Everytime bitcoin is traded, there are tax consequences. Learn how bitcoins are taxed, and get tips from accountants who specialize in digital currency. Sign in a merchant’s window reads, “Bitcoin accepted here. Everytime you use bitcoin to purchase stuff, such as at this place in Bitcoin tax, Ore.
Whenever bitcoin is bought, sold, or traded, there are tax impacts. We’ll discuss how bitcoins and other forms of virtual currency are taxed, and point out record keeping requirements and tax planning techniques that can be utilized. At the end you’ll find resources for continuing your own research. Incomplete records might as well be no records. Why is record keeping such an important topic? Maintaining records is essential for accurately measuring bitcoin-related income.
When it comes to taxes, the Internal Revenue Service has ruled that bitcoins and other “convertible virtual currencies” are “treated as property” and not treated as currency. Keeping detailed records of transactions in virtual currency ensures that income is measured accurately. What is Virtual Currency from a Tax Perspective? Virtual currency “does not have legal tender status in any jurisdiction. Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as ‘convertible’ virtual currency.
Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U. Euros, and other real or virtual currencies. For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.