For workers, anything received as payment for goods or services, including Bitcoin or other digital currencies, is taxable income unless it is specifically exempted.
If you earn income in Bitcoin in the exchange of services with another person, this will be included in gross income and would be subject to income tax. These bitcoins could furthermore be subject to self-employment tax.
In some places, if you earn money by trading bitcoins or running an exchange, this could be included in gross income and treated as capital gains. This interpretation assumes bitcoins are used as a store of value like gold or another commodity. If treated as currency or debt, the gains could be taxed based on market value at the end of each tax year.
Some common sense assumptions about how Bitcoin will be regulated can be made by the nature of Bitcoin itself ‒ for instance, by tying the value of bitcoins to the local fiat currency. So when one receives a bitcoin, a note should be made of that coin’s USD value (or whatever currency) as a cost basis for tax reporting.
The existing framework applies to miners. Mined coins are recorded as income from mining and are taxable, and expenses are deducted. Many miners sell their bitcoins, and miners are taxed on the increase in Bitcoin value from the time the coins were mined and the value for which they sold. If this is a loss, then this loss can be declared.
In the United States, the IRS issued guidance for Bitcoin and other digital currencies in its March 2014-21 Notice. The IRS clarified its position on digital currencies, which it views as capital assets and thus subject to capital gains taxes. Trading and spending is a taxable event and capital gains must be calculated in USD.
The IRS also stated mined […]
