Law Offices Of Connie Yi, PC
Tell Us About Your Case

For the safety of our community, clients and staff, we have suspended all in-person meeting effective March 17, 2020. All consultation meetings will be via Phone or Zoom Video Conferencing. Please contact us at 925-484-0888 or email us directly at [email protected] to schedule the consultation.

Bay Area Estate And Tax Planning Law Firm
Estate Planning
Trust Administration and probate

Get
Started

Virtual currency leads to tax law questions

| Mar 19, 2014 | Capital Gains Tax |

At this point in the year California taxpayers are getting serious about submitting their income tax returns. This means carefully combing through one’s finances and making sure that all income and deductions are properly accounted for and that the details are all correct on the forms being submitted to the IRS. For California residents who are holders of the virtual currency bitcoin, there are some important decisions to make about how to report bitcoins on a tax return.

Many tax law experts believe that it is not a question of whether bitcoin is a form of income that must be reported, but rather what type of income it is and at what rate it should be taxed. This is an important question because choosing the wrong category for bitcoins could result in an accidental underpayment of taxes or a overpayment of taxes.

Unfortunately at this point the IRS has yet to issue guidance on this issue, so taxpayers and their advisors are left to make an educated guess as to the best way to proceed. In many cases tax experts are saying that it could be considered a foreign currency, a capital gains item, or a capital asset.

In choosing among these alternatives it is important to consider the definitions of each of these items as well as the accompanying tax rate. For example, the definition for a foreign currency is very narrow and the tax rate is relatively high, so choosing that category holds slightly more risk, since there are fines associated with misreporting income.

Source: Business Insider, “Here’s How to File Bitcoin Income on Your Tax Return,” Rob Wile, March 15, 2014. 

Categories

Archives

FindLaw Network

Recent Blog Post

What are reasonable fees to charge as a trustee in California?

When implementing an estate plan in California, it is essential to ensure that you receive the proper compensation for the amount of time and work you are putting in. The probate court will look through the amount you charge to see if it is reasonable, especially if...

What to know about life insurance trusts

California families have an exemption for their estate that keeps it from being subject to income taxes. However, above that $11.7 million, the estate tax bill could get large. This is why they need to take measures to reduce the size of their taxable estate. Life...

Are estate taxes headed for changes?

Not every inheritance involves paying estate taxes, but some estates rise above the federal exclusion amount. California residents that feel familiar with state and federal tax rules might not realize changes could happen. Namely, proposals intended to raise tax...

View More Blog Posts