The IRS issued its hotly anticipated guidance on bitcoin today, explaining that it will tax the digital money as property, not currency. In a notice posted on IRS.gov, the agency wrote:
“For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.”
The decision brings to an end – for now – months of speculation on whether virtual currencies would be treated like a capital asset, such as a stock or commodity, subject to capital gains taxes (up to 24%) or as a fiat currency, such as dollars, euros and yen, for which gains are taxed like income (up to 43%).
So, what’s this all mean to you? If you’re one of the early adopter retailers who took a bitcoin payment in exchange for goods or services, you’ll have to report the fair market value of that bitcoin on the date the payment was received. If you’re a bitcoin trader who bought into the bitcoin goldrush during the early days of the digital currency, you’ll be subject to capital gains, as if the bitcoin were a stock or a bond. And, if you’re a bitcoin miner … your treasure chest now constitutes gross income.
