Stephen Fishman for Inman News writes: The IRS has issued its first official guidance on how bitcoin and other digital currencies that are convertible into dollars or other real currencies on exchanges should be treated for tax purposes.
The upshot is that, no matter what bitcoin’s creators and promoters may say, as far as the IRS is concerned, bitcoin is not money or currency. The IRS will treat bitcoin holdings much like corporate stock or other property (IRS Notice 2014-21).
Bitcoin are created by a digital “mining” process and is not backed or regulated by any government, central bank, or other legal entity. Some claim this makes bitcoin safer than traditional currency because its value can’t be manipulated by central banks or governments.
Bitcoin can also be directly transferred anonymously across the Internet. This can make the bitcoin a cheap way to settle international transactions because there are no bank charges to pay or exchange rates to deal with.
No one has to accept bitcoin as money. Nevertheless, a growing number of merchants have are accepting them. In fact, the Manhattan real estate broker Bond New York recently announced that it would start accepting payments in bitcoin.
Meanwhile, people buy and sell bitcoin for dollars on online exchanges — much like gold.
The dollar value of bitcoin is not fixed by a bank or anybody else and can fluctuate wildly on the online exchanges.
Keeping track of all the gains and losses you incur whenever you use bitcoin could be real headache."
Bitcoin transactions are taxable and must be reported to the IRS
The IRS says that, if a taxpayer receives bitcoin as payment for goods or services, he or she must include its fair market value — measured in U.S. dollars — in income and pay tax on it. Such payments are also subject to the same information reporting rules as cash. [snip]. The article continues @ Inman.com, click here to continue reading.
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