Bitcoin, the largely popular digital currency, is steadily gaining more acceptance and legitimacy. Does that mean that we will soon abandon our wallets and credit cards in favor of it? It is hard to predict, but one thing is certain. There is a great deal of hype surrounding bitcoin.
During 2013, its value rose from 13.50 USD to around 650 USD. In November, it touched an all-time high of 1,200 USD. The US dollar, on the other hand, gained only about 0.5 percent over the year. Currency speculators and early adopters aren’t the only people watching the growth of bitcoin. Tax authorities, banking institutions, and regulators are also interested in it. They all ask one question: who is going to regulate it?
Wells Fargo convened a bitcoin summit in January. It was attended by US government officials, finance experts, and virtual currency experts. The purpose of this summit was to discuss concerns that bitcoin might lead to tax evasion and money laundering. IRS has also expressed concerns over the tax compliance risks raised by virtual currencies like bitcoin.
The most important question about taxes on transactions using bitcoin is whether the currency should be considered as a capital asset, just like commodities or stocks. In that case, it will be subject to capital gains taxes that can be as high as 24%. If it is treated as a fiat currency like euros, dollars, or yen; the gains will be taxed like income.
Fiat currency is legal tender. Bitcoin is not supposed to replace fiat currency. It is developed for use in ecommerce transactions. However, recently, there were reports that the currency was used to purchase a Tesla sports car from a dealer in California. Moreover, companies like Zynga, Overstock.com, and Virgin Galactic have announced that they will take payment in bitcoins.
Right now many questions about bitcoin don’t have answers. However, the growing popularity of it can no longer be ignored. Bitcoin is being widely accepted by people all over the world. It might soon become the most accepted digital currency for the entire world. The most important question right now is – are you bitcoin ready?