Assets, Bitcoin

Do I Have to Report Bitcoin on My Taxes?

Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.

Bitcoin is unique in that there are a finite number of them: 21 million.

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.

As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.

NOTE: WARNING: Failure to report Bitcoin on your taxes could result in significant financial penalties. Depending on the jurisdiction in which you reside, you may be required to pay taxes on any income derived from Bitcoin transactions. Additionally, capital gains from the sale of Bitcoin may be subject to taxation. It is important that you seek professional advice on your particular tax situation prior to filing any returns.

The Internal Revenue Service (IRS) has not yet issued guidance on how to report taxes on bitcoins. However, the IRS did issue a notice in March 2014 stating that virtual currencies, including bitcoins, are property for federal tax purposes.

This means that bitcoins are subject to capital gains tax.

If you have sold bitcoins, you will need to report the sale on your taxes. The amount of the gain or loss will be determined by the difference between the price you paid for the bitcoins and the price you sold them for.

If you have mined bitcoins, you will need to report the income on your taxes. The amount of the income will be determined by the value of the bitcoins at the time they were mined.

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