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IRS explains how to do taxes for your bitcoin

In a new FAQ, the Internal Revenue Services explains that the digital currency should be considered property for your tax purposes.


If you've been paying your employees in bitcoin or you work for bitcoins, be mindful of how you do your taxes. The federal government said Tuesday that you should count the virtual currency as property for US federal tax purposes.

Officials' increasing attention to bitcoin -- a digital currency that has recently gained popularity -- in the US and overseas, shows how quickly the currency is going mainstream. In addition to a steady stream of news around bitcoin exchanges and the establishment of bitcoin ATMs, the currency's origins recently sparked a media frenzy over the identify of creator Satoshi Nakamoto.

In a "Frequently Asked Questions" document, the Internal Revenue Service clarifies how tax rules apply to virtual currency transactions. Namely, its the same rules as property transactions.

For example, if an employer uses bitcoin to pay employees, that bitcoin is taxable and should show up on a W-2 form. Those who are self-employed and investors who are holding bitcoin will also need to mind the tax laws.