What is a bitcoin tip?
Likely you know what a tip at a restaurant is. Your waiter does a good job serving you food and then you give him a tip for it. But you also can get tips on the internet! If you say something that people like, they might just tip you for it! As an accounting student however, this begs a question: what exactly is a bitcoin tip for tax purposes? An internet tip has two possible ways of being taxed:
- A non taxable gift. This is like receiving a present from a friend or relative. As long as its under 10,000, it’s exempt from a gift tax too.
- It is compensation and should be taxed as ordinary income.
I feel there are valid arguments for both sides. Although some examples are more clear cut than others. For example, someone who you know gives you a bitcoin tip as a gift, it could very well be a gift. However, if the intent of the giver is to make a profit somehow on the tip, it would seem more like compensation. An example of this is if someone offers bitcoin in exchange for work.