Assets, Bitcoin

How Is Bitcoin Taxed IRS?

Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed 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: This note is to alert all Bitcoin users about the taxation of Bitcoin as per the IRS regulations. All Bitcoin transactions are taxable and must be reported to the Internal Revenue Service (IRS). It is important to keep track of your gains and losses from all your trades, as this could affect your tax liability. Failure to report any income from Bitcoin transactions may result in severe penalties from the IRS.

Bitcoin can be purchased through a digital marketplace, where users can buy and sell bitcoins using different fiat currencies, or through mining. Mining is a process where computers solve complex math problems to verify transactions and add new blocks to the blockchain.

The reward for solving these math problems is newly minted bitcoins.

The IRS has issued guidance on how it will treat bitcoin and other digital currencies for tax purposes. The guidance provides that virtual currency is treated as property for federal tax purposes.

This means that gains or losses from the sale or exchange of virtual currency are subject to capital gains taxes.

The IRS has also said that it will treat miners of bitcoin as taxpayers who are engaged in business activity, subject to self-employment taxes.

Previous ArticleNext Article