(Newswire.net — April 3, 2014) — The announcement boiled down to the IRS (and potentially other foreign governments) will treat virtual currencies as property and not currency. This move will create massive bookkeeping challenges for the users of Bitcoin. This suggests that Bitcoin may not be useful as a tool for long term investment.
So let’s say that you purchase some Bitcoin for $200. It increases in value to $600 and you sell. You now have $400 more in your pocket to spend with.
Go ahead and spend it but be prepared to keep a detailed transaction log!
That is now a capital gain that needs to accounted for and you would report it on your tax return. Bitcoin sold or used within a year of purchase are short-term gains and subject to ordinary income tax rates, which could be as high as 39.6%. Assets sold after a year of purchase are long-term and are taxed at lower rates.
The Tax Foundation has come forward saying that the IRS is getting it wrong and calls the actions of the IRS “inappropriate.”
The hard truth is the IRS will have a very hard time tracking any transaction using Bitcoin. They will have enough on their plate with tracking the individual compliance to Obamacare.
Even former IRS commissioner Mark Everson pointed out that there’s a big difference between new IRS rules and how it decides to administer them.
Many see this as a threat and have taken to establishing a petition at whitehouse.gov in an attempt to overturn the ruling.