve done any Bitcoin mining, the fair market value of the virtual currency as of the date of receipt is includible in gross income.
The last line makes sense. I’ve seen people, even here at FR, define bitcoin mining as hard work, one saying it was the hardest work he did.
If you do work, and get paid for it, that is income, and of course it should be reported as income.
And unfortunately, bitcoin’s value moves wildly. It isn’t a ‘currency’ in that sense, it is like gold. So like gold, once you have bitcoin, you will need to remember what you paid for it, and when you sell it, or exchange it for money to use to buy something, you will have to see if you had a gain or a loss, and will pay capital gains or incur capital losses.
This did however get me wondering how the IRS handles currency trading. Those are real currencies, but I can’t imagine the IRS just leaves large currency gains on the table, so it seems they would be trying to collect taxes there somehow.
Except of course that is how lefties like George Soros make their money, so maybe the IRS isn’t that interested.