Bitcoin, a form of cryptocurrency, is a currency and payment system without the typical banking infrastructure behind it. Where standard currencies have a bank or governing body behind them, cryptocurrencies do not. Its value is determined on market value and a changing exchange rate relative to the U.S. dollar.
Bitcoin, and other cryptocurrencies, often operate like normal currency does. You can purchase items with it, pay individuals and companies for their services, and gift it to individuals. As it pertains to your tax information, however, it acts as a capital asset.
Capital assets, in essence, are treated as property in the eyes of the Internal Revenue Service, and thus taxes are assessed differently than they would be upon regular currency. The IRS does a great job detailing 10 basic facts about capital assets on its webpage.
Transactions with bitcoin, and other cryptocurrencies, must be reported to the IRS come tax time, just as if you were to buy and sell a house, car, et cetera.
We’d be happy to help you with a more in depth approach pertaining to your crypto and your taxes, feel free to schedule a meeting with Tom.