IRS moves to tax bitcoins

The Internal Revenue Service took the first step toward taxing bitcoins, declaring it will treat the currency like property. The move could lend more legitimacy to bitcoin and other fledgling online currencies, but at the same time subject investors to new tax obligations.

"Hopefully the guidance put out on bitcoins and virtual currency will answer the bulk of the questions people have about how they are going to be treated by the IRS," said IRS Commission John Koskinen. "Our hope is it will remove a lot of uncertainty." Under the guidance released by the IRS, wages paid to employees in bitcoins would be taxable and would have to be reported to the IRS by employers. Independent contractors paid in bitcoins would be required to pay a self-employment tax. Bitcoin “miners,” individuals who use computers to process bitcoin transaction in exchange for transaction fees and extra bitcoins, would also have to pay a self-employment tax. Furthermore, people who use bitcoins to make purchases would have to pay capital gains on however much their bitcoins had increased in value since they were obtained, much as one would a stock. For example, if $5 worth of bitcoin at the time of purchase had appreciated into $10, the bitcoin owner would face a $5 capital gain if those bitcoins were used to purchase an item.