Many taxpayers jumped into virtual currency investing during 2017. They might now be asking themselves: Will the IRS know if I made money with Bitcoin (or other virtual currencies)? Do I have to report my gains or losses? Are virtual currency transactions reportable? Yes, Yes and Yes.

Here are what IRS states regarding virtual currency:

  • Bitcoins are not a currency. They are considered personal property and taxed as a capital asset.
  • If a Bitcoin is converted into currency and there is a gain, it is subject to capital gain.
  • If goods or services are purchased with Bitcoins, the taxpayer must also account for the gains.
  • A taxpayer that receives Bitcoin as payment for goods or services must include the fair market value of the digital currency received measured in USD in the gross income on the date of the receipt.
  • Digital currency that is held and then sold at a gain is subject to either long- or short-term capital gains tax.
  • A taxpayer, who holds digital currency for sale in a trade or business, is subject to ordinary gain or loss upon sale.
  • Digital currency is recognized income immediately at the fair market value. This income could be subject to self-employment tax