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IRS Provides Guidance on the Taxation of Bitcoins and Virtual Currency

Recently, there has been a sharp rise in digital currency trading and if you are new to trading virtual digital currency you may be wondering what this means for your tax situation.

Bitcoin and other virtual digital currency that can be digitally traded through the internet and exchanged into US dollars have been around since 2009. However, prior to an IRS announcement in 2014, digital currency like Bitcoin was not regulated by the government, and it was up in the air about how income or losses generated from the exchange of this mysterious currency should be taxed.

The IRS answered this long-standing question about the taxation of virtual digital currency, announcing that virtual digital currency, like Bitcoin, should be taxed as property instead of currency for federal tax purposes. This means that the same rules that apply to property transactions like the sale of stocks apply to virtual currency. Additionally, how the virtual currency is used also has an impact on how the virtual currency is taxed.

Here are several top facts you need to know about tax implications of trading virtual currency like Bitcoin:

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