Crypto Currency Tax Matters

If you’ve hopped onto the cryptocurrency train, you should be aware that the IRS is all over this.

So, if you’re paying employees in Bitcoin (or alts), you must report it on a W-2 and withhold just like dollars (except you have to withhold in dollars).

Investments in crypto are treated as property and when sold, you will have a capital gain or loss, also reportable on your tax return.

Any earnings in crypto must be counted as ordinary income based on “the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.”

And, remember the IRS takes only U.S. dollars, not Bitcoin.

https://www.irs.gov/irb/2014-16_IRB#NOT-2014-21

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About JeffKoeppel

I am a corporate/securities attorney in the Washington, DC area. Prior to joining the firm, I was a Senior Attorney Advisor in the Division of Corporation Finance at the U.S. Securities and Exchange Commission. I am a member of the Bars of the States of Maryland, New York and the District of Columbia. You can also follow this blog on LinkedIn at: http://www.linkedin.com/pub/jeffrey-a-koeppel/0/63/5a9
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