All the Bitcoin tax advice I've ever read said to pay capital gains tax on it. That's what I've done in the past, like many other people. The recent news from the IRS just gives us more confidence that the mainstream interpretation was correct all along.<p>So I don't think the sky is falling. Nothing has fundamentally changed. "Bitcoin is like digital gold" remains a semi-decent analogy.
The last couple paragraphs of this article are kind of ridiculous.<p>If the IRS decides that bitcoins are like stocks and bonds, the IRS will accept an average cost basis rather than the user having to account for each individual bitcoin (or fraction of a bitcoin).<p>If it works like inventory, then the taxpayer will have to decide between several accounting strategies (last-in-first-out or first-in-first-out for example) when deciding cost basis. It's complicated, but it's an order of magnitude easier than what the author is suggesting.
Perhaps it can't work as a currency in the United States sure, I always expected the USA to fudge up the acceptance of Bitcoin.<p>The world is a large place and Bitcoin is a very amazing, worldwide thing that I fully believe can continue to work as a currency, outside of the USA of course.
The author argument would probably not hold up under an IRS audit, and doesn't fully match up with how bitcoin works.<p>First, many bitcoin users "own" their bitcoins using a managed web wallet like Coinbase. In that case, you cannot trace the individuals coins on the blockchain. It is up to the tax payer to report their cost basis.<p>Moreover, it is not obvious from looking at the blockchain which transactions are use to buy goods (a taxable event, according to the IRS), and which transactions are used to transfer money to yourself (the equivalent of moving money from one pocket to another; not a taxable event).<p>Thus, the IRS ruling, while onerous, does not really affect the "fungibility" of bitcoin.
It's an interesting argument, and fungibility is a critically-important feature of Bitcoin.<p>However, I don't think this is at all an unexpected move by the IRS. Most of us were expecting this all along, and calculating our taxes accordingly.<p>Now, if the U.S. were smart and forward-looking we'd adopt the same policy as Denmark and Germany (Bitcoins aren't taxed). But we're not, and so we didn't.
How are changes in the value of "traditional", state-backed currency taxed? If I, say, bought 1 Euro for $0.80 in 2000, and sold it for $1.60 in 2008 (prices from <a href="https://www.ecb.europa.eu/stats/exchange/eurofxref/html/eurofxref-graph-usd.en.html" rel="nofollow">https://www.ecb.europa.eu/stats/exchange/eurofxref/html/euro...</a>), am I taxed on the difference?<p>Or do currency speculators and day-traders get off tax-free? That seems odd.
"To tax Bitcoin as property, he says, destroys its fungibility: One Bitcoin can no longer be exchanged for another."<p>I think that is false. From what I understand you only get taxed when you realize the value of bitcoin, such as purchasing something with it.
If I have a bitcoin in a wallet publicly known as “mine” it still would not count as a valid proof that someone can tax me on it.<p>(I'm not American, it's a thought experiment.)<p>How does one prove the ownership of the wallet? If they just assume it's mine because I once claimed so in public, would they also protect me from btc-related theft, fraud and whatever else property related crimes, either on gederal or state level, just because I claimed the crime had taken place? And if no, what rights exactly do they claim to protect in exchange for taxes collected from this ephemeral “property”?<p>This is ridiculous. Governments hate the fact that people can finally challenge government monopoly on money, and are afraid of losing control, as well as means to get rich at expense of other citizens. [1] I hope people will be reasonable and don't pay any taxes, at least because they gain nothing in return.<p>Again, a proper human rights campaign, with lawyers and cryptocurrency experts working together, and a good targeted media coverage, could end all this until it's too late. If we don't fight for our rights in today's rapidly changing world we shall lose everything. All the great technologies will effectively work against us.<p>[1] <a href="http://www.fee.org/the_freeman/detail/the-austrian-influences-on-bitcoin" rel="nofollow">http://www.fee.org/the_freeman/detail/the-austrian-influence...</a>
Doesn't all of this also apply to Gold? If you bought gold at $400 and then later again at $1000, then you could apply the same non-fungibility argument against it.<p>And yet, currency used to be redeemable into gold. Was it then not a real currency? Didn't the non-fungibility of gold also infect the currencies it backed, thereby making them non-fungible as well?<p>EDIT: of course gold backed currencies were fungible. In the same way, bitcoin is its own backed currency. And hence, also fungible. QED ;)
I don't know... personally I don't even expect Bitcoin to be a good "medium of value" or "commonly desired medium of exchange" in an economic sense. The main raison d'etre for bitcoin for me is, should I some day have the desire to do so, to buy drugs and other things deemed illegal, anonymously. (Since I don't buy such things, I don't use bitcoin at the moment.) For this purpose, bitcoins only have to hold their value for a miniscule amount of time, from the time I buy them to the time I've transferred them (and to the time the reciever of the bitcoins has done something with them). It is theoretically even possible to reduce this time to milliseconds. (I'd buy bitcoins in person or via wire transfer, they'd get passed through a tumbler, do the transaction I'm interested in, and my transaction gets matched with other bitcoin<->money transactions somewhere else on the planet. Most individuals would only hold the coins for split-seconds.) Basically, I view it as a kind of digital Hawala [1]. For this purpose, the current value stability is much better than needed.<p>[1] <a href="http://en.wikipedia.org/wiki/Hawala" rel="nofollow">http://en.wikipedia.org/wiki/Hawala</a>
I don't get all the fuss. Bitcoin is being treated as any other currency. If I make a profit buying and selling Euros I also have to pay capital gains tax. What am I missing here?
You still don't have to pay capital gains if you purchase something with Bitcoins (rather than converting it to USD first). You do however have to pay the tax on the item.
What happens when people start pricing things only in cryptocurrency, and there is no dollar value attached to the transaction? This is fairly rare in the Bitcoin world, where many places sell via payment gateway that immediately converts back to $USD, but is common in the Dogecoin world, where many of the goods exchanged are intangibles (tipping, donations) or one-off items (see r/dogemarket for examples; there are a lot of handmade goods or services).
How can this apply to exchanging BTC for services? If I exchange 1 BTC for 1 year of service, and that company exchanges 100 BTC for 1 year of work by an employee... how does the tax get collected?
George and I trade Pokemon cards a lot. Daddy says I can't play with Pokemon cards anymore. That means I can't hang out with George.<p>Also, there are other countries besides the IRS one (with an order of magnitude more people).<p>This article is pure trash and you should kill yourself if you agree with it.