Showing posts with label bitcoin. Show all posts
Showing posts with label bitcoin. Show all posts

Friday, December 6, 2013

Taxing Bitcoins

Because of Bitcoin skyrocket increase this past year from $17 to over $1,200, you cannot escape hearing about those cryptocurrencies and how they will change world commerce for ever. While the Federal Reserve gave tacit approval, stating “virtual currencies like bitcoin have legitimate uses and should not be banned,” and while it's been acknowledged by the Chinese authorities as a valid currency (even though Banks have yet to gain authorisation to use it) there is still a lack of guidance from the tax authorities as to how those new currencies should be treated. There are basically 2 possibilities on how Bitcoins should be treated for tax purposes: either as an intangible asset or as a foreign currency. If a Bitcoin is considered an asset, profits will be taxed as capital gains, i.e at either 18% or 28% depending on your tax band. However if it's considered a foreign currency, then profits will be taxed as income, and therefore as high as 45%.

The problem with saying that it’s a currency is that it is not issued by a government, and traditionally currencies are legal tender issued by governments. In California Bankers Assn v. Shultz, the Supreme Court stated (in a non-tax context): “‘Currency’ is defined in the Secretary’s regulations as the coin and currency of the United States or of any other country, which circulate in and are customarily used and accepted as money in the country in which issued.”