How about if I got paid in a virtual currency for a good or service?
That's reportable as ordinary income to you. And the amount of income reported should be the value in U.S. dollars of the virtual currency the day you received it.
What if I paid someone else in virtual currency?
That's like a sale of bitcoin on which you will realize a gain or loss. The IRS notes that the gain or loss is determined by "the difference between the fair market value of the services you received and your adjusted basis in the virtual currency exchanged."
What should I report if all I did was buy virtual currency?
You don't have to report it on your tax return, according to the IRS, just as you wouldn't report an investment you purchased and are holding in a brokerage account, unless it threw off taxable income, such as dividends or interest.
Will my state tax my crypto transactions?
Probably, but you should see what your state revenue department has said on the issue.
"Most states have not specifically addressed virtual currency, which means that the majority of states that have an income tax would follow the federal lead," Luscombe said.
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