Are bitcoins taxable in Idaho?

June 3, 2019

During the ISCPA Professional Issues Update & Spring Roundtables, Commissioner Moyle was asked if bitcoins are taxable in Idaho.

We felt all our members would benefit from the ISTC's answer below:

Short answer: Income from the creation, exchange, or sale of bitcoins is taxable by Idaho.

Analysis

As made clear by federal policy, income related to the sale of bitcoins is includable in federal taxable income. IRS Notice 2014-21.  Since Idaho uses the federal definition of income for its starting point for determining Idaho taxable income, income related to bitcoins is taxable in Idaho. Idaho Code § 63-3011.

In a policy memo, the IRS answered the question of how bitcoins are taxed.  It determined that bitcoins and similar “virtual currencies” are not actually currency. Instead, the IRS determined virtual currencies are property and income related to virtual currencies are to be taxed in the same way as income related to the creation, sale, or exchange of property.

  • When a taxpayer creates virtual currencies, colloquially known as “mining,” the taxpayer recognizes income equal to the “fair market value of the virtual currency as of the date of receipt.” IRS Notice 2014-21.
  • When a taxpayer sells or exchanges virtual currency, the taxpayer has a gain when the “fair market value of the property [including cash] received” for the virtual currency “exceeds the taxpayer’s adjusted basis of the virtual currency.” Id. The basis of the virtual currency is the fair market value of the virtual currency as of the date of receipt. Id.

Because income related to the creation, sale, or exchange of virtual currency is included in federal taxable income an Idaho taxpayer should report all of the bitcoin-related income in his or her Idaho taxable income.

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