How the IRS views Virtual Currency.

Many people have asked how steemit, bitcoins and other virtual currencies are taxed. The IRS isn't quite sure what virtual currencies are, but the rules laid out would be almost impossible to comply, and probably just as difficult for them to audit.

The short answer is. You need to report it as income, and keep good records to be able to justify any deductions or expenses.

The IRS treats virtual currency as property. Since virtual currency is not sanctioned by any government, it does not qualify as real currency.

Wages paid in virtual currency are treated as payroll and subject to payroll taxes and withholding. Wages paid for services, and business expenses are subject to 1099-Misc income reporting rules.
If you hold virtual currency for speculation, you would report the gain or losses when it is sold, as a capital gain.
Each virtual currency transaction is to be kept on a real time basis and converted to the current exchange rate in dollars using the date of payment or receipt.
The jury is still out on how aggressive the federal government will be become on the taxation of virtual currency. But in this writer's opinion, the bankers don't like anybody playing in their monopolistic sandbox.

Rico1040
Tax Specialist