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bitcoin and taxesIn case you haven't noticed, Bitcoin is still a thing. Long gone are the days when the future of cryptocurrency was debated. The future is now and Bitcoin is stronger than ever.

Among the industries that have been affected by cryptocurrency, or soon will be, is accounting. Bitcoin's impact on the accounting industry is this topic of this article. But first, some background on the basics of Bitcoin.

And for the record, Bitcoin is capitalized when referring to the cryptocurrency as a whole, and is not normally capitalized when referring to individual units, or bitcoins. Great, now let's get started.

What is Bitcoin?

Bitcoin is one of many cryptocurrencies, which means is is simply a digital form of currency. There are no certificates, no vouchers, no bank notes that represent bitcoin. There are only keys, which are similar to passwords that you use to access, buy, sell, and trade your Bitcoins. That is why they care called "crypto" currencies—all digital currencies are encrypted and require keys (your special code) to access them.

But cryptocurrencies are more than digital money. While they can represent US dollars, British pounds, Japanese yen, or any other monetary unit, they can also represent anything of value, from stocks to real estate to commodities and just about anything else you can think of. A bitcoin is simply a digital unit with a market value. The thing it represents is entirely up to the buyer and seller to agree upon. At the time of this writing, the current bitcoin market value is $9,265 US dollars. So, you can buy one bitcoin today at that price and exchange your bitcoin for anything of that value if the seller accepts bitcoins for payment. Bitcoins can be divided into smaller units, like dollars can be divided into quarters, dimes, nickles, and pennies. But, again, the buyer and seller agree what a bitcoin is. If a seller says one bitcoin represents an acre of land, so it is.

How Are Bitcoins Bought, Sold, and Traded?

To use bitcoins, you need a special piece of software to store them in called a digital wallet. Once you have your digital wallet set up on your phone or computer, you will visit a Bitcoin Exchange to buy some bitcoins and download them into your wallet. When you want to buy something using your bitcoins, you pay for them using your digital wallet. There are also peer-to-peer (P2P) exchanges that you can use to make transactions with individuals or business using bitcoins.

Today, more and more major companies accept bitcoins as payment, including Microsoft, PayPal, Overstock, and a host of others.

What Are the Tax Implications of Bitcoin?

Perhaps, you own Bitcoin or are thinking of buying some and want to know what Bitcoin means to your taxes. Do you owe taxes on bitcoins? Does the I.R.S. require you to report if you own bitcoins? Can you incur large penalties for failure to properly report bitcoin transactions?

These and other questions can be answered by your accountant, but only if he or she has been trained in the tax implications of cryptocurrency. Tom Jones is trained and ready to assist you with your Bitcoin questions, and to help ensure that your cryptocurrency transactions are in full compliance with I.R.S. regulations. Call today to set up an appointment.