I'm not a lawyer or accountant, but if I ran a business that accepted BTC, this is what I would do:
When I receive a payment in BTC, record it as a cash sale at the current exchange rate, and then record the BTC as an investment that I purchased at the same price. That way, if I never sell the BTC, I'm still paying tax on the cash sale. And if I do sell or spend the BTC, I only pay capital gains on the BTC appreciation, if any.
To me, this is a safe and honest approach, but it may not be the only one. Philosophically, I believe that BTC is not cash and therefore is not taxable. But I don't think that claim will hold up forever.
Topic: How are Bitcoin, altcoins treated for tax accounting purposes (Read 1608 times)
I got some answers from my guys back at the office...see what you think:
As to accounting issues - When used in an open flow system where real goods and/or services are provided in exchange for BitCoins, the IRS has not taxed the virtual currency as an asset (yet). A large caveat here is that the BitCoins must remain as virtual currency and we must be able to show that they have not been exchanged or converted in any way. Once exchanged or converted, they are considered taxable assets.
If they are moved or exchanged, IRS considers their value to be equal to US dollars, basing their value on the product initially sold in order to obtain BitCoins. In other words, if we sell a product for either $100 or 1 BitCoin, and then exchanges those BitCoins, IRS will consider that to be an exchange of $100. The difficulty happens when IRS and a company disagree as to where a particular amount of virtual currency originated, hence the need for rock solid accountability.
The BitCoin account will show as a line item in the balance sheet as an untaxed asset, as long as the BitCoin account zero balances with no exchange. IRS say (as does our accounting agent) that other activity within the account would be a red flag which would greatly increase the risk of an overall IRS audit.
If we pay for something using BitCoin from an account where we gained the currency in exchange for our services and/or product, then it's a taxable event. In short, we can gather BitCoin and hold it, but if we move it out of the account in any way, it's a taxable event. Assigning value to that taxable event is the company's responsibility, but the IRS would call an audit if they disagree with the assigned values. BitCoin is currently trying to hash out an agreement with the federal reserve bank in order to be considered a foreign currency. If that happens, whatever BTC we have accumulated in our account will then be subject to tax.
So there you have it..personally I think it a good reason to use a processor that takes in the bitcoin for you and converts it directly to USD account which then is deposited directly into the company account. No Bitcoins hits the company account at all then. No red flags either.
As to accounting issues - When used in an open flow system where real goods and/or services are provided in exchange for BitCoins, the IRS has not taxed the virtual currency as an asset (yet). A large caveat here is that the BitCoins must remain as virtual currency and we must be able to show that they have not been exchanged or converted in any way. Once exchanged or converted, they are considered taxable assets.
If they are moved or exchanged, IRS considers their value to be equal to US dollars, basing their value on the product initially sold in order to obtain BitCoins. In other words, if we sell a product for either $100 or 1 BitCoin, and then exchanges those BitCoins, IRS will consider that to be an exchange of $100. The difficulty happens when IRS and a company disagree as to where a particular amount of virtual currency originated, hence the need for rock solid accountability.
The BitCoin account will show as a line item in the balance sheet as an untaxed asset, as long as the BitCoin account zero balances with no exchange. IRS say (as does our accounting agent) that other activity within the account would be a red flag which would greatly increase the risk of an overall IRS audit.
If we pay for something using BitCoin from an account where we gained the currency in exchange for our services and/or product, then it's a taxable event. In short, we can gather BitCoin and hold it, but if we move it out of the account in any way, it's a taxable event. Assigning value to that taxable event is the company's responsibility, but the IRS would call an audit if they disagree with the assigned values. BitCoin is currently trying to hash out an agreement with the federal reserve bank in order to be considered a foreign currency. If that happens, whatever BTC we have accumulated in our account will then be subject to tax.
So there you have it..personally I think it a good reason to use a processor that takes in the bitcoin for you and converts it directly to USD account which then is deposited directly into the company account. No Bitcoins hits the company account at all then. No red flags either.
I would LOVE to know the answer to this as well...
Is this even recognised as an actual currency?
Is this even recognised as an actual currency?
When a company takes in Bitcoin or other altcoins, how is that treated on their books?. Is it currently considered as a barter payment under IRS rules in USA, or as a foreign currency account, as income only when sold or as an asset that can be valued at any one point in time? How do you think it should be accounted for?
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