This information was copied off the website of the Internal Revenue Service as a courtesy to our visitors.
Virtual Currency
Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, or a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency. The IRS uses the term “virtual currency” to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency. Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes.
A transaction involving virtual currency includes, but is not limited to:
- The receipt or transfer of virtual currency for free (without providing any consideration), including from an air-drop or following a hard fork
- An exchange of virtual currency for goods or services
- A sale of virtual currency
- An exchange of virtual currency for other property, including for another virtual currency
- An disposition of a financial interest in virtual currency
A transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control. If you disposed of any virtual currency that was held as a capital asset through a sale, exchange, or transfer, use Form 8949 to figure your captial gain or loss and report it on Schedule D (Form 1040).
If you received any virtual currency as compensation for services or disposed of any virtual currency that you held for sale to customers in a trade or business, you must report the income as you would report other income of the same type (i.e. W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services from Schedule C on Schedule 1).jj
