But just to let the world know that I'm ready to file returns reflecting transactions denominated in bitcoins, my topic for today is virtual currency.
The official guidance issued by the IRS earlier this week (IR-2014-36) on the subject was exactly what I had expected:
- The virtual currency is treated as property for US federal tax purposes.
- General tax principles that apply to property transactions apply to transactions using virtual currency.
- Wages paid to employees using virtual currency are taxagble to the employee, must be reported on form W-2 and are subject to income tax withholding and payroll taxes.
- Payments using virtual currency to independent contractors and other service providers are taxable and general self employment tax rules apply.
- The character of gain or loss form the sale or eschange of virtual currency depends on the status of the virtual currency in the hands of the taxpayer is a capital asset (or not).
- Payments made with virtual currency are subject to information reporting to the same just like any other payment in property.
- Transactions using virtual currency are to be reported in US dollars.
- Taxpayers are to determine the dollar value of their virtual currency in a reasonable manner consistently applied.
- Virtual currency "mined" is includible in a taxpayer's gross income.
- Virtual currency is not treated as a foreign currency that could generate foreign currency gain of loss for US tax purposes.
Other than the fact that this is pretty obvious to anyone that has studied or worked with our tax laws for more than a day or two, these points are a nice top-level summary of general income tax law applicable to most business transactions and to most individual taxpayers.
Notice 2014-36 didn't indicate one way or the other whether the IRS will accept virtual currency in payment of federal taxes. I guess that's such a dumb question, they just didn't want to go there...
- Mark S Gleason CPA
www.lakes-cpa.com
Very interesting.
ReplyDeletethanks for sharing.
ReplyDelete