This is an idea for people who have made significant gains on the recent increase in the value of your bitcoins.
Here is an example.
Let say you bought 1000 bitcoins at $10 last October.
Presently they are worth $100,000 assuming you sell now for $100 per coin.
If you sold right now (in the US), and you considered your bitcoins to be property you'd owe short-term capital gains on $90,000.
That could be about $30,000 depending on your tax bracket and what state you live in.
You could hold the bitcoins at least a year and pay long-term capital gains of 15% (plus whatever state capital gains tax you have) assuming you are not in the highest tax bracket.
This will still cost you a lot of money, though.
If you considered bitcoins a foreign currency, though, and you spent them, you would not owe any capital gains as long as you spent the currency on goods and services and didn't exchange it back to dollars.
So why not just use the bitcoins to buy gold directly, and then later sell the gold for dollars when you need dollars.
This seems like it would be perfectly legal, at least until the IRS says something about how bitcoins should be treated.
The potential pitfalls are:
1) You might have trouble considering bitcoins to be a foreign currency. The recent FinCen guideline imply that bitcoins that address "virtual currencies" imply that bitcoin might fall under currency regulations. This is essential in that you owe no capital gains tax on appreciation of foreign currencies that you actually spend.
2) I'm not sure whether the purchase of gold bullion can be considered the purchase of a good or something that is an investment. I know that gold falls under the "collectables" laws for it's own appreciation. Certainly if you used the bitcoin to purchase a car or a boat it would be ok. But do you owe tax on it once you sell that car or boat? I don't believe so.
Any thoughs?
