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Did the IRS Just Kill Bitcoin?

Bitcoin has been hugely controversial, with the recent bankruptcy of Bitcoin exchange Mt. Gox raising concerns about the cyber-currency. But guidance earlier this week from the IRS could have an even bigger effect by imposing obligations on Bitcoin users that could be extremely onerous.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through the IRS Bitcoin regulations, noting that the basic idea is that the IRS will treat Bitcoin as property rather than currency. Dan runs through the implications, noting that technically, any transaction involving Bitcoin will create capital gains or losses, and those who mine Bitcoin will have self-employment income on which they'll have to pay payroll taxes like Social Security and Medicare taxes. Moreover, Dan notes that various reporting and withholding obligations will also apply, ranging from payroll-tax withholding for wages to backup withholding and information reporting for other transactions. Dan concludes that with so many people using Bitcoin to avoid exactly this type of bureaucracy, it'll be interesting to see how well the IRS plans to enforce these rules.

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  • Report this Comment On March 30, 2014, at 12:26 PM, MotleyBurger wrote:

    Price is dropping because of weak hands bailing due to bad news in China. Its a "cleansing" process, and will only be good for Bitcoin long term. Cleaning out the speculators who have no faith in the incredible decentralized currency platform, while simultaneously the far more intelligent in Wall Street, SecondMarket, Pantera, and numerous other big players dive in at significantly discounted prices. This may be one of the last opportunities to get cheap Bitcoins.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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