Utility Studies

Rise Of Virtual Currency – How Is This Taxed By the Government


Known as ‘bitcoin’, virtual currency has been around for some time. As it grows more popular, certain questions about its taxation also arise.

Two decades ago, no one would have imagined how technology would advance. Not only are individuals now dependent on social media networks for a number of things, the use of digital technology is now becoming increasingly popular. From jobs to communication, our lives are now interconnected to the digital world.

Virtual Currency

In simple terms, virtual currency refers to money that takes a digital form. Unlike money that is made using paper in real life, virtual currency is not tangible. But it has its own value, depending on the type of currency it is.  Bitcoin is one such example.

A person can obtain virtual currency by exchanging conventional money. They have to pay a certain fee in order to obtain it. They can also obtain it by becoming a virtual ‘miner’. But his requires a powerful computer processor.

Virtual currency that acts as substitute for conventional money is referred to as “convertible virtual currency”. The only downside to this currency is that, despite being equal to real money, it does not hold the same legal tender status in the U.S.

The IRS does consider it as a currency but instead as property.

The IRS Guidance

It is explained in Notice 2014-21 that virtual currency will be treated as property. The transactions made using virtual currency will be reported in U.S. dollars for taxation purposes. Taxpayers have to identify and determine the fair market value of the currency, and if it is listed on an exchange, then it must be determined by having it converted to U.S. dollars.

Virtual currency, however, is still a new development so its legal status is still being considered. While businesses and individuals are required to report transactions, the TIGTA has recommended that the IRS revised and re-update the virtual currency guidelines.

The IRS has agreed with the recommendations but has not spoken of a specific time the guidelines will be updated. As virtual currency is still fairly new, there is a lot to be discussed before it acquires any kind of legal status.

Talk with Enguard  to learn more about virtual currency and bitcoins! Our utility sales tax consultants can help you learn more about your legal tax rights in Indiana!

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