How is Virtual Currency Taxed?

 
For some years, a good bit of ambiguity has surrounded the world of virtual currency. Bitcoin, the most common type of this currency, was used by many in the beginning stages to avoid tax obligations. And even rule-abiding citizens have long wondered if the virtual currency is considered reportable.
Whether you like it or not…yes, indeed it is. The IRS has now issued guidance on the tax treatment of transactions using virtual currencies. It is considered convertible virtual currency, meaning it has an equivalent value in real currency. This, by default, places certain tax implications on any transaction with bitcoin or other virtual currency. 
However, to be clear, the IRS considers bitcoin property not currency for tax purposes. This allows the IRS to decide whether and when individuals owe taxes on the possession, mining, usage or sale of bitcoin. Tax consequences are incurred when there is a “realization event” according to the IRS. This generally falls into two actions – mining bitcoin or transferring (using or disposing of) bitcoin. 

Understanding Virtual Currency

Let’s look at a few tangible examples to help us understand.
Tax liabilities for mining bitcoin – By mining, we mean “acquiring” through the complex computer programs as they solve computational math problems. The concept is very similar to actual mining. When a bitcoin miner “strikes gold” – or solves a math computation resulting in a bitcoin – an asset is created. That asset (just as gold would be an asset) must be taxed appropriately. Acquiring a bitcoin through mining makes that value taxable immediately.
Tax liabilities for transferring bitcoin – Here, we’re actually referring to either the use or disposal of bitcoin, whether by exchanging it or paying for goods or services. If the actual value of the bitcoin at the time of use is greater than the value of the bitcoin when you first acquired it, you will owe taxes on the gain you experienced – in other words, capital gains tax. 
Since virtual currency is considered “property” you can think of it in terms of actual property. If you were to buy a house and sell it later for more than you purchased it (aside from the Section 121 exclusion), you would owe taxes on the capital gains you incurred from the sale. 
 

Other Important Facts about Taxes on Virtual Currency:

• You can deduct capital losses on bitcoin just as you would deduct losses on stocks or bonds. 
• Impeccable records are a must when dealing in cryptocurrency. Make sure you carefully track every transaction with your virtual currency, including the value when mined or bought and the value when sold or used.
• If you’ve received bitcoin from your employer for wages, that currency is taxed as income and subject to all normal withholding taxes.
• Remember that mining a bitcoin must be included in gross earnings for tax purposes.

 
As always, if you need help reviewing your current tax situation, including your virtual currency holdings, reach out to our experienced accountants. We look forward to helping you navigate the complex tax issues that virtual currency delivers while looking to decrease your tax liability as much as legally possible. 
 

Call us today to set up your free consultation – 740.373.0056.

How to Know if You Need a Forensic Audit

 
No company wants to believe they could be the victim of financial fraud, especially from an inside source. But it happens all too often. 
Ignoring the possibility won’t make it go away. However, preparing for prevention and detection of fraud will move you much closer to eliminating the problem or at least catching it in the early stages. If you suspect that your company may be dealing with internal or external fraud, now may be the time to seek a forensic audit of your company’s financial affairs.
But how do you know if you actually need a forensic audit? Below are a few of the signs that may indicate you need forensic accounting services.
 

7 Signs You Need Forensic Accounting Services

1. Internal Control Issues – By this, we don’t just mean someone that is a micro-manager (albeit, that’s not healthy either). These control issues manifest primarily around financial decisions and issues, but come out in an uncommon concern, control or manipulation of the company’s finances. Often, it may be communicated that the motivation is deep concern for the company’s well-being. But in many cases, a further examination can reveal ulterior motives. 
2. Odd Work Habits – While those that work long and hard hours may be respected in many corporate cultures, it’s important to understand that workaholics can often have other reasons for keeping late working hours. If you have an employee that refuses to take a vacation, works long into the evening or comes in on the weekend when the office is empty, give extra scrutiny to that individual’s actions and accounts. 
3. Personal Financial Stress – Unfortunately, difficult life situations can push people to desperate measures. Internal fraud can often be triggered by a personal financial loss such as divorce, bankruptcy or medical bills. 
4. No Accountability – If the person that reconciles your bank statements is also the individual signing checks, you may want to get a forensic audit simply to ensure complete transparency. 
5. Multiple Bank Accounts – Some businesses require various bank accounts for different business functions; however, multiple accounts make fraudulent movements of cash harder to detect. Use as few accounts as possible, and make sure each account has a specific purpose and use. 
6. Unexplained Transactions – You should be giving more than just a cursory review of your financial statements every month. If there are transactions or accounts that you don’t understand, ask about them. If the response is vague and downplayed, you need to investigate further. Often the initial response to these questions can indicate if there may be foul play afoot.
7. Generic Financial Reports – It’s true that your financial reports are a summary, but they shouldn’t be so generic that you’re unsure what is going in and out of each account. Make sure you have established a budget beforehand, which can act as a guide for actual reporting. Then, require that financial reports account for details, not just generalities.

Prevent Internal Fraud

Unfortunately, internal fraud can happen to any business. But you can take steps today to help prevent and detect fraud. Some of the following steps can help you mitigate the risk of internal fraud:

• Assign main financial duties to different people (account reconciling, check cutting/signing, etc.)
• Establish an anonymous fraud-tip hotline (make this available to both internal and external individuals and ensure the “whistle-blower’s” anonymity)
• Clearly segregate duties and controls (make sure the financial responsibilities are clearly defined among employees)
• Always perform a pre-employment screening of new hires
• Consider having an outside company handle your financial affairs or at least review them

 
When in doubt, get a forensic audit. The upfront cost will be worth the potentially massive loss you could sustain by falling victim to financial fraud. And while a forensic audit is searching primarily for an illegal activity for the purpose of presenting in court, there may be benefits in the process. Forensic audits can be beneficial in uncovering waste and inefficiencies that often would have gone unnoticed by the company. 

Forensic Accounting Services Near You

If you are in need of forensic accounting services, or simply feel you need to ask a few questions before determining if you need a forensic audit, call us today to speak to one of our certified forensic accountants. 

740.373.0056