Many retailers and online businesses now accept virtual currency for
sales transactions, but the federal tax implications were relatively
unknown until recently when the IRS issued a set of FAQs on virtual
currency such as bitcoins. The FAQs provide basic information about the
use, virtual currency. Here's what you need to know.
Sometimes, virtual currency such as bitcoins operate like "real"
currency--i.e., the coin and paper money of the United States or of any
other country that is designated as legal tender, circulates, and is
customarily used and accepted as a medium of exchange in the country of
But bitcoins do not have legal tender status in any jurisdiction. If
you've been paid in virtual currency, you should be aware that virtual
currency is treated as property for
words, general tax principles that apply to property transactions also
apply to transactions using virtual currency. Among other things, this
Wages paid to employees using virtual currency are taxable to the
employee, must be reported by an employer on a Form W-2, and are
subject to federal income tax withholding and payroll taxes.
Payments using virtual currency made to independent contractors and
other service providers are taxable and self-employment tax rules
generally apply. Normally, payers must issue Form 1099.
The character of gain or loss from the sale or exchange of virtual
currency depends on whether the virtual currency is a capital asset in
the hands of the taxpayer.
A payment made using virtual currency is subject to information
reporting to the same extent as any other payment made in property.
If you're a business or individual that deals in virtual currency such
as bitcoins, don't hesitate to call us.
Barry Eisenberg, SCORE Counselor
Visit us at: www.scoresouthflorida.net