James F. McDonough
Of Counsel
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Bitcoin is an unregulated currency that has made a big splash in the economy during the past couple of years. At first, it was the chosen form of payment for black market dealings, but more and more legitimate merchants are beginning to accept Bitcoin.
According to Entrepreneur.com, Overstock and TigerDirect have already begun accepting the currency, and more are expected to follow suit.
“One great beacon here is major retailers like Overstock – and there have been others – hopping onboard,” Fred Ehrsam, co-founder of the Bitcoin exchange and wallet service Coinbase, told the news source. “There are others of similar stature in the pipeline.”
However, tax law issues could prevent some merchants from accepting Bitcoin. According to Forbes, businesses have to collect and remit sales tax no matter what type of currency is being used, as well as state and federal income tax on annual profits. Unfortunately, the Internal Revenue Service hasn’t said much on the topic, which could leave merchants in a grey area when it comes to accepting the currency.
One of the biggest issues is that no taxing organization accepts Bitcoin as payment. For this reason, it must be converted into U.S. dollars in order to calculate the amount of taxes due. In certain situations, this means that merchants are calculating amounts in fractions of Bitcoin, which can create confusion.
Businesses that use Bitcoin in Australia are about to be targeted by the Australian Taxation Office to crack down on undisclosed capital gains, according to BRW, and it should only be a matter of time before the same happens in the U.S.
- Practices: Tax and Trusts & Estates, Corporate Transactions & Business
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