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Bitcoin Taxation

Guidance from the Internal Revenue Service establishes that bitcoins and other types of digital money will be taxed as property rather than currency.

According to the recent IRS notice, Bitcoins and other virtual currency will be "treated as property for U.S. federal tax purposes". Thus, bitcoin traders must pay capital gains taxes if they invest in virtual currency, just as they would when investing in stocks or bonds.

The recent announcement from the IRS regarding the taxation of bitcoins has drawn mixed reaction. For instance, as reported recently by USA Today, some see the policy as a step forward for the virtual currency, increasing its legitimacy in the eyes of the public by formally recognizing its value as an investment worth taxing. On the other hand, others fear that taxation of digital currency may discourage its use and potentially curb the growth of the new payment system. Because the market value of the Bitcoin is still highly unstable and has been known to fluctuate dramatically from day to day, some say the IRS announcement could discourage people from using and accepting what some already view as a risky and inefficient payment method.

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