Dive Brief:
- Bitcoin and similar virtual currencies will be taxed as property, not currency, the Internal Revenue Service announced Tuesday. The IRS also released an FAQ on the matter.
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Bitcoin is not legal tender — it can’t be used to pay taxes — but it can, indeed, be taxed, just as any property would be if you received it as compensation, as in barter transactions.
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Taxes will be assessed at the fair market value of the virtual currency at the time of the transactions in question. As investments, bitcoin will be treated as a commodity, subject to capital gains and losses (which are taxed lower than foreign currency gains).
Dive Insight:
Despite their early Wild West attitude, Bitcoin advocates have come around to the fact that more regulation is better in the long run for the virtual currency’s longevity. Both Japan and the United States, in limited ways, have made moves to treat bitcoin and similar “coin” as commodities rather than legal tender. What no country will likely do is let the virtual whatever-you-call-it escape taxation. That alone, while giving bitcoin legitimacy, could undermine its use in retail payments. The companies that stand to gain the most as bitcoin is increasingly defined and regulated are wallets that take it upon themselves to offer services that could track any capital gains or losses, or any transactions subject to taxes. In any case, Bitcoin’s still on a bumpy road, but it’s moving.