What are you obligated to report about your bitcoin transactions and currency gains?

Bitcoin, Business, And Taxes

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US citizens and residents are required to report their worldwide income from all sources. Transacting in bitcoin is effectively the same as barter. If you render services and are paid in bitcoin, then you have made a taxable transaction recognizable in the dollar value of bitcoin at the time of payment, no different than if you bartered for gold, or received payment/credit on a CTE account (continental exchange).

In our opinion, bitcoin ‘mining’ activity is services rendered, and payment is received in bitcoin but recognized in dollars at the time of payment (the miner could have chosen to sell the bitcoins upon receipt). We would characterize the activity as ordinary, allowing for an ordinary loss (versus a suspended passive loss, providing he can meet a participation and at-risk standards).

For individuals, the value of bitcoin at the initial payment establishes the basis for that bitcoin. Any subsequent gain or loss in the value of bitcoin we will treat as short/long term gain or loss. We’re currently not subjecting it to the collectibles rule, but are treating it the same as foreign currency. For businesses transacting in bitcoin, gains or losses resulting from fluctuations in the value of bitcoin are ordinary income for the business.


Brian Murray

Brian has been in public accounting since 1997. Prior to that he was in finance at Kimberly-Clark Corp., audit at M&I Bank Corp., and accounting manager at Browning-Ferris Ind. Brian’s areas of specialty are estate and trust tax and business valuation.

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