Hey, IRS: Here are some Bitcoin users who might need help paying their taxes
J Thoendell stashed this in Cryptocurrency
Cameron and Tyler Winklevoss, probably the most famous Bitcoiners in the U.S., have said that they’ve never sold any of their Bitcoin holdings. But they did use the virtual currency to book a $250,000 space trip on Virgin Galactic last March—which is treated like a sale, for tax purposes. Depending on when they purchased those bitcoins, their capital gains taxes could amount to tens of thousands of dollars apiece.
For law-abiding Bitcoin fans, tax season can be especially stressful. The IRS’s guidelines for virtual currencies, laid down last year, classified Bitcoin as property for federal tax purposes. That means that, just as with any other financial asset, Bitcoin users are required to pay taxes whenever they sell or exchange Bitcoin for a gain.
As Steven Rosenthal of the Tax Policy Center notes, the IRS’s classification also means that Bitcoin users are triggering capital gains taxes whenever they buy anything with Bitcoin, if the value of their holdings has increased since the time of their initial purchase. (So, for example: if I buy a $10 pizza with a Bitcoin I originally bought for $2, I would owe capital gains taxes on the $8 difference.) These rules are complex, and require meticulous bookkeeping. So it’s natural that some U.S.-based Bitcoiners—especially the more libertarian-leaning ones—might be tempted to, shall we say, use flexible accounting methods.