If you're a Bitcoin user and you haven't filed your taxes yet, get ready. The Internal Revenue Service released Notice 2014-21 Tuesday, which describes "how existing general tax principles apply to transactions using virtual currency." Bitcoin, the IRS rules, shouldn't be considered a currency at all for tax purposes. It's property.
What this means is that when you buy Bitcoin, you will have a capital gain or loss when you sell it. To file federal taxes, you have to report all those little (or big) gains and losses. Bitcoin tax expert Tyson Cross tells Business Insider the obvious — this is going to be annoying for users.
Users will have to track their transactions and determine the amount of their taxable gain each time. It's quite a burden. The rules on taxing foreign currency provide an exception for 'personal transactions' for that very reason. It would be great to have that exception (or something similar) apply to Bitcoins as well.
If you have a small business and have been paying your employees with Bitcoins (sigh), that amount is subject to income tax withholding. After all, you can pay people if jellybeans, if they'll take it, but it's still property, not money. If you're actually mining Bitcoins, that's considered taxable income.
Bitcoiners, at least the Bitcoiners who populate Reddit, have been ready for this. They point to bitcointaxes.info, which has been advising users to treat Bitcoin as property all along. They're already thinking about the next technological innovation:
This article is from the archive of our partner The Wire.