Taxes On Bitcoins

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tips/taxes-on-bitcoins
The United States Internal Revenue
Service, IRS, has ruled that Bitcoins are
property and not a currency.

This means that there will be taxes on
Bitcoins when they are sold, providing the
sale is a realized capital gain.

Prior to the new era of taxes on Bitcoins,
one could purchase Bitcoins with dollars,
receive Bitcoins from a patron at your
restaurant, or trade bitcoins on a Bitcoin
exchange.

This option was recently in the news as Mt.
Gox, the Bitcoin exchange located in
Tokyo, went belly up and declared
bankruptcy a few weeks ago.

The issue for the IRS is that some folks
managed to buy Bitcoins for a few cents
and eventually get rid of them for a
thousand dollar each and not pay any
taxes.

The IRS figures that Bitcoins should be
treated like any other investment or traded
asset.

If a trader buys IBM stock when it is low and
sells IBM stock when it is high the trader
pays capital gains.

The tax may by on short term gains if the
stock was held for a year or long term
gains if the stock was held for more than a
year.

Now there will be taxes on Bitcoins following
similar rules, when they are sold.

Trading Bitcoins

One of the attractive aspects of Bitcoins was
that one could, theoretically, buy, sell and
make a profit under the radar.

After all, one was simply buying and selling
a currency.

However, when you convert one currency
into another and then back as a currency
trader you are liable for taxes on the gains
that you have made and are able to write
off losses against other income.

Taxes on Bitcoins will likely follow similar
rules.

Technical analysis can lead to profits in
trading and that could include Bitcoins.

There are some who say that the IRS ruling
just means that Bitcoins have grown up
and entered the adult investing and trading
world.

The opposing view is thatthe world of
Bitcoins is unregulated and simply
amounts to a big Ponzi scheme and a
story that is simply too good to be true.

However, traders can make money in good
and bad markets.

Many who saw the dot com bubble coming
or accurately anticipated the 2008 crash
made money by purchasing puts on stocks
or shorting stocks.

There are lots of profitable day trading
strategies that could be applied to trading
Bitcoins in a transparent market.

The trick is not to fall for the free lunch
concepts that Bitcoins will go up in value
forever or that there are not taxes on
Bitcoins in the end.

Bitcoins in Trade

One of the ideas behind Bitcoins was that
one could use them to buy things just like
with other currencies.

To the extent that Bitcoins could be used as
an international currency this was an
attractive idea.

However, now the IRS says that Bitcoins are
property.

This means that each time you pay for
something with Bitcoins you need to
calculate what your Bitcoins were worth in
US dollars when you got them.

Then you need to calculate what your
Bitcoins were worth in US dollars when
you used them for a purchase.

The difference will be your capital gain on
your Bitcoin property.

Obviously you will need to check with the
IRS on the particulars.

But our point is that the taxability of Bitcoins
complicates their use in commercial
transactions even while it may legitimize
their tradability as property.

The idea of a contrarian approach to day
trading certainly applies to using or trading
Bitcoins for the foreseeable future.

Taxes On Bitcoins

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Taxes On Bitcoins