If cryptocurrency were merely a passing fad, it wouldn't be a featured topic of a recent international payment-industry convention. Cryptocurrency, also called digital currency, is growing in value overall and increasing in flexibility thanks to clearer tax rules and record-keeping guidelines.
The IRS does recognize the new form of compensation, while digital coin payment rules vary and are changing in other nations around the world. Here's what you should know:
Digital Currency isn't really currency, according to the IRS.
The IRS considers cryptocurrency to be property rather than currency. If you're paid in Bitcoin, one type of cryptocurrency, you must report its value as part of your gross income. The value by IRS definition would be the fair market value on the day you received it as compensation for goods or services.
If your cryptocurrency increases in value, you must pay capital gains taxes on the profit. In fact, every time you pay for anything with digital currency, you must keep a record of the transaction for tax purposes. Clearly, cryptocurrency is a complicated payment method in the US.
Expect new apps and advances in managing cryptocurrency.
As with any new technology, digital coin is going through an awkward growing period, which is why it is so complicated. Each nation is handling Bitcoin in its own manner, with some treating digital currency as actual currency while others, like the US, considering it property. Still other nations aren't quite sure how to manage digital coin payments or taxes.
Fortunately, researchers are working on ways to help users of the new payment methods. One app tracks payments from several different platforms or "wallets" so that record-keeping for IRS tax purposes is almost effortless. Look for more innovations to facilitate digital currency payment methods and accounting.
Pay attention to changes before committing to any cryptocurrency expansion.
If you're interested in setting up a large-scale cryptocurrency mining or holding operation, it may be worth it to wait and see how various US state legislatures and non-US governments end up handling the transfer of and the taxes on currencies such as Bitcoin.
States like New Jersey are proposing interesting digital currency legislation that would, among other things, provide tax incentives for cryptocurrency businesses that set up shop in New Jersey and create jobs. Similar incentives may pop up around the globe, making it easier and more lucrative to locate a digital currency business in those locations. Just be certain before investing that any state laws or foreign rules aren't in conflict with IRS requirements.
To stay current and informed on all tax-related news and legislation as it relates to your business concerns, contact a tax attorney like LaSpada, Anthony J. PA today.