As the market turns, the business world debates, and consumers ponder the wisdom of delving into the wild world of alternative digital currencies, an accountant ponders the future.
No matter what day or time you use Google’s “cryptocurrency,” you’ll get colorful results. Suddenly your best quotes may be the day’s bitcoin futures trading results on the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME). Then you can read about the aftermath of a major cryptocurrency hack. And at any time of the day or night, there is variety and division over whether to buy, sell, spend or avoid cryptocurrencies.
Indeed, a lot has happened since the dark beginnings of the cryptocurrency movement about nine years ago. Arguably the first to gain traction “peer-to-peer electronic money system,” Bitcoin was launched in 2009 by one or more people using the pseudonym Satoshi Nakamoto.
That’s right, “one or more people”. We still don’t know the exact identity of the person(s) involved in building the world’s number one brand in cryptocurrencies. BTC peaked at nearly $20,000 per BTC last December before dipping below $6,000 in February. At the time of writing, BTC was struggling to renew its lead, bouncing around USD 7,000.
The creation of Bitcoin is not the only “dark” story that has developed with the acceleration of the movement of cryptocurrencies. More than 1,500 different cryptocurrencies are now traded worldwide, with new ones being created seemingly every day for highly specialized audiences and applications. The bottom line, however, is that since its inception, the semi-secret and decentralized nature of bitcoin and its peer blockchain technology has made using cryptocurrencies a fast, cheap, and convenient way to make legal and illegal money in Worldwide. move. the globe.
Then came the headlines.
“Celebrity risk-takers, the Winklevoss twins, rode the bitcoin wave to become bitcoin billionaires.”
“CBOE and CME have begun trading bitcoin futures on their exchanges, a major step forward in legitimizing the investment potential of the digital currency.”
“Major credit card companies Chase, Bank of America and Citigroup have banned the purchase of cryptocurrencies with credit cards.”
“Wall Street giant Goldman Sachs has found most digital currencies ‘too primitive’ to survive.”
2017 appeared to be the prime mover year for cryptocurrencies, and interest and uncertainty – and trading for them – only seem to increase in 2018. So where are the accounting and finance professionals? Now you understand how using and trading cryptocurrencies will affect your clients and focus on the bigger blockchain and its evolution.
Taxable or taxable?
In 2015, the US Commodity Futures Trading Commission defined cryptocurrencies as a commodity to guide the agency’s regulatory and enforcement practices. US District Judge Jack Weinstein recently upheld the decision this year, but federal cryptocurrency rules went unnoticed. in other areas. Taxation of cryptocurrencies has been a relatively gray area, although 2014 IRS guidelines require virtual currencies to be treated like real estate. It means:
- Wages paid to employees in virtual currency are taxable to the employee, must be reported by the employer on a Form W-2, and are subject to federal income tax and payroll taxes.
- Virtual currency payments to independent contractors and other service providers are taxable and generally subject to self-employment tax rules. Normally, payers are required to issue a 1099 form.
- The nature of the profit or loss from the sale or exchange of virtual currencies depends on whether or not the virtual currency is capital owned by the taxpayer.
- A virtual currency payment is subject to disclosure reporting to the same extent as any other payment made at the venue.
However, many experts believe that consumer usage issues are so… well, 2014. Indeed, there is a lack of information on how taxpayers should track and report their cryptocurrency transactions, especially from those who earned them through cryptocurrency mining. , including hardware and operating costs and other expenses.
Meanwhile, the IRS is taking legal action with US cryptocurrency exchange Coinbase to gain access to customer data that it can use to track down taxpayers who failed to report their cryptocurrency transactions, meaning evasion tax on profits made during the bitcoin boom. movements in recent years.
In the commercial field, cryptocurrencies are also gaining momentum. To be fair, widespread commercial adoption is still far from universal, but more and more businesses large and small seem to be accepting cryptocurrencies on a daily basis. There are also a growing number of large companies accepting bitcoin and other cryptocurrencies as payment for goods and services. Overstock.com was the first major online retailer to start accepting bitcoin in January 2014. Expedia users can pay for travel arrangements with bitcoin. Electronics retailer Newegg accepts bitcoin, as do Microsoft and Intuit. And the Big Four accounting firms are also becoming bitcoin-friendly; PwC and EY were early adopters of bitcoin as a payment method for consulting services, and Deloitte and KPMG are also increasingly investing in emerging cryptocurrency and blockchain ecosystems.
What all of this means for future IRS cryptocurrency guidelines, as well as individual and corporate taxpayers, remains to be seen. Wild swings in the value of cryptocurrencies certainly do not bode well for companies that factor them into their transactions.
However, as a recent headline from Bloomberg puts it, “You’d Be Crazy to Really Spend Bitcoin,” which showcases the leading cryptocurrency and its top competitors, including Ripple
Over time, the purpose and structure of cryptocurrencies will change, according to Lamont Black, an assistant professor of finance at DePaul University in Chicago. “The definition of money is usually threefold: medium of exchange, store of value and unit of account. However, a mature cryptocurrency could eventually meet these criteria for money, he says, which would be “essential to separate processing from legal, tax and regulatory purposes. Different cryptocurrencies are likely to fall into different categories.
And, of course, this only applies to the development path of virtual currencies. Others focus on the development path of the technology behind cryptocurrencies. Which brings us to blockchain, which may be a bigger problem for accountants and finance professionals in 2018.