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Virtual Currency

Virtual currency transactions are subject to tax just like transactions in U.S currency. Transactions in virtual currency need to be  reported in the return. 


There is no jurisdiction in which virtual currency is regarded as legal tender. However, the payment for goods and services using virtual currency as well as the conversion of virtual currency to real currency have tax consequences. In regard to federal tax, virtual currency is considered property. This means that the tax principles that are applied to property transactions are the same ones that are applied to virtual currency transactions. 


Virtual Currency payment must be reported. In the event that the amount is $600 or more, it is to be reported Form 1099-B or Form 1099-MISC. In case the amount is regarded as wages, it is reported as Form W-2. 


Similarly, taxpayers paid through virtual currency are supposed to report the currency’s fair market value in their gross income. Additionally, mining of virtual currency for profit is considered a trade/business and therefore regarded as self-employment subject to self-employment tax. 


A gain or loss may be classified as either a capital gain or loss or as an ordinary gain or loss. The classification of a gain or loss from trading virtual currency depends on whether the currency is a capital asset or not. Capital assets include stocks, bonds or investments among others. Non capital assets include inventory that is held for sale of customers. 



Form 1040 Schedule 1 of the 2019 tax year had a new Yes/No question: "At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?


To evince the importance of this question to the IRS, it was placed at the top of Form 1040 in 2020. 


In Taxx Savage Pro Desktop, to access this question is in the tax return (Form 1040 or 1040-NR): 


  • Go to Personal Information
  • Then proceed to the question “Has Financial Interest in Any Virtual Currency” - Choose either YES or No as may be appropriate in your case. 


Additional Information:


The following Publications from the IRS are of great help in the preparation of tax returns for those taxpayers who take part in virtua;l currency transactions.