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Summary:

The IRS announced that bitcoin and other virtual currency will be taxed as property, not currency. This settles an important tax question.

Coin image adapted from Flickr user Antana
photo: Gigaom Illustration

The Internal Revenue Service has cleared up a pressing tax question over virtual currencies, just in time for the looming filing date on April. In a notice issued on Tuesday, and reported by the Wall Street Journal, the agency clarified that bitcoin and other online money will be taxed as property, not currency.

The distinction is important because bitcoin’s 100-fold price increase last year minted many new millionaires, but no one was sure how to report the gains.

As I explained yesterday, currency profits are taxed at a 60/40 rate that blends long-term and short-term capital-gains rates. However, if bitcoin was considered a capital asset, it would be taxed at the long-term capital-gains rate.

  1. OMG … Bitcoins are not backed by ANYTHING! They have no worth, except what another fool would pay for it. It does not even exist, it is imaginary. Now they are TAXING IMAGINARY ITEMS??? WTF, we need to eliminate the IRS and their terror on the citizens and go to a flat tax on ACTUAL DOLLAR INCOME.

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    1. Joe you couldnt be more right about Flat tax but we live in a financial terrorist state and the IRS is only going to wax and never wane!

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