With bitcoin trading hitting all-time highs, Ryan Derousseau explores tax-related issues in Money Magazine's recent article, "There's a Hidden Bitcoin Tax You Need to Know About". In a quote from the article:
"You can even buy lunch at a Subway sandwich shop in Allentown, Penn. using bitcoin, or gain access to the VIP room of a “gentlemen’s club” in Las Vegas.
Skarlatos is sounding the alarm on the issue because few people realize that the Internal Revenue Service does not view bitcoins as a currency like the dollars in your wallet. Instead bitcoins are treated as “property,” which means they’re subject to capital gains taxes."
Ignore the IRS at Your Peril
While some may ignore the issue – only 802 people reported Bitcoin profits to the IRS in 2015 – it’s important to remember that transactions are stored permanently within bitcoin’s network. This means a motivated IRS could easily find every purchase someone makes.
On a larger scale, it’s another issue that can hold back the mainstream appeal of a tool like bitcoin. Complications such as this tax rule prevent it from growing as an everyday option for purchases. Ease of use gives bitcoins “value,” adds Skarlatos. The more difficult it is to use, the more bitcoins’ ultimate value suffers.