Whether you use Bitcoin to purchase something, are paid in Bitcoin, are rewarded with Bitcoin, or are mining Bitcoin, keep track of how much each block was worth when you received it and how much it was worth when you spent it. Bitcoins are very volatile and there are huge swings in prices in a single trading day. Whenever bitcoin is bought, sold, or traded, there are tax consequences. A mined Bitcoin is considered ordinary taxable income. Any bitcoin-related expenses would be deductible on Schedule C. The US Federal Reserve acknowledged the growing importance of bitcoin when it announced that bitcoin-related transactions and investments cannot be deemed illegal.