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IRS Guidance Qualifies Bitcoin for Capital Gains

By: T. Steel Rose, CPA |  Bitcoin will be treated a property according to guidance issued by the IRS March 25th. See www.bitcoin4biz.com for full release and FAQs. Bitcoin has grown in popularity across a broad spectrum of users over the last five years. First there were the technology-savvy cryptologists, who see digital currencies as a platform for open finance the same way the Internet has democratized communication. Next were the investors and speculators, like the Winklevoss twins who believe in the future of digital currencies, and have filed with the SEC to provide a bitcoin fund for investors.

At a U.S Senate hearing in November 2013 virtual currencies were described as “a legitimate financial service with the same benefits and risks as other online payment systems”. Then tech-savvy businesses recognized the potential of bitcoin payments and the publicity that comes along with adopting new payments technology.

“It wasn’t just the number of people who wanted to use bitcoin, it was the number of people that became interested in our hotel,” said Susan Hitch, CFO of The D Casino Hotel in Las Vegas, in an announcement.

The most interesting group is the growing number of small businesses using bitcoin. They are able to reduce the cost using traditional payment processing options. Domestic credit card fees of 3% can be reduced to less than 1%, with larger savings for international remittances. Additionally, greater international reach can be achieved as certain payment processors may not be accessible in certain locations. PayPal, for example, is not available in over 25 countries including Ghana, Iran, Montenegro, Pakistan and Paraguay.

CPA Magazine believes that CPAs, as the most trusted business advisors, need to have the correct information to provide to their clients concerning bitcoin and other advanced payment technologies. See www.aicpa.org for video comments by AICPA CEO Barry Melanson concerning bitcoin.

One thing is certain; credit card transaction fees that were never built for the Internet will have to become more efficient. The genie is out of the bottle. There are too many examples of businesses that believe in the power of digital currencies. Both of the major bitcoin payment processors claim 26,000 merchants respectively accept bitcoin on their systems. See here (http://bitpay.com/) directory for a list of companies using bitcoin.

Whether or not digital currencies reach mainstream adoption may depend on how regulators and politicians react to them, but more efficient payment systems, especially for the Internet will never be the same.

 

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