I.R.S. Virtual Currencies Guidance
Bitcoin Attorneys Knowledgeable in Crypto Currency Taxation Issues
On March 25, 2014 The Internal Revenue Service issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.
Bitcoin attorney, Adam S. Tracy , J.D., M.B.A. is an authority in the law of blockchain and taxation. Contact us at 1.888.978.9901 or get in touch with us online if you are in need for help in any aspect cryptocurrencies related prosecution.
In some environments, virtual currency operates 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 issuance — but it does not have legal tender status in any jurisdiction.
The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:
- 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.
The I.R.S. Notice 2014-21 provides more data regarding this important rule. Please note, this is a serious issue: “Taxpayers may be subject to penalties for failure to comply with tax laws. For example, underpayments attributable to virtual currency transactions may be subject to penalties, such as accuracy-related penalties under section 6662.”
What does that mean. For example:
Miners that produce their own bitcoins are now subject to two different tax charges. They must include the fair market value of the virtual currency on the day that it is mined into their gross income
Investors must measure the fair market value on that day as the basis for capital gains realization when they eventually sell the coins.
If you feel you need a tax advice, it is best sought directly from a qualified professional. Adam S. Tracy is an authority in the law of blockchain and its taxation applications. Do not hesitate and call The Tracy Firm, Ltd., at 1.888.978.9901 today.
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