Bitcoin is a virtual currency that uses cryptographic encryption system to facilitate secure transfers and storage.Unlike a fiat currency, bitcoin is not printed by a central back, nor is it backed by any.Bitcoins are generated by what is called mining—a process wherein high-powered computers, on a distributed network, use an open source mathematical formula to produce bitcoins.It takes real high-tech hardware and hours or even days to mine bitcoins.One can either mine bitcoins or buy them from someone by paying cash, using a credit card, or even a PayPal account.Bitcoins can be used like a fiat world currency to buy goods and services.Bitcoin is now listed on exchanges and has been paired with leading world currencies such as the US dollar and the euro.The US Federal Reserve acknowledged the growing importance of bitcoin when it announced that bitcoin-related transactions and investments cannot be deemed illegal.At the start bitcoin's attractiveness was attributed partly to the fact that it wasn't regulated and could be used in transactions to avoid tax obligations.

The virtual nature of bitcoin and its universality also make it harder to keep track of in cross-country transactions.In addition, government authorities around the world soon realized that bitcoin attracted black marketers who could make illegal deals.Naturally, it was impossible for bitcoin to escape the tax authorities' radars for long.Around the world, tax authorities have tried to bring forth regulations on bitcoins.The US Internal Revenue Service (IRS) and its counterparts from other countries are mostly on the same page when it comes to treatment of bitcoins.The IRS said that the bitcoin should be treated as an asset or an intangible property and not a currency, as it is not issued by central bank of a country.Bitcoin's treatment as an asset makes the tax implication clear.The IRS has made it mandatory to report bitcoin transactions of all kinds, no matter how small in value.Thus, every US taxpayer is required to keep a record of all buying, selling of, investing in, or using bitcoins to pay for goods or services (which the IRS considers bartering).

Because bitcoins are being treated as assets, if you use bitcoins for simple transactions such as buying groceries at a supermarket you will incur a capital gains tax (either long-term or short-term depending on how long you have been holding the bitcoins).When it comes to bitcoins the following are different transactions that will lead to taxes: Scenarios one and three entail mining bitcoins, using personal resources, and selling them to someone for cash or equivalent value in goods and services.precio bitcoin hoy euroThe value received from giving up the bitcoins is taxed as personal or business income after deducting any expenses incurred in the process of mining.bitcoin marketplace euSuch expenses may include the cost electricity or the computer hardware used in the mining of bitcoins.ukash a bitcoin

Thus, if one is able to mine 10 bitcoins and sell them for $250 each.You have to report the $2500 as taxable income before any deductible expenses.Scenarios two and four are more like investments in an asset.Let’s say bitcoins were bought for $200 each, and one bitcoin was given up in exchange of $300 or equivalent value in goods.The investor has gained $100 on one bitcoin over the holding period and will attract capital gains tax (long-term if held for more than one year, otherwise short-term) on $100 earned by selling/exchanging the bitcoin.bitcoin executive deadIf bitcoins are held for a period of less than a year before selling or exchanging, a short-term capital gains tax is applied, which is equal to the ordinary income tax rate for the individual.bitcoin bezahlen in deutschlandHowever, if the bitcoins were held for more than a year, long-term capital gains tax rates are applied.bitcoin calc gbp

In the US, long-term capital gains tax rates are 0% for people in 10%-15% ordinary income tax rate bracket, 15% for people in the 25%-35% tax bracket, and 20% for those in the 39.6% tax bracket.Thus, individuals pay taxes at a rate lower than the ordinary income tax rate if they have held the bitcoins for more than a year.However, this also limits the tax deductions on long-term capital losses one can claim.Capital losses are limited to total capital gains made in the year plus up to $3000 of ordinary income.However, taxation on bitcoins and its reporting is not as simple as it seems.For starters, it is difficult to determine the fair value of the bitcoin on purchase and sale transactions.Bitcoins are very volatile and there are huge swings in prices in a single trading day.The IRS encourages consistency in your reporting; if you use the day's high price for purchases, you should use the same for sales as well.Also, frequent traders and investors could use "first in, first out" (FIFO) or "last in, first out" (LIFO) accounting techniques to reduce tax obligations.

(Refer to the Bitcoin Tax Guide for a detailed explanation of issues in Bitcoin Taxation and reporting.)Whenever bitcoin is bought, sold, or traded, there are tax impacts.We'll discuss how bitcoins and other forms of virtual currency are taxed, and point out record keeping requirements and tax planning techniques that can be utilized.At the end you'll find resources for continuing your own research."Thekey thing going forward is maintaining records, substantially similar to stock," says Jason Tyra, a certified public accountant in Texas who specializes in bitcoin; "Incomplete records might as well be no records."Why is record keeping such an important topic?Maintaining records is essential for accurately measuring bitcoin-related income.When it comes to taxes, the Internal Revenue Service has ruled that bitcoins and other "convertible virtual currencies" are "treated as property" and not treated as currency.This concise guidance from the IRS has implications for how bitcoins are taxed, what information is needed to make sure taxes are calculated correctly, and what tax planning techniques people can use to minimize their taxes on Bitcoin transactions.

In brief, Source: Notice 2014-21 (pdf version | Web version), IRS.gov."Everybitcoin transaction is taxable," writes Tyson Cross, a tax attorney who specializes in virtual currencies."Bitcoin users will have to calculate their gain or loss every time they purchase goods or services with bitcoin."Let'sthink for a moment about what this means.The IRS said that bitcoin and similar convertible virtual currencies are property for tax purposes.As with other types of property, first one acquires property, often by exchanging cash for the property.Then one owns the property for a period of time.And then eventually one might sell or give away or trade or otherwise dispose of the property.So with any type of property we have three moments in time: acquiring the property, holding the property, and disposing of the property.The same three aspects are found with convertible virtual currencies.Let's start by discussing what happens from a tax perspective at the end when bitcoins are sold or disposed of.

Since bitcoins are property, we would follow the rules that apply to dispositions of property.When property is disposed of, four things happen:Income is realized from any gains on the property.Gain is measured by the change in the dollar value between the cost basis (the purchase price) and the gross proceeds received from the disposition (the selling price).The tax rates that apply depend on whether the property was held for a short-term or for a long-term duration.And finally,Dispositions of property are reported on the tax return using Schedule D & Form 8949 or Form 4797.These forms require us to "show our math" when calculating gain or loss.Tax Tips for Merchants & BusinessesIdentify an exchange rate to use consistently in valuing bitcoins received.Charge sales tax when a customer buys from you using bitcoin, if that's required in your line of business.When paying an independent contractor $600 or more during the year, request Form W-9 and issue Form 1099-MISC, even if you pay them in bitcoin.

Track the amount paid to contractors throughout the year to measure whether you reach the $600 threshold.Backup withholding may be required.If paying employees in bitcoin, first withhold all applicable payroll taxes in US dollars.Net pay can then be paid out in bitcoin as appropriate.Taxes are paid in dollars, not in bitcoin.pare bitcoin fees/commissions and processing times with other payment technologies (such as merchant accounts, PayPal, etc.).Tax Tips for Casual Bitcoin UsersEstablish a record-keeping system.Keep track of when you acquire and when you dispose of bitcoins.Record dispositions of bitcoins on Schedule D and Form 8949.Each purchase using bitcoin is two transactions in one: an implied disposition and an expense.On a non-tax note, casual bitcoin users will want to use a reputable bitcoin wallet provider.Reputable wallet providers have implemented risk mitigation tools to make buying, trading and selling bitcoins more secure and user-friendly, notes David Berger.Tax Tips for Bitcoin Investors and SpeculatorsEstablish a record-keeping system.Record dispositions of bitcoin on Schedule D and Form 8949.Identify your cost basis method.Identify your exchange rate.Keep separate wallets for short-term trading, long-term buy-and-hold positions, and personal spending.Normal capital gains strategies apply: offset gains with losses, time dispositions to qualify for long-term treatment, harvesting losses, and harvesting gains.Watch the tax rates: gains subject to the 3.8% net investment income tax.Identity the tax treatment for bitcoins received by "mining" them – may be business income subject to the income tax and self-employment tax.Deduct any investment-related expenses (Schedule A).Deduct any investment interest (Schedule A).Deduct tax preparation and advisory fees related to determining the tax treatment of bitcoins (Schedule A).Elect Market to Market trading?

This would mean all gains are short-term and reported on Form 4797, and any bitcoin-related expenses are deducted on Schedule C.Apart from tax considerations, investors should take a look at wallet providers or registered investment vehicles with security features one might expect from a banking institution.Some platforms offer to "insure holdings or store holdings offline in a vault," says David Berger.Software Tools for Tracking BitcoinsLibraTax: Web-based software for importing bitcoin transactions and calculating gains/losses.BitcoinTaxes:Web-based software for importing data and calculating gains/losses.PayByCoin add-on for Quickbooks Online customers for merchants to accept payment via bitcoin and reconcile the data inside the online version of Quickbooks.Tax and Accounting Articles about BitcoinJason Tyra, CPA, has written extensively about bitcoin at Bitcoin Magazine, BitcoinTaxBlog and CoinDesk.Annette Nellen takes an in-depth look at the IRS guidance in "Bitcoin Taxation: Clarity and Mystery," (June 12, 2014).In Bitcoins Update (10/11/14), Jack Townsend provides a summary of how the IRS is "gearing up for criminal tax investigations" involving bitcoin.Deloitte has produced an infographic describing the pros and cons of bitcoin.Jessica Bruno describes how bitcoins are taxed in Canada in her article, What to Do with Digital Currency?