As reported today by Rob Wile, the Internal Revenue Service has ruled that Bitcoin and any other virtual currency are treated as property, not currency. What exactly is Bitcoin? Quite simply, digital coins that can be sent through the internet, person to person with no bank or clearinghouse involved. This short video provides a quick overview.
What does this mean for users? Every transaction ever made using the digital currency will have to be reported in some way. Here are a few of the nuances:
- Anyone who holds the currency will need to calculate its value from the date it was received to determine whether a gain or loss was realized, and then report the result.
- If any Bitcoin mining has been done, the fair market value of the virtual currency as of the date of receipt is includible in gross income.
- If you pay anyone in Bitcoin, you must file a W-2.
The good news – the ruling may not stand forever as it also included a request for public comments. Hopefully, our esteemed tax professionals will identify the many issues created by this ruling as well as proposed solutions. As we all know, it takes years for formal regulations to be enacted so there is time to perhaps “reshape” the tax treatment of this new money concept.
Read the entire article featured in Business Insider here.
As always, digital progress comes with a price tag and in this case, some interesting and far-reaching tax implications based on the current IRS ruling.
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