Bitcoin tax issues, accounting and bitcoin inheritance
Bitcoin is one of many “virtual currencies” out there. With its recent rise in popularity it is becoming increasingly more common, however, there are some tax issues that you should be aware of if you are considering purchasing or mining bitcoins:
What happens when I sell bitcoins or when I die and my children inherit my bitcoins?
The CFO’s Guide to Bitcoin, Part 2: Taxes and Accountinghttp://findaccountingsoftware.com/expert-advice/the-cfos-guide-to-bitcoin-part-2-taxes-and-accounting/These questions don’t always seem to have easy answers. But recent government announcements have shed light on bitcoin’s tax status. Bitcoin: Are You Ready for This Change for a Dollar?http://www.americanbar.org/publications/probate_property_magazine_2012/2015/march_april_2015/2015_aba_rpte_pp_v29_2_article_klein_comiter_bitcoin_are_you_ready_for_this_change_for_a_dollar.htmlWelcome to a world that includes virtual currency. You can’t pass the “water-cooler” without hearing the word “bitcoin”—from discussions on its fluctuating value, alleged identification of its… To You, I Leave My Bitcoinshttp://www.montereytrust.com/To%20You%20I%20Leave%20My%20Bitcoins.htmIn March 2014, the Internal Revenue Service recognized the existence – and their ability to assess tax on – virtual currency. The IRS notice concludes that virtual currencies, including bitcoins,… I was given about $35,000 in gold and silver coins when myhttp://www.justanswer.com/tax/75l02-given-35-000-gold-silver-coins-when.htmlWhat you ARE correct on is that no tax was due on your inheritance at the time you inherited it. The IRS allows a credit (named “unified credit”..) that allows a person to leave property (homes,…
Is bitcoin mining income?
Directly from the IRS:
Question: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities?
Answer: If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self employment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on selfemployment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit.
(emphasis added by me, -J.D.)