Bitcoins is a virtual form of currency used in a barter system of exchange. Its increasing popularity online has complicated tax issues in many countries. In Canada, bitcoins will be taxable, while the in the United States, the IRS has yet to address this issue.
Bitcoin has taken the financial world by storm. What is this new phenomenon? Can Bitcoins help you save tax? Worry not, you’ll know soon enough. My name is Allan Madan, your trusted accountant, and I will tell you all about Bitcoin basics.
What are Bitcoins?
Bitcoin is a virtual form of currency that can be transferred between two people residing in different parts of the world. To initially process bitcoins without using the exchange system you actually have to be part of a mining pool. All you really need is a computer to participate in a mining pool and combine processing power to generate blocks. The production of these through mining software ensures that production stays within a limit.
What Can We Do With Them?
This decentralised virtual currency can be used online and is widely accepted. Use bitcoins to buy gifts, electronics, and many other items on the web. You can even use bitcoins to pay for your meals.
Bitcoins and Taxes:
At the brink of tax season the CRA announced that this form of currency, will, in fact, be taxable. If bitcoins are being traded on the market for a profit they will be treated as capital gains. When treated as a commodity, bitcoins will be considered regular taxable income. Canada’s finance minister, Mr. Jim Flaherty, said that this form of virtual currency will come under normal laws. In order to contain money laundering and terrorist financing heavy regulations will be enforced.
The IRS, on the other hand, has not figured out how to treat this currency yet. They have not passed an official bill regarding the taxation policy.
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The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.