Ridiculousness: IRS Takes A Bite Out Of Bitcoin

Bitcoin is virtual currency much in the news these days. It’s peer-to-peer so there’s no central bank or government. But if you think that means the IRS won’t get a piece, think again.

The IRS already gets a piece where you swap one product or service for another, as the IRS explains at its Bartering Tax Center. Soon the IRS may have a Bitcoin Center too. The Treasury unit called FinCEN, the Financial Crimes Enforcement Network, already has rules about Bitcoin and the IRS is likely to follow.

In the meantime, the tax rules seem pretty clear. If you provide services or sell goods for Bitcoin, you have income. If you exchange Bitcoins for cash, whether you have gain may depend on whether Bitcoin is really currency or commodity. The latter seems more likely, meaning you have gain to the extent of the appreciation in your Bitcoin.

Income is income, whether you get it in cash or in kind. Bitcoin may be accepted as currency and may not be easy to trace but so are trades and barters. When you barter or swap one item for another, both parties have tax consequences. That’s so even if one party wants credit for later.

Trade or barter dollars allow you to barter when one party wants goods or services and the other wants credit for the future. Earning trade or barter dollars through a barter exchange is considered taxable income, just as if your product or service was sold for cash. And even trades are still taxed.

Plumbing for dental work? The IRS taxes it. You name the swap, it’s income to both sides just like cash. Both must report the fair market value of goods or services received on their tax returns. See Do You Barter? The IRS Wants Its Cut. Read more here - http://www.forbes.com/sites/robertwood/2013/05/02/irs-takes-a-bite-out-of-bitcoin