Current Bitcoin USD rate

Bitcoin regulation and taxation has been a hot topic lately as the governments of the world strive to figure out how this new technology should be dealt with. In the legal realm, bitcoin is still operating in a grey-zone in many countries, especially for activities such as mining or trading.

This week, various events have surfaced which address the legality of bitcoin users. The United States has deemed bitcoin as property rather than a currency and the internet is buzzing with fanatics and critics debating the implications of such a move. Also the bitcoin price has plummeted this week on news that the People’s Bank Of China (PBOC) was reportedly planning to block banks from providing accounts for bitcoin-based businesses. The result of these decisions are still to be seen, but what is becoming increasingly clear is that bitcoin is now a mainstream discussion and needs more clarification in terms of the law.

The IRS has finally spoken as to specific bitcoin activities such as purchasing, mining, spending and trading bitcoins and other cryptocurrencies. Here are a few things that everyone should know:

Bitcoin will be subject to capital gains taxes

Bitcoin has been declared as property, therefore any gains from buying and selling digital currencies will be treated like any other capital gains. Long-term holders will be taxed at favourable rates such as 20%, significantly lower than the highest income tax bracket.

Bitcoin income is taxed as income

Any payments received in bitcoin will be taxed as income. All cryptocurrencies received will be valued at their current BTC/USD exchange rate at the time payment is received. All receivers of bitcoin as payment must declare the U.S. dollar value to be taxed alike any other form of income.

Mined bitcoins will be treated differently

Interestingly enough, mined bitcoins/cryptocurrencies are to be treated differently. Mined bitcoins will actually be treated as income which will be valued at the current U.S. dollar amount when received. This is where some issues may arise due to the introduction of altcoins and other cryptocurrencies. If an altcoin is mined at a time where there is no exchange rate or price, therefore being “valueless” does this mean that there is no tax to be paid when the cryptocurrency does become valuable? This is one area of the law that must be developed further to provide clear instructions on how to declare earnings.