Posted by The TaxAdvocate Group, LLC

How Bitcoin is Taxed

How Bitcoin is Taxed

With all the enthusiasm and the possibilities of encryption, it can be easy to forget the cryptography fees. Almost all banks or other "altcoin" transactions (mining, air drops, expenses, operations, purchases, etc.) are likely to be taxable events for US tax purposes. 

There is no agnosticism that the year 2019 is a historic year for the application of the Internal Revenue Service to Crypto-currency. Taxpayers should stay in the game instead of being reactionaries. The IRS is becoming more tolerant of taxpayers who present themselves, rather than those who are discovered. Shortly, this could make the difference between criminal sanctions and the simple payment of interest.

With several hundred people reporting their cryptographic profits every year since the launch of a bitcoin, the IRS suspects that many cryptographic users avoid fees by not reporting encryption transactions on their tax returns.

Unfortunately, the IRS has provided very little information on taxation when it comes to Bitcoin. However, one thing is definite: although the public and the cryptographic community refer to bitcoin and others as virtual currencies, the IRS treats them as property for tax purposes. As a result, selling, spending, and even exchanging cryptography for other cards are likely to have an impact on capital gains. Similarly, receiving it as compensation or other means will be the usual income.

Although Bitcoin receives the most attention these days, it's just one of the hundreds of cryptocurrencies in the market. All that has been discussed about Bitcoin taxation applies to all cryptocurrency.

We review specific cryptographic transactions and their tax implications:

  • The crypto culture trade produces capital gains or losses that can offset profits and reduce taxes.
  • When you change cards, for example using Ethereum to buy something else, a taxable event is created. The card is considered sold, generating capital gains or losses.
  • The receipt of cryptographic payments in exchange for goods or services or in the form of wages is regarded as the regular income at the fair market value of the receiving currency.
  • Cryptographic costs are a tax event and can generate capital gains or losses, which can be short-term or long-term. For example, suppose you bought a $ 100 coin. If that coin was worth $ 200 and you bought a $ 200 gift card, it would be a taxable profit of $ 100. Depending on the storage period, you could get a profit of 100 USD. Short-term or long-term capital, subject to different rates.
  • Converting an encrypted currency to US dollars or another currency into profit is a taxable event because it is treated as a sale generating capital gains.
  • Air drops are considered normal inputs on the day of the fall. This value will become the monetary base. When it is sold, traded, etc., there will be a capital gain.
  • Mining coins are considered ordinary income equal to the fair market value of the currency on the day of withdrawal.
  • First foreign currency offers are not included in the IRS tax treatment of equity. They, therefore, produce regular income for individuals and businesses.

Although the private identification of the currency sold or exchanged allows taxpayers to manage their capital gains in the short and long term, stock exchanges are currently not configured to choose the currencies to sell or trade. Therefore, the IRS will not satisfy the first treatment in the first place, although no guidance has been provided to taxpayers to choose their methodology, as long as it is consistent in the set of the declaration.

That said, the best way to minimize them is to buy and store for over a year. Short-term capital gains are taxed based on the usual corporate tax rate, while long-term profits are taxed at a reduced rate (15 to 23.8% on a support basis). Obviously, given the volatility, it would be better to guarantee the benefit now and get the tax, but it depends on your decision.

Digital exchanges are not regulated by intermediaries of the IRS, which complicates the preparation of tax documents if you have negotiated Cryptomena. The stock exchanges do not issue Form 1099 and do not calculate the profit or the cost of the trader. Many do not even allow dollar transactions but opt for Ethereum. This means that self-information is necessary.

However, the stock exchanges are beginning to take note of the tax return. Coinbase, for example, now offers a 1099-K form, but only for certain commercial users and GDAX users who have earned at least $ 20,000 in cash for the sale of cryptograms related to at least 200 transactions in a year civil.

Other users must use the transaction history of your account. The income statement and the cost base are still in beta, and their accuracy is not guaranteed. Therefore, it is recommended to keep detailed records of all cryptographic transactions on all exchanges to obtain all the cryptographic information required for the US tax return. These records include acquisition, purchase or transfer data, the market value at that date for the calculation of the base price, and the time and proceeds of sales when a currency is sold traded or spent.

The TaxAdvocate Group, LLC
Contact This Member