Even Virtual Money Isn't Tax Free...
Author: Keith Huggett
Come on, you didn't really think you could get away with tax free income did you? Nope, not even virtual money is really tax free. While the IRS is currently trying to iron out the logistics of taxing your virtual money, they will still get you for the additional income if you do not declare it when filing your tax return. So for those of you who are unfamiliar with bitcoins, here's a little explanation for you...
Bitcoin is a decentralized digital currency that uses a peer-to-peer network to move "Bitcoins" around the world. They are privately issued currency that exits only as a long string of numbers and letters in a user's computer file or "wallet". Each coin is encrypted using cryptography to secure and protect against counterfeiting.
Bitcoins are not government issued and does not have an actual coin or bill associated with it. While there are several different types of "virtual coins" available "Bitcoin" is the most widely circulated virtual currency available.
Bitcoins can be used as real world currency. Users can pay for real goods and services with bitcoins in place of US dollars or other government currencies. Third party exchanges also allow bitcoin users to exchange their bitcoins back for dollars, euros or yen as well. This is where the IRS comes into play. With the current rate of exchange of 1 bitcoin granting $681.35 Uncle Sam is going to want his portion.
While the IRS has not yet finalized it's rules on how to handle virtual currency and your requirements, it is in your best interest to declare the "other income." If you have any questions regarding virtual currency and how it can affect your taxes, contact the tax specialists at The Tax Office Inc.
