If you have come into possession of Bitcoin trading or any other digital currency such as Ripple or Litecoin that is “convertible” to a real currency or can be used to pay for goods and services, it may seem virtual. But the Internal Revenue Service considers it very real and you need to account for it at tax time. “If you’re not doing the accounting on your currencies, you are on the line for tax evasion or misfiling,” says Jake Benson, CEO and founder of Libra Tax, which offers accounting software for digital currencies. “The reason you’d want to account for your Bitcoin and the gains and losses is the exact same reason you need to do it when you trade stocks. If you don’t, you’re breaking the law.” According to IRS guidance notice 14-21, Bitcoin and cryptocurrencies are capital , similar to stocks and bonds. “That means that for Bitcoin, and any existing cryptocurrency, the framework that applies to gains and losses, and the taxation and accounting of capital assets applies to cryptocurrency too,” says Benson. However, since stocks, bonds and other capital assets are not usually used as an everyday payment mechanism the way that Bitcoin and virtual currencies are, that introduces some complications. Here are the seven ways you may come into possession and/or dispose of Bitcoin and other digital currencies and how you need to account for them at tax time, plus explorations of two major gray areas. (For expediency, the article will refer mostly to Bitcoin, but the rules apply to all virtual currencies.) 50300
