The IRS Won't Say How to Pay Taxes on Your Bitcoins

A blog about business and economics.
Jan. 27 2014 11:15 AM

How to Pay Taxes on Your Bitcoin Investment

If you win, what do you pay?

Photo by Ethan Miller/Getty Images

A lot of people have been dabbling in bitcoins over the past year, which has mostly led to big thinkpieces about what it all means. But it also raises a practical question. If you've made bitcoin investments, do you have tax liability? And if so, what kind? As Catherine Hollander writes, the IRS isn't sure:

The heart of the issue is whether the IRS will view bitcoins as a currency or a commodity.
But the government remains mum: "The IRS is aware of the potential tax-compliance risks posed by virtual currencies," the agency said in an emailed statement. "The IRS continues to study virtual currencies and intends to provide some guidance on the tax consequences of virtual-currency transactions."

In theory, IRS administrative decisions about the tax treatment of relative minor entities shouldn't be a big deal. But in practice it often doesn't work out that way. When word first came down that hedge fund and private equity managers could classify a lot of their income as "carried interest" and therefore pay the lower capital gains tax rate, that wasn't intended as a major public policy initiative. But once the loophole exists, people exploit it and it grows in significance over time. Congress could always step in and close loopholes of that sort, but in practice changing laws is very difficult in the United States—you need a House majority, a Senate supermajority, and the president's signature—so once something becomes a big deal that some set of people are benefiting from it can be very challenging to change.

I don't really foresee anything like that happening with cryptocurrencies, but it's at least possible and worth keeping an eye on.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

Congress’ Public Shaming of the Secret Service Was Political Grandstanding at Its Best

Michigan’s Tradition of Football “Toughness” Needs to Go—Starting With Coach Hoke

A Plentiful, Renewable Resource That America Keeps Overlooking

Animal manure.

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10


Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

Hasbro Is Cracking Down on Scrabble Players Who Turn Its Official Word List Into Popular Apps

Florida State’s New President Is Underqualified and Mistrusted. He Just Might Save the University.

  News & Politics
Sept. 30 2014 9:33 PM Political Theater With a Purpose Darrell Issa’s public shaming of the head of the Secret Service was congressional grandstanding at its best.
Sept. 30 2014 7:02 PM At Long Last, eBay Sets PayPal Free
Sept. 30 2014 7:35 PM Who Owns Scrabble’s Word List? Hasbro says the list of playable words belongs to the company. Players beg to differ.
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Behind the Scenes
Sept. 30 2014 3:21 PM Meet Jordan Weissmann Five questions with Slate’s senior business and economics correspondent.
Brow Beat
Sept. 30 2014 8:54 PM Bette Davis Talks Gender Roles in a Delightful, Animated Interview From 1963
Future Tense
Sept. 30 2014 7:00 PM There’s Going to Be a Live-Action Tetris Movie for Some Reason
  Health & Science
Medical Examiner
Sept. 30 2014 11:51 PM Should You Freeze Your Eggs? An egg freezing party is not a great place to find answers to this or other questions.
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.