Charles mentioned at the London meetup that Bitcoin would be good for securely storing your savings, or something along those lines. After today's IRS ruling his words are especially meaningful for those of us in the U.S. and possibly other countries to follow.
Quote from article at link below: "Today’s IRS guidance will provide certainty for Bitcoin investors, along with potential income-tax liability that wasn’t specified before. Purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of income for the coffee shop."
The article aslo says: "The ruling takes effect immediately and covers past and future transactions and tax returns." This is very wrong for the IRS to try to do as there is no way people would have kept records on all their spending, nor will they keep those kinds of records in the future.
This is not a good thing as far as using Bitcoin as a currency, however, it IS a good thing for those utilizing bitcoin to securely hold their savings and for those who trade bitcoins as they can utilize capital gains treatment rather than the income tax treatment which traders of foreign currencies have to use in the U.S.
http://www.bloomberg.com/news/2014-03-25/bitcoin-is-property-not-currency-in-tax-system-irs-says.html BITCN
IRS: Bitcoin is property rather than currency, can be taxed
The IRS says it will apply rules used to govern stock trades and barter transactions, rather than currency, towards Bitcoin (BITCN). Bloomberg notes the ruling means a $2 cup of coffee purchased via Bitcoins originally bought for $1 would yield a $1 capital gain for the coffee buyer, and $2 of income for the seller. As with stocks, Bitcoins held for more than a year would be subject to a lower tax rate (capital losses can be deducted from gains), and different tax rules will apply for dealers.Coinbase is currently showing a Bitcoin bid-ask spread of $583.04-$586.04.
Hopefully Ethereum can address tax challenges. Thanks to all the Ethereum guys for working to make the world a better place!
Comments
"The Internal Revenue Service (IRS) is aware that “virtual currency” may be used to pay
for goods or services, or held for investment. Virtual currency is a digital representation
of value that functions as a medium of exchange, a unit of account, and/or a store of
value. In some environments, it operates like “real” currency -- i.e., the coin and paper
money of the United States or of any other country that is designated as legal tender,
circulates, and is customarily used and accepted as a medium of exchange in the
country of issuance -- but it does not have legal tender status in any jurisdiction.
Virtual currency that has an equivalent value in real currency, or that acts as a
substitute for real currency, is referred to as “convertible” virtual currency"
Would ether, in and of itself (i.e. before any conversion to an altcoin), be a "convertible virtual currency" then? Or would ether only be considered a "convertible virtual currency" when the first exchange allows conversion of ether directly to USD? It is just that if ether is only convertible to USD after first being converted to an altcoin like bitcoin, I'm not so sure it is a "convertible virtual currency". So comments welcome!
Today the Internal Revenue Service issued Notice 2014-21 in an effort to clarify the tax treatment of bitcoin and other virtual currencies before the April 15 tax deadline. The guidance applies to both current and past transactions involving virtual currencies. Here’s a summary of what the IRS said.
How is virtual currency treated for federal tax purposes?
Bitcoin and other virtual currencies are treated as property, not as a currency. Therefore, an investor who buys bitcoin would typically have a capital gain or loss when it’s sold but wouldn’t have foreign-currency gains and losses.
For 2014, the top rate on long-term capital gains is 23.8% for most joint filers with adjusted gross income above $457,600 ($406,750 for singles).
If bitcoin had been ruled a currency, it would have been subject to a complex tax regime in which 60% of profits are considered capital gains and 40% are considered ordinary gains for most taxpayers, according to Jonathan Horn, a certified public accountant practicing in New York.
Does a person who makes a payment using bitcoin have a gain or loss on the transaction?
This clarification means that people who use bitcoin in small amounts, such as to buy a meal, could face onerous record-keeping issues.
http://blogs.wsj.com/totalreturn/2014/03/25/qa-the-new-irs-rules-on-bitcoin/
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I hope tax implications around the world will be at least somewhat settled soon so that the cryptocurrency community can adapt and move on down the road to focus on more lofty issues.
http://www.irs.gov/pub/irs-drop/n-14-21.pdf
SECTION 3. SCOPE
In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.
SECTION 4. FREQUENTLY ASKED QUESTIONS
Q-1: How is virtual currency treated for federal tax purposes?
A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.
Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.
Q-7: What type of gain or loss does a taxpayer realize on the sale or exchange of virtual currency?
A-7: The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset. See Publication 544 for more information about capital assets and the character of gain or loss.
So for the calculation of gain or loss, when mining currency, when is the currency considered born or live since the mining process yields fractions of a currency per ms, sec, min, hour, day etc. What is the date of ownership used to calculate gain or loss on date ownership is transferred?
When a stock is bought you have to buy one share. However, crypto currency that is mined is created and used in fractions. I'm trying to get my head around how determine gain or loss.
I found my answer here:
FIFO rules should be optional. You should be able to choose between “First in First Out” FIFO and “Last in Last Out” LIFO. https://cryptocurrencyfacts.com/fifo-rules-and-cryptocurrency/
Thanks,
Mike
Here is the link for the full article: https://www.cryptowalletira.com/news/tax-evasion-hunt-blockchain/
I personally use https://bitcoin.tax/r/2XpGLoYcZ to help figure mine out. It works and it's not that expensive.