Kent McDill for Millionaire Corner writes: In March of 2014, the Internal Revenue Service made a decision regarding bitcoins,
and that decision will affect the tax returns of anyone who sold a
bitcoin or paid for something using the new virtual currency.
“Currency’’,
in this case, is a controversial word because the IRS decided that
virtual currency like bitcoins is not, in fact, a currency, but instead
is property and is treated that way for tax considerations.
What
that means from a tax standpoint is that any exchange of bitcoins from
buyer to seller is subject to the same tax considerations of property,
and the main tax consideration is capital gains.
The good news for
bitcoins users is that the value of bitcoins plummeted in 2014, and it
is likely the value paid for the bitcoin was higher than the value it
had when it was sold or used for a purchase. The bad news is the bitcoin
owner has to prove it.
Starting from the beginning, bitcoins are,
according to the IRS, “a digital representation of value that functions
as a medium of exchange, a unit of account and/or a store of value.”
Their value is determined in a similar way to the way company stock is
valued, and as such, the value changes many times every day.
The
IRS looks at bitcoins just as they do company stock, and Americans are
taxed (for capital gains) on the positive difference between what is
paid for the property and what is received back when the property is
sold. In the case of bitcoins, “sold’’ includes “used in transaction” as
many companies now accept bitcoins for purchase.[snip]/ The article continues @ Millionaire Corner, click here to continue reading....
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