Bitcoin + Tax
Virtual currency, though not new, has increased in popularity over the recent years. For this reason, some are seeking guidance around its tax consequences.
Virtual currency also known as crypto-currency or virtual money, is a digital representation of currency. In some environments, this currency may be converted to ''real'' currency and used to purchase goods and services or may be acquired solely for investment purposes.
Bitcoin, the most noted virtual currency may be purchased for, or exchanged into, U.S. dollars, Euros and other real or virtual currencies. For U.S. federal tax purposes, transactions that take place using this medium may result in tax liability.
The Internal Revenue Service (IRS) treats virtual currency as property. Here are a few things to consider this tax season:
- If you received virtual currency as a payment for goods or services, you must use fair market value (FMV) measured in U.S. dollars as of the date the transaction(s) occurred.
- Taxpayers may be subject to gain or loss upon the exchange of the virtual currency IF the fair market value is less than or exceeds the adjusted basis.
- If you issued payment of $600 or more using virtual currency, within the tax year, to an independent contractor engaging in trade or business. These payments are required to be reported using FMV as of the date of the transaction(s) on form 1099-MISC.
- If you are an employer who paid employment wages using virtual currency federal tax withholdings, federal insurance contributions, federal unemployment tax MUST be reported on form W-2 using the FMV as of the date of the transaction(s).
For more help navigating federal tax implications of virtual currency reach out to VIA, we are happy to help!