click here. This article originally appeared on July 24, 2019 in Silicon Valley Business Journal. To view the original article,
Silicon Valley is the high-tech capital of the world, which makes it a hot spot for adopting the latest technologies and cryptocurrencies.
Some companies are now using virtual currency as a recruiting tool, offering salary/bonus payment to their employees in this form. Others are accepting virtual currency as payment for goods and services, and charitable donations. One example of the latter is Chris Larson, co-founder of Ripple, who, with his wife Lyna Lam, contributed $25 million worth of the digital asset, XRP, to San Francisco State University earlier this year to support the Lam-Larsen Fund for Global Innovation, as well as two endowed chairs.
With a variety of use cases for virtual currency and the integration into businesses, Bay Area companies should start asking the following questions so they aren’t surprised on Tax Day: Would a payment of virtual currency trigger a W-2 or 1099 filing requirement? Is the payment subject to self-employment tax? What type of gain or loss does a taxpayer realize on the sale or exchange of virtual currency? Where can I get cryptocurrency?
Bitcoin ATM Machines
All around the Bay Area, you can see the rise in the use of cryptocurrencies like Bitcoin. It’s typically very subtle, but recently Bitcoin ATM machines have been popping up more and more. In fact, the number of Bitcoin ATMs recently surpassed 4,000 globally and about 100 of those are located in the surrounding Bay Area. That might give someone an idea for a fun weekend scavenger hunt game (www.coinatmradar.com).
Another trend to note in the cryptocurrency space is the rise of “stablecoin.” CEO Jamie Dimon of JP Morgan Chase recently announced the banking giant was coming out with a stablecoin called the JPM Coin. Stablecoins are virtual currency that can be pegged to assets that hold value. These assets typically would be U.S. dollars or another asset that is relatively “stable” and can resist large fluctuations in value, hence the term. The idea of the JPM coin is to create efficiencies in the transfer of money, as the current system for sending money can be slow, tedious and expensive.
Facebook also announced its own stablecoin project called “Libra.” Think PayPal, but with cryptocurrency and on Facebook. The idea here appears similar to other stablecoin projects: make sending money quicker, cheaper and more accessible to the masses.
Bay Area residents have likely heard of a tech giant, local business, or friend, that has used virtual currency in some way. As the technology expands and its use cases become more practical, more businesses will likely look to virtual currency as a way to stand out from the competition, stay on top of tech trends or maybe even create a better world. The possibilities appear to be endless. However, one outcome is certain: the list of tax questions that will come up during tax filing season!
Cryptocurrency is often thought of as uncharted territory where no rules apply; however, if you look closely, there is a tax guidance that can be applied. The IRS issued Notice 2014-21 which states that virtual currency is treated as property and general tax principles applicable to transactions apply to transactions using virtual currency. Bay Area taxpayers should take the IRS’ approach to cryptocurrency seriously and seek out a CPA that has expertise in this area. It’s important to note that taxpayers may be subject to penalties for failure to comply with tax laws, including underpayment and accuracy-related penalties.
On May 16, the IRS published a letter acknowledging it is updating its cryptocurrency tax guidelines and making it a priority. Its urgency proves the industry can expect more changes in the near future. With further guidance on the horizon, Bay Area companies may be more inclined to adopting methods of using virtual currency, especially if it could provide a boost to their business.