Archive | Internal Revenue Service

Bitcoin: IRS says, “It’s property, and it’s taxable!”

A lot of people are still trying to figure out just what Bitcoin is, but the IRS has seen enough to decide: It’s a type of property and not a form of currency.

So what, you say? Here’s what: Because, as The New York Times has reported, the IRS is going to treat Bitcoin as property, people who buy and sell it are going to have to calculate the change in value from when they acquired it, and pay tax (or claim losses) on the difference.

That means you could buy Bitcoin, use it to purchase something, and then have to report a “trade” on the change in Bitcoin value between when you bought it and when you used it.

Oh, and if you’re one of those smart guys or gals who can actually electronically “mine” a Bitcoin, you are going to have to report the market value of the Bitcoin as income.

For Michael Jackson estate, $1B disagreement with IRS is no thriller

There’s the average person’s disagreement with the IRS over a tax bill. And then there’s the estate of Michael Jackson.

The executors of Jackson’s estate pegged his net worth at $7 million. But papers filed with the U.S. Tax Court in Washington, DC, show that the IRS believes his estate is worth $1.125 billion, which is, as The Los Angeles Times so nicely put it, “a difference so vast it looks like a typo.” (10 free articles and then a paywall.)

At that level, the estate would owe more than $500 million in taxes, plus another $200 million in interest and penalties. Among the areas of dispute: The IRS says Jackson’s image & likeness are worth about $434 million; the estate filing put the value at…$2,105.

Inheritance tax disputes are often settled before trial, but I’d like to see this case go to court, if for no other reason than that the testimony, and eventual ruling, is bound to be fascinating.

Estate tax not a problem for the billionaire Walton family

Estate Tax? What Estate Tax?

I got a call this week from a client who was worried about having to pay federal estate taxes. She doesn’t have an issue (or rather, her heirs should not have an issue), since her total net worth is well under $5.25 million.

But in some cases, people who are worth way more than $5.25 million–who, in fact, are worth billions–also might not have an estate tax issue. As Zachary Mider details on Bloomberg.com, the ultra-wealthy can use a variety of trusts and planning strategies, some employed over decades, to minimize any estate tax hits.

The Waltons of Wal-Mart fortune are not alone in successfully minimizing any exposure to estate taxes, by the way. Lawrence Summers, the economist and frequently-mentioned prospective Bigfoot White House appointee, estimates in a column for Reuters that the overall tax rate on inheritances annually is only about 1%.

The next time you hear Congressional posturing about taxes, remember: the effective taxes on accumulated wealth (unlike the effective taxes on wages and other earned income) are lower today than they’ve been in decades. A Congress that was serious about making the tax code more equitable could start by closing some of the bigger legal loopholes that are at the core of a broken-down estate tax system.