What's this Bitcoin thing and how does it impact my business accounting?
If you've been paying any attention to the news lately, you know that cryptocurrency like Bitcoin is hot news. But exactly what is it? That's a question open to some level of interpretation. How do you handle it in accounting for your company if you choose to receive it as a payment or invest in it for your company's future growth? Here's a quick overview of what Bitcoin is and how business accounting with Bitcoin works.
Bitcoin is a cryptocurrency, or virtual currency, which exists digitally and electronically. In its most essential form, it's part of a digital ledger system called a blockchain, which records specific information from one transaction to the next, making it virtually impossible to hack or use fraudulently. This aspect of the currency has boosted its popularity immensely, creating strong growth, much as you would see in gold or silver markets when the dollar is weak or the investment market is otherwise undergoing rapid shifts.
For tax accounting purposes, the IRS treats Bitcoin as an investment, or as property, much as it would any stock or share in a business. Because interest in Bitcoin tends to fluctuate, its value can also fluctuate rapidly, though overall it's been showing strong growth as businesses and investors become more enamored of it. Changing the cryptocurrency into another form, such as cashing out a Bitcoin you've received in payment, is subject to capital gains or losses.
For the first two years of its existence, Bitcoin's value was under a dollar. However, as more companies and individuals began to investigate the cryptocurrency, its value grew, topping $100 a couple years later and remaining in the hundreds of dollars range for value by the time its 8-year anniversary rolled around in January of 2017. However, the last two years have seen significant growth, with Bitcoins fluctuating in value from $3,400 to $8,000 this year thus far.
By having a better understanding of Bitcoin accounting, you can ensure that you're tracking the information you need to pay taxes, account for profits and losses with the cryptocurrency and otherwise are able to meet your business accounting requirements. But what if you still have questions or need help determining how to handle Bitcoin accounting in your company? The experienced professionals at AccountRely are ready to help. Please feel free to reach out today to get started.