No doubt by now we have all come across Bitcoins in one realm or another. While many Bitcoin progenitors may have seemingly made out like bandits, that all looks to soon change. Once the tax man comes calling; everyone and everything is up for scrutiny. Here is what you need to know about Bitcoins as they stand for tax burdens.
Rise of Bitcoins
Bitcoins were started out as a virtual currency; you would buy into a Bitcoin and then trade it for goods and services, or, in turn, sell your ownership of the currency to another individual. However Bitcoin had a wily ride up and topped out of $1200 in December 2013. This meteoric rise and seeming evasion of the American tax laws got K-Street and Wall Street's attention.
Unfortunately for many of those currently holding Bitcoins, this news about what's going to happen isn't really that good. Even if you have made excessive gains in your Bitcoin properties to date, you are still going to face a hefty tax burden. The IRS ruled that Bitcoin investors will be treated with stock investor gloves. That is, high capital gains taxes will be levied against the gains in Bitcoins.
IRS Bitcoin Rules
Per the IRS rule Bitcoins held more than one year and then sold will face a lower tax rate to those gains. The maximum rate long term holders will suffer is 23.8%. If however you only held your Bitcoins "short term" (less than 365 days) and you sold for gains, your tax rate will top out at 43.4%.
This tax levy by the IRS means bad news for proponents of Bitcoin as an alternative currency. Now Bitcoins are going to be treated much more like physical property or an investment than a currency. This decision is really going to hamper those who don't like the modern system of government regulated currency. After all no one is going to want to consider the capital gains burden for every daily transaction they make with Bitcoins.
Future of Bitcoin Usage
What this means for the long term success or failure of Bitcoins remains to be seen. Like stocks if you sold your Bitcoins for a loss the individual facing the loss may deduct up to $3000 a year. So that is some good news for those who have lost money in Bitcoin transactions.
We will see who sets out to evade detection or if the policy will have a change of heart. If past is predictor, once the IRS and the Federal Government sees those Bitcoin tax receipts come in, they'll be hard pressed to change their minds.
