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The taxable event occurs because the IRS sees crypto as property rather than a currency. Let's say you buy $100 worth of Bitcoin in the past. Now the value of y

The taxable event occurs because the IRS sees crypto as property rather than a currency. Let's say you buy $100 worth of Bitcoin in the past. Now the value of your coins is $120. If you decide to send $5 worth of bitcoin as payment for something, they consider that a taxable event. You sold X amount of bitcoin, which appreciated 20% value from when you bought it. That X amount was worth $4, now it is worth $5, so you would owe a tiny amount in capital gains tax on $1 you gained. Edit: This exact same scenario happens for Foreign Exchange, but the government excludes most transactions under a certain amount because it's too complicated for travelers. Also, the rate of USD to EURO doesn't fluctuate as wildly as crypto can, so the gains are minimal anyways.

ignoramous 6y ago
Dollar-tethered cryptos are then a better deal for a "crypto card", I guess?
- hansvm 6y ago
  They'd potentially reduce the tax burden but still require a ton of paperwork.
dmurray 6y ago
> The taxable event occurs because the IRS sees crypto as property rather than a currency. The IRS doesn't make the tax law. How cryptocurrency transactions get taxed is a matter for legislatures and the courts. Obviously, not everyone has the resources to fight the IRS, and your life will go much easier if your interpretation of the tax code matches that of the IRS. But the way you explain it here puts the cart before the horse.
- runako 6y ago
  > rather than a currency IANAL but tax is also levied on fiat currencies where similar profit/loss occurs. In that sense, the IRS is treating crypto like it treats other currencies. Congress addressed this in 1986, the IRS is just administering duly enacted tax law: http://www.law.cornell.edu/uscode/text/26/988 http://www.law.cornell.edu/uscode/text/26/988
- BitwiseFool 6y ago
  The IRS issues guidance on crypto currency, here's an example from 2014: https://www.irs.gov/pub/irs-drop/n-14-21.pdf https://www.irs.gov/pub/irs-drop/n-14-21.pdf "In Notice 2014-21, the IRS applied general principles of tax law to determine that virtual currency is property for federal tax purposes" Here's the current page about IRS policy on crypto: https://www.irs.gov/newsroom/virtual-currency-irs-issues-additional-guidance-on-tax-treatment-and-reminds-taxpayers-of-reporting-obligations https://www.irs.gov/newsroom/virtual-currency-irs-issues-add... IRS guidance aren't laws but they detail how the IRS is going to treat tax collection based on current law. At some point in the future Congress may classify crypto currencies as actual currencies such as the Yen, Euro, etc. at which point the tax laws about currency exchange would apply instead of capital gains on property.
- ska 6y ago
  The IRS doesn't make the tax law, true, but they are behaving consistently with the relevant laws; putting "currency" in the name of something doesn't define it as a currency. Legislative action could of course change this, but until then you are probably tilting at windmills.
- JumpCrisscross 6y ago
  > The IRS doesn't make the tax law It very literally does. Agency rules are delegated law [1]. Congress delegates rule making authority to the agencies within certain boundaries. Those rules have the force of law. [1] https://en.m.wikipedia.org/wiki/United_States_administrative_law https://en.m.wikipedia.org/wiki/United_States_administrative...

ignoramous 6y ago

Dollar-tethered cryptos are then a better deal for a "crypto card", I guess?

hansvm 6y ago
They'd potentially reduce the tax burden but still require a ton of paperwork.

dmurray 6y ago

> The taxable event occurs because the IRS sees crypto as property rather than a currency. The IRS doesn't make the tax law. How cryptocurrency transactions get taxed is a matter for legislatures and the courts. Obviously, not everyone has the resources to fight the IRS, and your life will go much easier if your interpretation of the tax code matches that of the IRS. But the way you explain it here puts the cart before the horse.

runako 6y ago
> rather than a currency IANAL but tax is also levied on fiat currencies where similar profit/loss occurs. In that sense, the IRS is treating crypto like it treats other currencies. Congress addressed this in 1986, the IRS is just administering duly enacted tax law: http://www.law.cornell.edu/uscode/text/26/988 http://www.law.cornell.edu/uscode/text/26/988
BitwiseFool 6y ago
The IRS issues guidance on crypto currency, here's an example from 2014: https://www.irs.gov/pub/irs-drop/n-14-21.pdf https://www.irs.gov/pub/irs-drop/n-14-21.pdf "In Notice 2014-21, the IRS applied general principles of tax law to determine that virtual currency is property for federal tax purposes" Here's the current page about IRS policy on crypto: https://www.irs.gov/newsroom/virtual-currency-irs-issues-additional-guidance-on-tax-treatment-and-reminds-taxpayers-of-reporting-obligations https://www.irs.gov/newsroom/virtual-currency-irs-issues-add... IRS guidance aren't laws but they detail how the IRS is going to treat tax collection based on current law. At some point in the future Congress may classify crypto currencies as actual currencies such as the Yen, Euro, etc. at which point the tax laws about currency exchange would apply instead of capital gains on property.
ska 6y ago
The IRS doesn't make the tax law, true, but they are behaving consistently with the relevant laws; putting "currency" in the name of something doesn't define it as a currency. Legislative action could of course change this, but until then you are probably tilting at windmills.
JumpCrisscross 6y ago
> The IRS doesn't make the tax law It very literally does. Agency rules are delegated law [1]. Congress delegates rule making authority to the agencies within certain boundaries. Those rules have the force of law. [1] https://en.m.wikipedia.org/wiki/United_States_administrative_law https://en.m.wikipedia.org/wiki/United_States_administrative...