USA

TurboTax tax tips for bitcoin and virtual currency

Purse filled with coins

Virtual currency like Bitcoin has shifted into the public eye in recent years. Some employees are paid with Bitcoin, more than a few retailers accept Bitcoin as payment, and others hold the e-currency as a capital asset. Recently, the Internal Revenue Service (IRS) clarified the tax treatment of virtual currency transactions. Bitcoin is the most widely circulated digital currency or e-currency. It's called a convertible virtual currency because it has an equivalent value in real currency.

The sale or exchange of a convertible virtual currency—including its use to pay for goods or services—has tax implications. The IRS answered some common questions about the tax treatment of virtual currency transactions in its recent IRS Revenue Ruling 2019-24 and it Frequently Asked Questions article. Tax treatment depends on how a virtual currency is held and used. Below are some tips using Bitcoin as an example:

Bitcoin used to pay for goods and services taxed as income

If you are an employer paying with Bitcoin, you must report employee earnings to the IRS on W-2 forms.

Employees must report their total W-2 wages in dollars, even if earned as Bitcoin. Self-employed individuals with Bitcoin gains or losses from sales transactions also must convert the virtual currency to dollars as of the day received, and report the figures on their tax returns.

Bitcoins held as capital assets are taxed as property

If Bitcoin is held as a capital asset, you must treat them as property for tax purposes. General tax principles applicable to property transactions apply. Like stocks or bonds, any gain or loss from the sale or exchange of the asset is taxed as a capital gain or loss. Otherwise, the investor realizes ordinary gain or loss on an exchange.

Bitcoin miners must report receipt of the virtual currency as income

Some people "mine" Bitcoin by using computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger.

According to the IRS, when a taxpayer successfully “mines” Bitcoin and has earnings from that activity whether in the form of Bitcoin or any other form, he or she must include it in his gross income after determining the fair market dollar value of the virtual currency as of the day you received it. If a bitcoin miner is self-employed, his or her gross earnings minus allowable tax deductions are also subject to the self-employment tax.

For more tax tips in 5 minutes or less, subscribe to the Turbo Tips podcast on Apple Podcasts, Spotify and iHeartRadio

Brought to you by TurboTax.com 

Football news:

Flick on Bayern's Interest in Kramaric: I know him well, but I haven't heard anything about it
We have three clubs in this group stage of the Champions League. How did campaigns with two end up?
Solskjaer on transfers: No news. Working with what we have, Manchester United have a big squad
Guardiola confirmed that Zinchenko will stay at Manchester City
Bayern won 5 trophies in a year. To repeat the record Barca need to take another
Flick took 5 trophies with Bayern after 40 matches
Marcel: Alvaro Gonzalez is not a racist. Any accusations against him are unfair and unfounded