Earlier this week it was announced that the IRS will view Bitcoins and other forms of virtual payment as property and not currency. They will now have the same rules and taxes applied to them as stocks. Most importantly, this means that Bitcoin will now be subject to capital gains taxes. For heavy Bitcoin investors, this decision will be easier on their wallets, as the long term capital gains tax of 20 percent is significantly less than the 39.6 percent federal income tax.
However some people are worried that this new classification is detracting from the main goal of Bitcoin. As Bloomberg points out, if it is viewed as property, that could deter the volume of people who decide to use Bitcoin as currency.
There is also the matter of Bitcoin “mining,” a term used to describe the process of unlocking coins online. The IRS has stated that miners must now record the free market value of their mined coins as gross income on the date they receive it. This particular change came about as a disincentive for people to go looking for new coins.
On the flip side, there appear to not only be a lot of tax advantages to viewing this new currency as property, but a lot of value advantages as well. Bitcoin prices have fluctuated wildly over the years, and this new classification by the IRS may stabilize their value some. Along with this, companies or individuals who lose Bitcoins due to fraud or other reasons, like Mt. Gox in February, can now report that as capital loss on their taxes.
Protection is one of the big reasons that the government turned up the heat on categorizing virtual currencies. About three months before this ruling, NTA advocate Nina Olson argued that governments have to intervene and provide guidelines for consumers when new items enter the playing field. Along with this, regulators of Bitoin have been worried that the industry could be all too easily utilized for drug transactions or other illegal activities. So, as the New York Times states, “All that has put more pressure on governments around the world to figure out some way to regulate the industry.”
Who knows what the future may hold for virtual currency. For now, it looks like Bitcoin has taken its first steps into the streamlined system of exchange.