Earlier this week, Elon Musk suggested Bitcoin and other cryptocurrencies were “clever” and a plausible replacement for cash. While an endorsement from a genius, billionaire is interesting, virtual currency is still hardly legal tender.
When a currency is legally recognized by a government to be valid for meeting a financial obligation, it is called legal tender. Coins and banknotes are usually defined as legal tender in most countries. Legal tender is backed by a central government, and the government controls the supply.
Bitcoin and other virtual currencies are not legal tender and they are not backed by a central government or bank. They are decentralized and are global.
For federal income tax purposes, transactions using virtual currency must be reported in U.S. dollars. You will be required to determine the fair market value (FMV) as of the date of payment or receipt of the virtual currency.
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