The IRS announced (Notice 2014-21) that virtual currency, such as Bitcoin, is treated as property for federal tax purposes.
Accordingly, a taxpayer receiving virtual currency as payment for goods or services must, in calculating gross income, include the fair market value of the virtual currency, as measured in U.S. dollars as of the date the virtual currency was received. The taxpayer must also calculate the basis of the virtual currency as the fair market value in U.S. dollars as of the date of the receipt.
If the fair market value of property received in exchange for virtual currency exceeds the taxpayer's adjusted basis in the virtual currency, the taxpayer incurs taxable gain. The character of the gain depends on the character of the virtual currency in the hands of the taxpayer — either ordinary or capital.
Virtual currency received by an independent contractor for services rendered constitutes self-employment income, subject to self-employment tax. Payments made using virtual currency are also subject to information reporting to the same extent as any other payment made in property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
