Bitcoin and other virtual currency

A lot of people are getting into the cryptocurrency craze. A question I am often asked is "how is this taxed?" Well, according the IRS, virtual currency is treated as property for federal tax purposes. This means it can be used to buy things, such as personal goods, or business property, or held as an investment. Since the valuation of this currency changes so rapidly, the "cost basis" is the fair market value on the day of purchase. Furthermore, each virtual currency transaction is a reportable transaction, meaning there is a gain or loss associated with each transaction. The IRS also hasn't determined whether virtual currency is a currency, so the "wash sale" rules don't apply just yet. The IRS also fears that cryptocurrency may be used to hide income. My advice - if you use cryptocurrency, keep good records.