Get All Access for $5/mo

IRS Will Tax Bitcoin, Says It's Not Currency In a historic ruling, the IRS said Bitcoin is property, not currency, and will be taxed as such. Here's what you need to know.

By Kim Lachance Shandrow

Opinions expressed by Entrepreneur contributors are their own.

Rupert Murdoch dismissed Bitcoin as "just a joke." Goldman Sachs cautioned that it "can't work as a currency." And now the IRS has joined the amplifying Bitcoin doubter chorus, officially deeming the controversial currency not a currency at all. But it's not above taxing it.

The Feds have finally made up their mind about Bitcoin, ruling today that it and other virtual currencies will be taxed as property, not currency. You can read the full text of IR-2014-36 here.

The ruling immediately went into effect, conveniently just 22 days before the April 15 tax filing deadline. Unleash the tax lawyers on Bitcoin millionaires, because it's game-on in the eleventh hour.

Related: Mt. Gox Mysteriously Finds $114 Million Worth of 'Missing' Bitcoins

The historic ruling means that individuals with Bitcoin (or any other virtual currency) holdings will have to pay taxes to Uncle Sam on them, just as they would on stocks, intangible commodities or other valuable assets. They will also be taxed on wages earned in virtual currency, as well as on payments received in virtual currency.

"In some environments, virtual currency operates like 'real' currency, but it does not have legal tender status in any jurisdiction," the IRS said in a statement released today. "Virtual currency is treated as property for U.S. federal tax purposes" and "general tax principles that apply to property transactions apply to transactions using virtual currency."

Wages paid to employees in Bitcoin or other virtual currency "must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes," the IRS said in the ruling. "Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply."

Related: Coinbase Snags Top Execs From Facebook, Amazon

The ruling further clarifies the IRS's long murky view of Bitcoin, clearly stating that it is a capital asset, not a legal tender. It also reportedly specifies that anyone who deals in virtual currencies, including merchants, are now subject to "extensive record-keeping requirements, and taxes, as other people and other deals."

Senator Tom Carper, a Delaware Democrat, was quick to laud the IRS ruling, according to The New York Times. "The Internal Revenue Service's guidance today provides clarity for taxpayers who want to ensure that they're doing the right thing and playing by the rules when utilizing Bitcoin and other digital currencies," he said.

For more information, check out the IRS's 16-question FAQ on its brand new virtual currency guidelines.

Kim Lachance Shandrow

Former West Coast Editor

Kim Lachance Shandrow is the former West Coast editor at Entrepreneur.com. Previously, she was a commerce columnist at Los Angeles CityBeat, a news producer at MSNBC and KNBC in Los Angeles and a frequent contributor to the Los Angeles Times. She has also written for Government Technology magazine, LA Yoga magazine, the Lowell Sun newspaper, HealthCentral.com, PsychCentral.com and the former U.S. Surgeon General, Dr. C. Everett Coop. Follow her on Twitter at @Lashandrow. You can also follow her on Facebook here

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Thought Leaders

Cultural Fit Can Make or Break an M&A Deal

One of the most critical components for success -- cultural fit -- often falls by the wayside.

Marketing

Ad Fatigue is Real — Why Trust and Influencers Are Shaping the Future of Cybersecurity Marketing

With the rapid evolution of cyber threats, businesses are becoming increasingly careful when choosing cybersecurity providers. Therefore, cybersecurity companies must center their marketing strategies around trust, not ads.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business Solutions

Go Paperless with the PDF Reader Pro for $49.99

Your business's digital future starts today.

Science & Technology

How AI-Driven Personalization Is Transforming the Retail Industry and Enhancing Customer Experiences

AI will be one of the driving forces behind maximizing personalization and changing the face of retail as we know it today.

Side Hustle

This 20-Year-Old Student Started a Side Hustle With $400 — and It Earned $150,000 Over the Summer

Jacob Shaidle launched his barbecue cleaning business Shaidle Cleaning in 2021 when he was just 15.