{"id":2049,"date":"2016-01-14T13:13:49","date_gmt":"2016-01-14T19:13:49","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=2049"},"modified":"2017-10-17T12:37:02","modified_gmt":"2017-10-17T17:37:02","slug":"how-bitcoin-and-other-digital-currencies-affect-your-clients-taxes","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/how-bitcoin-and-other-digital-currencies-affect-your-clients-taxes\/","title":{"rendered":"How Bitcoin and Other Digital Currencies Affect Your Clients&#8217; Taxes"},"content":{"rendered":"<p><span style=\"font-weight:400;\">Remember several months back when the whole world was gushing about Bitcoin? The virtual currency made a splash amongst financial beat writers, bankers, black marketeers and a few random law professors, and even served as a \u2018shiny object of the month\u2019 for the Technorati. Well, Bitcoin is no longer the cocktail party conversation go-to it once was; but, as often happens when a fashionable new business development takes root quickly, it\u2019s the tax professionals who clean up the mess and make sense of it all.<\/span><\/p>\n<p><span style=\"font-weight:400;\">As your client\u2019s 2015 activity begins to trickle through your office door, a few of you may notice some activity involving Bitcoin or other virtual currency. For those of you seeing these curious entries, some may have gotten early notice, but for others, it may be more than a little surprising to see these transactions pop up. To that end, let\u2019s review a few of the tax principles we have learned in the last few years with regards to Bitcoin and other virtual currency.<\/span><\/p>\n<p><span style=\"font-weight:400;\">Of course, the first thing we learned is that virtual currency isn\u2019t currency at all, at least not in the eyes of the IRS. Actually, Bitcoin is considered a \u2018convertible virtual currency:\u2019 Bitcoin has exchange value expressed in other mediums of exchange, including U.S. dollars, but it is not legal tender in any jurisdiction. The nutshell result? Property rules and principles apply to a Bitcoin transaction, not foreign currency rules.<\/span><\/p>\n<p><span style=\"font-weight:400;\">The IRS published a <\/span><a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/n-14-21.pdf\" data-wa-link=\"body_irs-n1421\" target=\"_blank\"><span style=\"font-weight:400;\">helpful publication in 2014, Notice 2014-21<\/span><\/a><span style=\"font-weight:400;\">. Here are a few high points, otherwise known as property transactions 101:<\/span><\/p>\n<ul>\n<li style=\"font-weight:400;\"><b>Receipts from Exchanges<\/b><span style=\"font-weight:400;\">? Bitcoin is valued at fair market value, as of the date of receipt. In plain English, Bitcoin has FMV Basis.<\/span><\/li>\n<li style=\"font-weight:400;\"><span style=\"font-weight:400;\">The valuation method to determine Bitcoin FMV must be reasonable and consistent, natch.<\/span><\/li>\n<li style=\"font-weight:400;\"><b>Receipts from Mining Bitcoin<\/b><span style=\"font-weight:400;\">? Bitcoin acquired via mining is valued at FMV (see above), but that FMV also represents gross income to the miner.<\/span><\/li>\n<li style=\"font-weight:400;\"><span style=\"font-weight:400;\">Unless the miner is an employee of the entity acquiring the Bitcoin, or the mining activity is not a trade or business, Bitcoin acquired via mining also invokes Self Employment tax.<\/span><\/li>\n<li style=\"font-weight:400;\"><b>Purchases Made with Bitcoin<\/b><span style=\"font-weight:400;\">? If the exchange of Bitcoin results in the acquisition of assets or currency with a FMV in excess of the Bitcoin FMV, you have a gain. The opposite scenario nets a loss.<\/span><\/li>\n<li style=\"font-weight:400;\"><span style=\"font-weight:400;\">The nature of the gains or losses is determined by the manner in which the Bitcoin is held: as a capital asset or an ordinary asset.<\/span><\/li>\n<li style=\"font-weight:400;\"><b>Pay Employees or Independent Contractors with Bitcoin<\/b><span style=\"font-weight:400;\">? Bitcoin is not different from any other medium of compensation: the value of the compensation is reportable income to independent contractors (1099) and employees (W-2).<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight:400;\">OK, how about the many states? States have not been as forthcoming with definitive resources regarding their treatment of Bitcoin. New York, Washington, California and Texas have taken stabs at it, but lack consistent determinations. For the sake of this article, sufficed to say that it would be wise to take a look at income tax implications in the states your clients are operating in. Issues like sales taxes or gross receipts tax also come to mind.<\/span><\/p>\n<p><span style=\"font-weight:400;\">The intense interest in Bitcoin has weakened some, but it\u2019s your responsibility as tax pros to get your clients compliant.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Remember several months back when the whole world was gushing about Bitcoin? The virtual currency made a splash amongst financial beat writers, bankers, black marketeers and a few random law professors, and even served as a \u2018shiny object of the month\u2019 for the Technorati. Well, Bitcoin is no longer the cocktail party conversation go-to it<\/p>\n","protected":false},"author":107201116,"featured_media":10671,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rkv_browse_by_id":0,"rkv_cta_id":0,"rkv_optimize_for_pagespeed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"useModifiedDate":false,"customPublishDate":"","_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[509474089],"tags":[],"intuit_collection":[],"intuit_series":[],"coauthors":[509474195],"class_list":["post-2049","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-law-and-news"],"header_image":"","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>How Bitcoin and Other Digital Currencies Affect Your Clients&#039; Taxes - Tax Pro Center | Intuit<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/how-bitcoin-and-other-digital-currencies-affect-your-clients-taxes\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How Bitcoin and Other Digital Currencies Affect Your Clients&#039; Taxes - Tax Pro Center | Intuit\" \/>\n<meta property=\"og:description\" content=\"Remember several months back when the whole world was gushing about Bitcoin? The virtual currency made a splash amongst financial beat writers, bankers, black marketeers and a few random law professors, and even served as a \u2018shiny object of the month\u2019 for the Technorati. Well, Bitcoin is no longer the cocktail party conversation go-to it\" \/>\n<meta property=\"og:url\" content=\"https:\/\/taxprocenter.proconnect.intuit.com\/tax-law-and-news\/how-bitcoin-and-other-digital-currencies-affect-your-clients-taxes\/\" \/>\n<meta property=\"og:site_name\" content=\"Tax Pro Center | Intuit\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/IntuitAccountants\" \/>\n<meta property=\"article:published_time\" content=\"2016-01-14T19:13:49+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2017-10-17T17:37:02+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/taxprocenter.proconnect.intuit.com\/wp-content\/uploads\/2016\/01\/bitcoin1-e1535552579226.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"655\" \/>\n\t<meta property=\"og:image:height\" content=\"354\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Shane Ratigan\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@IntuitAccts\" \/>\n<meta name=\"twitter:site\" content=\"@IntuitAccts\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Shane Ratigan\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/taxprocenter.proconnect.intuit.com\\\/tax-law-and-news\\\/how-bitcoin-and-other-digital-currencies-affect-your-clients-taxes\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/taxprocenter.proconnect.intuit.com\\\/tax-law-and-news\\\/how-bitcoin-and-other-digital-currencies-affect-your-clients-taxes\\\/\"},\"author\":{\"name\":\"Shane Ratigan\",\"@id\":\"https:\\\/\\\/accountants.intuit.com\\\/taxprocenter\\\/#\\\/schema\\\/person\\\/5aadce7abeb82e468a92ec74d1e85d1f\"},\"headline\":\"How Bitcoin and Other Digital Currencies Affect Your Clients&#8217; 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After 10 years in the motorcycle business, he returned to college to gain a Bachelor\u2019s in Accounting and a Bachelor\u2019s in Business Administration. He went on to earn his Juris Doctorate at Syracuse University College of Law in New York and his LLM Master\u2019s of Taxation at the University of Washington in Seattle. Shane has spent several years counseling small business owners on tax and succession planning. He is a licensed attorney in Oregon and Washington. Shane currently is senior tax manager of State and Local Tax at Clark Nuber PS.\",\"url\":\"https:\\\/\\\/accountants.intuit.com\\\/taxprocenter\\\/author\\\/taxpro56\\\/\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"How Bitcoin and Other Digital Currencies Affect Your Clients' Taxes - Tax Pro Center | Intuit","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/how-bitcoin-and-other-digital-currencies-affect-your-clients-taxes\/","og_locale":"en_US","og_type":"article","og_title":"How Bitcoin and Other Digital Currencies Affect Your Clients' Taxes - Tax Pro Center | Intuit","og_description":"Remember several months back when the whole world was gushing about Bitcoin? 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