November 7, 2020 | Posted in Book Keeping
At a time when technology is rapidly advancing, and many people have access to its power, we are beginning to see innovations on many fronts. In the past few years, something known as virtual currency has begun to emerge as an option for buying and selling goods and services. While the idea of invisible money is still relatively new, it is already beginning to have a slight impact on the financial world. Accountants are starting to field questions from their clients about virtual currency types, there have been loop holes that have already been discovered and closed, and even the Internal Revenue Service is weighing in on its legitimacy as a currency.
Accountants have debated whether or not virtual payment types should be considered foreign currency since it is exchanged all over the world. However, the IRS has ruled that it will not recognize it as a foreign currency.
Among the growing number of virtual currency “brands”, Bitcoin seems to be the most well-known. In March, the IRS began defining its stance on virtual currency, specifically citing Bitcoin. The IRS explains that, while it is often used as “real” currency, virtual currency is to be treated as property for tax purposes. Information reporting for a transaction using virtual currency applies as if it were a payment made in property.
If it is used in payroll, it is taxable like income. If you pay an employee with Bitcoin, the amount is taxable to the employee and you must report it on a W-2. Payments made to independent contractors are taxable. Self-employment tax laws generally apply and 1099’s are issued by the payer.
The longevity of virtual currency is questionable, but it always helps to be prepared for how change in the financial world affects you and your business. If you mainly exist in the online environment, you may come across something like Bitcoin sooner than businesses operating on a local level. Check with your CPA and irs.gov to find out what these types of transactions mean for your business.