We do not have a definitive answer in the US and we won't have one for a while. The catalyst that is causing all of the confusion around taxation is that we do not have a definitive answer on how to classify the cryptocurrency or how to regulate it. The reality is that we are almost running on an honor system at the moment. In order to regulate the coins, every transaction would need to be reported to the government. Similar to PayPal reporting all the income that goes through your PayPal account. However, the basis for the currency is decentralization. The only way the government would be aware of any income generated is when you sell or convert the coin, unless they target you specifically for some reason. IE you buy a large home all cash and reported that you made minimum wage last year.

I own a few other business's and would recommend that you pay something and report something. The IRS is forgiving in this situation if any issues were to arise. What they are not willing to forgive is when you try to not pay any taxes.

I do not pay taxes on any coins that I hold because the coins are traded on markets and the US government does not consider it to be a currency. I am holding on to it for an investment like any other commodity and it is not generating US dollars until it is sold. At that point a loss or gain can be calculated. Coins are valued in comparison to currency. We recognize the value of the coin based on it's value in our perspective currency the same as we recognize 1 share of GE stock to be valued at $33.

Regarding income that I pay taxes on: I pay myself a set amount each month as a salary for compensation and to cover my business expenses. The coins I sell to cover my salary and expenses generates US dollars that I deposit into my bank account. This is the gross income for the year. The taxable amount used is the gross minus the deductions. The US has generous deductions for business owners. A home office is a deduction, a cell phone is a deduction, internet access, electricity, car payments, the computer I am using right now, and the list goes on. Anything that is needed to run the business is an expense and a deduction.

Many of the questions regarding deductions and how to get the best tax rate or the most beneficial deductions would not apply to any of us. We are running a business. You do set up a corporation, LLC, sole propritorship, ect.  However, we are not considered a "true company" in  the eyes of the IRS until we have three employees. If you have less than 3 employees you are simply considered self employed under the IRS. The good news is that you still receive the benefit of tax deductions associated with operating a company.