If one were to receive Bitcoins then immediately use a conversion service (for example to PayPal) would gains/losses need to be recorded? If so, is there any software that can do this automatically? Thanks in advance.
Bitcoin is taxed as capital property (see IRS Notice 2014-21), and a tax event occurs any time it is converted into fiat (e.g. USD) or other assets. You would have to record each transaction and include it in 1040 Schedule D.
This is the difference between how much USD you received less the value of those BTC when bought/acquired them. If you had owned those coins for more than a year, you can report it as "long-term" gains, which has a reduced tax rate. Otherwise, it "short-term", which is just taxed as normal income.
You can use https://bitcoin.tax to help work it out.
Income is income if you make a gain it would be reportable on your taxes regardless of amount. I am not aware of any software currently that tracks income gained/lost based on current bitcoin prices, but it should be trivial if someone owes you $200 and they send you the BTC equivalent and you hold it for a short term and when you sell you get $220 the $20 increase in value would be reportable as short term income. Also I am not a lawyer and this does not constitute legal advice always consult a lawyer and an accountant for specific local regulations that may or may not apply to your situation.
P.S. the $600 limitation is placed on businesses when they determine if they need to send out a 1099 form or not.
If it is a transaction under $599 it shouldn't be taxed according to tax law. I'm not a lawyer.