IRS Approach To Taxation of Bitcoin

The IRS approach to the taxation of crypto currencies like Bitcoin may turn into an accounting nightmare for all but the most casual of users.
Virtual currencies, such as Bitcoin, are becoming useful tools in the digital age. In essence, a virtual currency is a currency that exists only in cyberspace and is not backed by any government. The value often fluctuates by the hour and there is no coin or certificate to touch.
When examining the IRS approach to the taxation of such currencies, the most basic question is whether they will be treated as currency or property. The IRS chose to treat virtual currency as property and opened the door for some detailed and voluminous accounting. Details of the IRS taxation scheme for the taxation of virtual currencies can be found in IRS Notice 2014-21 [

This post was published at Forbes on 12/04/2014.

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