Don't Be a Bitcoin Tax Evader
As bitcoin adoption climbs, the IRS has gotten more and more serious about tracking down bitcoin tax evaders. The agency even filed a lawsuit earlier this year against Coinbase, demanding that the company turn over customer account information and transaction data. If you fail to correctly report your bitcoin gains on your tax return -- whether or not it was an accident -- you might be targeted by the IRS.
For federal tax purposes, virtual currency is considered property, not money. That means your bitcoin holdings are subject to capital gains taxes if you sell them, and you're required to report such a sale on your federal income tax return (whether or not you actually made a profit).
In addition, ordinary rules governing work income apply even if you receive bitcoins rather than cash for your work. For instance, if someone pays you in bitcoins for work you've done, be it making a physical product or providing a service, you'll need to report the bitcoins as income at their fair market value. You can use the price listed on an established bitcoin exchange like Coinbase at the time you received them as their fair market value. And bitcoin miners are considered to be in business for themselves, so they're required to pay self-employment tax on their earnings.
Source: Fool.com
