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BitCoin Mining, Other Virtual Activity Taxable Under US Law

Posted by timothy on from the them-as-has-gits dept.

chicksdaddy writes "Beware you barons of BitCoin – you World of Warcraft one-percenters: the long arm of the Internal Revenue Service may soon be reaching into your treasure hoard to extract Uncle Sam's fair share of your virtual wealth. A new Government Accountability Office (GAO) report on virtual economies finds that many types of transactions in virtual economies – including Bitcoin mining and virtual transactions that result in real-world profit – are likely taxable under current U.S. law, but that the IRS does a poor job of tracking such business activity and informing buyers and sellers of their duty to pay taxes on virtual earnings. The report, 'Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks' found that the growing use of virtual currencies like BitCoin and virtual game currencies warrants the U.S.'s tax collection agency to mitigate the risks. Those include efforts to educate taxpayers and the publication of basic tax reporting requirements for transactions using virtual currencies, The Security Ledger reports."

4 of 239 comments (clear)

  1. tax on capital gains only by optikos · · Score: 5, Informative

    Keep track of expenses (e.g., equipment, floor space rental, electricity consumption) that serve as the investment for the BitCoin mining. This comes off the bottom-line profit. Otherwise, you would pay 'income' taxes on your 'outflow'.

  2. Is this news? by Typical+Slashdotter · · Score: 5, Insightful

    Why wouldn't it be taxed? There is no "on a computer" exemption to rules that we pay taxes on profitable activities...

  3. Re:Bitcoin mining is not capital gains by alexander_686 · · Score: 5, Informative

    Mod parent up. It’s depreciation expense. Depreciation would either reduce your operating income if you sold the bitcoins the same year you mined them or would increase your cost basis of your bitcoin (thus decreasing your capital gains tax) it you held your bitcoins for more than a year.

    Be warned, the IRS makes this stuff complicated fast.

  4. Re:Why it might not be taxed .... by h4rr4r · · Score: 5, Insightful

    Take a deep breath.

    They only count as real money when you trade them for real money. Bitcoins are still not money, just an item you can sell like any other thing. If you make a profit selling them, like any other thing, you owe taxes.

    Was that simple enough for you?