Tax Implications Of Concluding Transactions Using Virtual Money
In an article published last year, Bill Schuette, who currently serves as the Attorney General in the state of Michigan, advised his residents concerning the risks that are associated with the use of virtual money. Indeed, while it is the case with hard money, virtual money insurance doesn't exist. This means that if your virtual money gets stolen, you won't be able to submit a claim to the third-party through which you have purchased it and that was holding it for you. This article discusses the tax implications of conducting transactions with virtual money for trading and employment purposes.
Any capital gain is subject to federal taxes.
In a notice that it made available on its website, the Internal Revenue Service (IRS) stated that virtual currency should be treated as real estate property. This basically means that the same rules that apply to real estate transactions also apply to the transactions involving virtual money. For example, the same way the value of real estate assets fluctuates on a constant basis, the value of your virtual money also changes constantly.
In addition, just as you may realize a capital gain or loss after selling a real estate property, you may also record a loss or a gain if the price at which you trade your virtual money is lower or higher, respectfully, than its purchasing price. From a tax point of view, you'll owe a pre-determined amount of money to the IRS if you realize a capital gain.
Using virtual currency for remuneration purposes incurs federal taxes.
Virtual currency is money that can be used for a variety of purposes, such as to settle an invoice for a service that you have requested. Because the IRS regards such remuneration as a salary, it will withhold on your virtual money transactions the same federal income tax rate that applies to businesses as part of their activity. It's also important to note that you'll need to document each one of those transactions, especially if you don't want to incur any fines from the federal government.
Despite the fact that it is still largely unregulated, virtual currency is subject to tax implications that you must know about. If you're conducting transactions involving this form of payment, then consult with a qualified tax services firm, like Cowan Digiacomo & Associates, to make sure that you're in full compliance with the changing rules that govern its use.