Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.
Virtual currency does not have legal tender status in any jurisdiction. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, fiat or other virtual currencies.
The adoption of bitcoin may carry numerous tax implications, among them are: Revenue recognitions, The characterization of profit and losses for tax purposes, The applicability of barter transaction rules, Basis tracking and hedging considerations. Legitimate businesses who want to comply with the rules and do not want to be associated with tax evaders or criminal enterprises have urged the government to issue clear rules about the tax consequences of digital currency transactions.
The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability.
This guidance applies to individuals and businesses that use virtual currencies. Tax treatment depends on how Bitcoins are held and used. If you are dealing with any virtual currency, here are few things you should understand about the payment of Tax: This means that bitcoin is subject to the general principles of taxation that apply to all types of property.
There are no special rules or treatment for virtual currencies. No inference should be drawn with respect to virtual currencies not as described above.
Here are some more factors to be considered on the exchange of bitcoin: Cost basis is the original value of an asset for tax purposes, and is usually equal to the purchase price of the property given up in a transaction. The preferred system by the IRS is to assume that the bitcoins are sold in the order they were acquired.
Thus, the first bitcoin purchased is assumed to be first bitcoin sold.