Bitcoin and other virtual currencies are becoming more popular by the day. Retailers such as Overstock.com are now accepting bitcoin as payment. As of the end of 2013 it is estimated that over one million people owned bitcoins.
In March of this year, the IRS issued Notice 2014-21 which addresses the tax consequences of Bitcoin and other virtual currencies.
These currencies will now be treated as property for tax purposes. Generally you will have gain or loss when you exchange of virtual currency for other property. If the fair market value of property that your receive in exchange for virtual currency exceeds your basis, you have a taxable gain. You have a loss if the fair market value of the property received is less than your basis in the virtual currency.
If you take bitcoin or any other virtual currency in the ordinary course of business, you must include in your gross income, the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.
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- Doherty & Associates Team