What's with the coffee cup example? Bitcoin is special and the 600 USD limit on property payments does not apply?
Owing gains and 1099 reporting (i.e. the $600) are not related.
Topic: IRS classifies bitcoin and crypto-currencies as property, not currency (Read 1137 times)
March 25, 2014, 04:28:25 PM
What's with the coffee cup example? Bitcoin is special and the 600 USD limit on property payments does not apply?
Owing gains and 1099 reporting (i.e. the $600) are not related.
March 25, 2014, 04:20:04 PM
I believe you owe tax whether a business reports it or not. This ,of course, is going by the letter of the law which is not always enforced.
March 25, 2014, 03:01:51 PM
What's with the coffee cup example? Bitcoin is special and the 600 USD limit on property payments does not apply?
March 25, 2014, 02:58:48 PM
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.
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.
March 25, 2014, 01:46:56 PM
WSJ's Q&A Via Zerohedge. Notice the interpretation of wsj on the "meals" in number 3 and the one before last collide unless 600 usd is a normal price a WSJ writer:
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.
If a taxpayer receives a payment in virtual currency, is it considered income?
Yes, the fair-market value of the currency (in U.S. dollars) on the date the payment was received is considered to be income. For more information on exchange rates, see the notice.
Does a person who makes a payment using bitcoin have a gain or loss on the transaction?
Yes, typically. For example, say a person buys $5,000 of bitcoin, which then doubles in value. If she then uses the bitcoin to pay a $10,000 tuition bill, she could have a $5,000 taxable capital gain 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.
Is a person who “mines” a virtual currency considered to have received income?
Yes, and if the taxpayer engages in mining as a trade or business, self-employment tax is often due.
Does virtual currency that’s paid by an employer in return for services meet the definition of wages for payroll-tax purposes?
Yes, and it’s also subject to income-tax withholding.
Must payments made in bitcoin be reported to the IRS?
Yes, if they meet the requirements for information reporting on payments made in property. Typically, the threshold is payments of $600 or more.
Will taxpayers be penalized for having treated bitcoin transactions in a different manner before today’s notice?
They could be, especially if they underpayed tax or didn’t report income, or both. But the IRS noted that penalty relief “may be available” to persons who were required to file information reports but didn’t, if there’s a reasonable cause for the nonfiling.
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.
If a taxpayer receives a payment in virtual currency, is it considered income?
Yes, the fair-market value of the currency (in U.S. dollars) on the date the payment was received is considered to be income. For more information on exchange rates, see the notice.
Does a person who makes a payment using bitcoin have a gain or loss on the transaction?
Yes, typically. For example, say a person buys $5,000 of bitcoin, which then doubles in value. If she then uses the bitcoin to pay a $10,000 tuition bill, she could have a $5,000 taxable capital gain 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.
Is a person who “mines” a virtual currency considered to have received income?
Yes, and if the taxpayer engages in mining as a trade or business, self-employment tax is often due.
Does virtual currency that’s paid by an employer in return for services meet the definition of wages for payroll-tax purposes?
Yes, and it’s also subject to income-tax withholding.
Must payments made in bitcoin be reported to the IRS?
Yes, if they meet the requirements for information reporting on payments made in property. Typically, the threshold is payments of $600 or more.
Will taxpayers be penalized for having treated bitcoin transactions in a different manner before today’s notice?
They could be, especially if they underpayed tax or didn’t report income, or both. But the IRS noted that penalty relief “may be available” to persons who were required to file information reports but didn’t, if there’s a reasonable cause for the nonfiling.
March 25, 2014, 01:36:21 PM
http://www.irs.gov/pub/irs-drop/n-14-21.pdf
Main points:
This is how https://bitcointaxes.info had been working out capital gains, so if you used it you don't need to change anything. But if you had already filed last year as a currency, you'll need to amend your return.
Main points:
- Bitcoin/crypto-currencies are property, not a currency, and so capital gains applies.
- Spending coins is a tax event and must account for gains
- Being paid in coins for goods/services is income, and treated as USD of the fair market value on the date of receipt.
- Conversion calculations to USD must be reasonable and consistent.
- Mined coins are income on the date of receipt at fair market value (i.e. they are not stock)
This is how https://bitcointaxes.info had been working out capital gains, so if you used it you don't need to change anything. But if you had already filed last year as a currency, you'll need to amend your return.
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