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Texas IRS audit helpVirtual currencies such as Bitcoin and Etherium have become very popular over the last several years, and many people invest in these cryptocurrencies, trade them with others, use them to purchase goods and services, or receive them as income. Because of this increase in financial activity, the IRS has begun to pay more attention to these types of transactions, and it has increased the number of tax audits of people who buy, sell, or exchange virtual currencies. Users of cryptocurrencies will want to understand their requirements for reporting transactions and paying taxes to ensure that they can avoid penalties from the IRS.

How the IRS Addresses Cryptocurrencies

Even though virtual currencies are often used to purchase goods and services, they are not treated the same as currency issued by the United States or another country. Instead, they are considered to be property, and cryptocurrency transactions are taxed the same as those involving other forms of property.

When a person sells virtual currency, transfers it to someone else, or exchanges it for goods or services, they will be required to recognize any gains or losses, and capital gains taxes may apply to these transactions. The gain or loss will be the difference between the amount received in exchange for the virtual currency and the person’s basis in the cryptocurrency. The basis is the amount that was originally spent to acquire the virtual currency, including any fees or commissions. The basis may be adjusted based on certain types of expenditures, deductions, or credits.

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