Virtual currencies, also called cryptocurrencies or e-currencies, might be relatively new to the world of finance, but they are becoming more common. Bitcoin, for example, is being accepted by retailers as payment and used to pay employees. Some people are holding virtual currencies as capital assets. Regardless of how you use e-currencies, they may be subject to taxation by the IRS. If you are exploring cryptocurrencies, now would be a good time to talk to the team at Edgewater CPA Group about how you can plan for your 2020 taxes.
Employers who use cryptocurrencies to pay employees must report employee earnings on W-2 forms. Keep careful records of the date each payment is made, as well as the conversion value from e-currency to US dollars. Wages are subject to withholding just like dollar wages. Make sure your employees know that they must report W-2 wages in dollars, even if earned as e-currency.
Just like any other capital asset, e-currency held as a capital asset is taxed as property. Looking for more specifics? The IRS answered some common questions about how to report virtual currency transactions in this IRS Revenue Ruling 2019-24 and these Frequently Asked Questions.
Mining e-currency uses computer resources to validate transactions between users, adding to the blockchain public ledger. If you successfully mine Bitcoin or other currency and gain earnings from that activity, you must include it in your gross income. Convert the amount to US dollars and report it like any other income.
With the ever-changing world of Bitcoin and other digital currencies, it’s valuable to have a supportive financial team by your side. Call today at (888) 317-4835 to schedule your consultation with Edgewater CPA Group. We have offices in Indianapolis and Fort Wayne, IN, and serve clients across the US. We’ll help you navigate the ins and outs of reporting e-currency activities.
Source: TurboTax
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