In our increasingly digital world, it makes sense that people have developed digital forms of currency to coincide with Internet and mobile shopping. Bitcoin was the first cryptocurrency to arrive on the financial scene in 2009 and has since increased in popularity. As I’m writing this, 1 Bitcoin is trading for more than $600 in the United States, and Bitcoin’s average transaction volume exceeds that of Western Union, according to Coinometrics.
Users can either mine Bitcoins by contributing computer power to solving complex math problems or by buying and selling them on one of many Bitcoin exchanges. Then users can trade their Bitcoins or fractions of Bitcoins like stocks or redeem them for products and services at the growing number of retailers that accept Bitcoins. The exchange of Bitcoins happens digitally, anonymously and directly from one computer or mobile device to another. According to CNN Money, this transaction model can be enticing to small businesses because the transaction fees are less than those associated with credit card payments. However, Bitcoins still should be viewed and taxed as property, the Internal Revenue Service announced in a New York Times article in March. This means that a taxpaying company that receives Bitcoins as payment should report the amount of Bitcoins it receives at the fair market value on the date of payment in its gross income, it reports.