For a better sense of what a bitcoin transaction flow looks like, check out the slideshow. One thing: I have not illustrated the issue of long-term gain versus short-term gain, which adds almost another magnitude of difficulty. Basically, if a bitcoin is more than one year old when it is sold, that gain/loss is categorized separately and taxed at a lower rate.
This, hopefully, has given you a better sense of how the federal government is watching you're bitcoin and how you should report it. Doing it yourself isn't impossible, but with all the steps needed to figure out the valuation, it's not easy.
The difficulty of tracking bitcoin is one reason I created LibraTax, software designed to address the unique characteristics of digital currency and blockchain technology and make the accounting of it easy to handle.
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