James F. McDonough
Of Counsel
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Are Bitcoins Taxable? Bitcoins are becoming more visible and popular among consumers, and many investors are even focusing on the prospects that this digital currency may yield. As the demand for Bitcoins – which are used in a digital environment as real cash – increases significantly, the Internal Revenue Service may set its sights on the currency as taxable income.
A recent article in Business Insider noted that the value of Bitcoins have nearly tripled since March alone, and are currently valued at $115. Some analysts predict that as the value of Bitcoins continue to increase and demand grows, new potential tax law guidelines may come into play, the news source theorized.
Some have argued that the U.S. may not focus too heavily on taxing the currency because they are not recognized as legal currency, save for the online world, and they receive financial backing from governments around the globe, Business Insider added. As a result of these stipulations, many who are opposed to taxing them argue that if the currency is not recognized, it should not fall under tax rules.
However, many users are finding ways to add real value to the Bitcoins, which may result in taxation down the road. For example, some users can visit online currency exchange websites and sell Bitcoins for real currency, including USD, the article noted. As a result, this may be considered income under federal law, and therefore taxable.
“As soon as you go to exchange them for dollars, you definitely have a tax obligation on that,” David Stewart, an international tax reporter for Tax Analyst, told the news source. “There is value in Bitcoins, whether or not people outside the Bitcoin community believe it.”
When it comes to businesses that accept Bitcoins, IRS spokesperson Anthony Burke told the Huffington Post that the agency is trying to classify whether payments should be considered payments in foreign currency, barter or in-kind payments, as these may each fall under different tax guidelines.
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