This strikes me as the most expected outcome. They are essentially treating Bitcoin as gold (actually slightly better, since gold has a collectible tax rate of 28% which doesn't qualify for the long term capital gains rate). The trickiest and scariest consequence will be for miners, who might need to report taxes at the time their bitcoins were mined and at the current market rate. This will mean a lot of people will need to retroactively declare gains, many of which may not have been realized. For small mining operations likely the miners will avoid reporting and just sell for cash. But for large miners who will need to use the exchanges, this becomes a real issue. Consult an accountant!
Of course for the many people who will do simple point-to-point purchases with bitcoin, these rules won't really apply, since those transactions and gains aren't detectable unless they're declared.
On the other hand, with retailers and 3rd-party apps adding Bitcoin payment layers, an increasing amount of bitcoin purchases will be on record and associated with an address or bank account in some way or another. I think it's good - we get both worlds and bitcoin grows.
I think they also did a good job of doing this without having it come off stiff or overly specific to Bitcoin. Doubtless things will be adjusted over the next couple years, but this is a big step in the right direction. (I also anticipate a couple small steps in the wrong one, but that's to be expected)
>these rules won't really apply, since those transactions and gains aren't detectable unless they're declared.
Well, this is only assuming you use precautionary measures to protect your identity. If you, for example buy a stereo from a store, and use bitcoin. If you provide any information about yourself, such as your name/address/email/etc. Then the gov't has easily obtainable information that can connect you to other parts of the block chain. At which point, you're toast if the feds want to come after you for tax evasion.
Bitcoin is a great tool, but don't think it's going to open up some anarco-libritarian fantasy camp. It's not. Pay your taxes people.
if i buy $1 worth of bitcoin today and the price of bitcoin appreciates to $10 per bitcoin, i'm now wealthier and won't have to pay taxes as long as i transact in bitcoin. for example, i can probably now by 10 cups of coffees instead of one as long as i can pay for the coffees in bitcoin.
As long as you hold your bitcoins and do nothing with them, you're not subject to tax. You are taxed on your bitcoin gains when you transact in them (or, correspondingly, may take a loss) because that is when your increased wealth is actually treated ("recognize") as income.
> So that means if I hold it over 1 year I can treat any gains as LONG TERM capital gains, right?
The tax issues don't change because you've held an asset for Y years, it depends only on the date when you sell the asset. Remember that capital gains don't apply to assets that aren't sold -- this happens only when they're sold.
Any asset held for longer than a calendar year is taxed as long-term capital gains, otherwise short-term. And short-term capital gains are taxed the same as income.
I would have said that the tax issues DO change because you've held an asset for Y years: if Y >= 1 year then you are taxed at one rate and if Y < 1 year then you are taxed at a different rate.
> I would have said that the tax issues DO change because you've held an asset for Y years: if Y >= 1 year then you are taxed at one rate and if Y < 1 year then you are taxed at a different rate.
Fair enough, but my point is that you aren't taxed at all until you sell the asset. People who haven't invested much don't get that, and it's an argument in favor of buy & hold.
This can only be good for Bitcoin. If you can pay taxes on it; it increases its legitimacy.
Bitcoin has never really been currency anyway; it's more of a pseudo-futures contract than anything else. IMO an essential criteria for a currency is that it is backed by an economy and a government with the power to ensure the security of that currency.
You must pay taxes on all income, however earned. However, you are not entitled to deduct all expenses. Expenses related to criminal endeavors cannot be deducted.
IOW...you are taxed on your gross criminal income.
I genuinely have no idea what you're trying to say.
It doesn't matter what some people think about drugs - The Government spends vast amounts keeping them illegal and criminalising people who produce, distribute, or consume drugs.
Almost all of The Government sees no legitimacy in drugs.
The IRS will see drug money as taxable money.
The fact that tax authorities are happy to accept tax from illegal revenue means absolutely nothing about the legitimacy or otherwise of those activities.