IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply
WASHINGTON — a few years back The Internal Revenue Service put out a notice providing guide to FAQs on virtual currency, such as bitcoin. They were intended to offer basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.
Bitcoin, and other cryptocurrencies operate like “fiat” currency — but it does not have legal tender status in any jurisdiction. Which simply means that there are no laws enforcing the acceptance of Bitcoins in any jurisdiction. United States, Canada, China or otherwise. Bitcoin is, however, customarily used and accepted as a medium of exchange all over the world, by those individuals and businesses that choose to make use of its utility.
The IRS notice designates 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.
These are some of the following effects:
- 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.
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