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Comment by homero | Hacker News Reader

This is great for taxes. Capital gains are much cheaper than income taxes. Plus my bitcoin is my property which is correct.

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https://www.irs.gov/pub/irs-drop/n-14-21.pdf

The IRS has said that it is currently treating Bitcoin as property for tax purposes.

The document has some interesting bits to it. If you mine bitcoin, you're likely liable for self-employment taxes. When you use bitcoin to pay for things, you might create a gain or loss compared to your basis (even though you aren't exchanging for cash). Wages received in bitcoin still have taxes due on the US Dollar value of the bitcoin received (and payable in USD).

I'm a little surprised that the IRS didn't treat it as a foreign currency with the Section 1256 60/40% split long-term/short-term gain tax treatment.

Anyway, this case doesn't change anything from a tax standpoint. The IRS has already clarified all of that for your federal taxes.

If someone gives you bitcoin-which-is-not-money in exchange for doing work, the IRS would probably consider that income-as-bartering. Capital gains is what you might pay if you go to an exchange and purchase bitcoin-which-is-not-money, and exchange it back for fiat at a higher rate.

True you would pay income taxes and reset the basis

I think I saw previously that the IRS classifies Bitcoins the same way? If digital currency becomes ubiquitous, I have a feeling our government is going to regret setting these precedents.

Why do you think that?

Just because they treat Bitcoin as a commodity does not mean you can somehow avoid paying taxes on it. Compensation does not have to come in the form of cash to count as income (just look at stock allocations).

Can't the legislature just change these things? There's nothing in the Constitution about Bitcoin.

Yes, but it becomes much harder to do once precedent is set. Interest groups spring up around the current status quo, and it takes a lot of momentum to convince the general population that a change is necessary. If EVERYONE is using Bitcoin and their effective tax rate is 15%, I don't think changing the tax rate to align with income tax rates will go over very well.

you would pay income taxes and reset the basis

Do you know if the classification depends on whether or not Bitcoin is legal tender?

It's not, but then neither is the Scottish £10 note in my pocket -- see my other comment in this thread: https://news.ycombinator.com/item?id=12165554

In the Netherlands I've had to declare bitcoins on my taxes the last few years.

That doesn't mean the IRS won't take you to court to change the interpretation. Proceed with caution..

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