As the times start to change and more Millennials are getting jobs, virtual currency is becoming more popular. Many retailers and online businesses now accept virtual currency for transactions, but the federal tax implications remain relatively unknown to many retailers. If you’re a retailer who accepts virtual currency such as Bitcoins for transactions, here’s what you need to know.
Sometimes, virtual currency such as Bitcoins operate like “real” currency, i.e. the coin and paper money of the United States or of any other country that is designated as legal tender. However, bitcoins do not have legal tender status in any jurisdiction. If you’ve been paid in virtual currency, you should be aware that virtual currency is treated as property for U.S. federal tax purposes. In other words, general tax principles that apply to property transactions also apply to transactions using virtual currency. Among other things, this means that:
- Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
- Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
- The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
- A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
If you’re a business or individual with questions about virtual currency such as bitcoins, don’t hesitate to call the office for any of your needs.