A Guide To Paying Taxes On Bitcoin Investments
Making money on bitcoin, ethereum, and scores of other cryptoassets has been remarkably easy this year. But in the US, paying taxes on those gains could be a lot more complicated. Transactions that are routine to experienced crypto enthusiastslike hard forks, or swapping between coins at the tap of a buttonare fiendishly complicated when it comes to reporting to the Internal Revenue Service. And make no mistake: the agency is determined to make sure people pay what they owe. Over the course of bitcoins booms and busts, the IRS has noticed that tax returns arent lining up with the manic popularity of the cryptocurrency, according to Tech Crunch . Last month, a federal judge in San Francisco ruled that digital-asset exchange Coinbase must give the IRS information about users who made more than $20,000 in annual transactions in recent years. To help confused crypto investors, accountants like William Brock now specialize in the peculiarities of how the US tax code applies to these burgeoning assets. If youve made money on crypto this year, here are some pointers he says you should keep in mind. (Needless to say, this is not legal advice and its far from exhaustiveif you have specific questions, its best to consult with a tax professional.) People typically think about paying taxes on an investment after theyve sold it. But switching from one digital asset to another will trigger capital gains, even if you dont convert to dollars as an interim step. For example, trading ether for bitcoin and not reporting the gains on the ether will not pass muster with the IRS. A way around this relies on a like-kind exchange as described in Section 1031 of the tax code. (Are we having fun yet?) The rules on this can be ridiculously strict, Brock says. You cant use it for securities or to Continue reading >>
What If I Dont Report My Bitcoin Income?
What if you dont report all of your Bitcoin gains on your US tax return? You must have at least considered it by now. How would the IRS know? I get this question from clients at least as often as I see it in print. It is a tempting proposition: last year, US taxpayers had around a 1 in 100 shot of being selected for an audit by the IRS. This year, with more responsibilities (management of compliance with the Affordable Care Act) and less funding, the odds of dodging an audit are even better. However, if you decide to underreport your income and get caught, the result could entail severe consequences for you and also damage to Bitcoins regulatory future for all. At this point in its development, Bitcoin seems largely to attract three overlapping types of people: early adopters that are intrigued and/or excited by its possibilities (Ill call these blockchain evangelists), investors and entrepreneurs that see a way to cut costs or a new way to invest for a return (economic pragmatists), and those who see Bitcoin as a way to get a little further away from a state-controlled money supply (crypto anarchists or just tax protestors). All three of these groups have something to gain and something to lose by forgetting to report Bitcoin gains at tax time, but it is only the latter group that seems determined to dispense and propagate bad tax advice. Let us say, for the sake of illustration, that you booked substantial Bitcoin gains in 2013. Not enough to make you a Bitcoin millionaire, but enough to pay cash for a nice car and also enough that you would genuinely have an incentive to not report it. If you are like most young American Bitcoin users, you likely fall into a cohort that earns a salary between $50,000 and $100,000 per year, so your Bitcoin gains are not insignificant Continue reading >>
What You Need To Know About Cryptocurrencies And Taxes
What You Need to Know About Cryptocurrencies and Taxes If you owned any Bitcoin (or any other popular cryptocurrency ) in 2017 you probably made a bunch of money. Now, with tax season on the horizon , you may be wondering how all that digital currency will affect your taxes. The Verge has a detailed guide on how to handle your 2017 taxes when it comes to Bitcoin. Here are a few key takeaways from the article to help you through the process. Who Needs to Pay Taxes on Cryptocurrencies? If you bought a bunch of Bitcoin when it was cheap and youre still holding onto it, then youre in luck. The Internal Revenue Service doesnt tax cryptocurrency holdings that have increased in value. You only have to worry about taxes if you sold your digital currency or used it to buy something else. Any cryptocurrency you mined can also be taxed. The same thing applies to any coins you got from the Bitcoin fork in August 2017 , though the IRS still hasnt cleared up exactly how that will work. Heres a chart from The Verge that should help you figure out how your cryptocurrency earnings will be taxed. The first thing youll need to do is create a record of all your cryptocurrency transactions. Some digital currency exchanges , like CoinBase , will actually send you a 1099 form, but only if you sold at least $20,000 in currency in at least 200 seperate transactions. Otherwise, youll have to find your own records, though most of them should be publicly available thanks to the blockchain. Then download all your transactions as CSV files. Youll also need to calculate exactly how much each transaction was worth in U.S. dollars at the time of sale, which isnt easy considering how volatile cryptocurrencies can be . Thankfully, there are plenty of sites that can show you the value of Bitcoin and othe Continue reading >>
Are There Taxes On Bitcoins?
By Kushal Agarwal | April 5, 2015 1:02 PM EDT Bitcoin is a virtual currency that uses cryptographic encryption system to facilitate secure transfers and storage. Unlike a fiat currency , bitcoin is not printed by a central back, nor is it backed by any. Bitcoins are generated by what is called mininga process wherein high-powered computers, on a distributed network, use an open source mathematical formula to produce bitcoins. It takes real high-tech hardware and hours or even days to mine bitcoins. One can either mine bitcoins or buy them from someone by paying cash, using a credit card , or even a PayPal account. Bitcoins can be used like a fiat world currency to buy goods and services. Bitcoin is now listed on exchanges and has been paired with leading world currencies such as the US dollar and the euro . The US Federal Reserve acknowledged the growing importance of bitcoin when it announced that bitcoin-related transactions and investments cannot be deemed illegal. At the start bitcoin's attractiveness was attributed partly to the fact that it wasn't regulated and could be used in transactions to avoid tax obligations. The virtual nature ofbitcoinand its universality also make it harder to keep track of in cross-country transactions. In addition, government authorities around the world soon realized that bitcoinattracted black marketers who could make illegal deals. Naturally,it was impossible for bitcoin to escape the tax authorities ' radars for long. Around the world, tax authorities have tried to bring forth regulations on bitcoins . The US Internal Revenue Service (IRS)and its counterparts from other countries are mostly on the same page when it comes to treatment of bitcoins. The IRS said that the bitcoin should be treated as an asset or an intangible property Continue reading >>
Dealing With Tax On Bitcoin & Cryptocurrency Profits
Crypto madness and Bitcoin bonanza has firmly taken ahold of the internet. Its much like the gold rush of the 1800s. Those who moved first will be laughing all the way to the bank and the rest will probably be left holding dust when it all crashes. One problem of the insane profits many traders are making is taxation. Once you decide youve had enough, what do you do with your handsome profits? Do you declare them to Mr.Taxman? Or do you hide everything in a Swiss bank account like a 1960s bond villain? Wild ideas aside, if you transfer $50,000 into your bank account tomorrow youre going to get slapped at the maximum tax bracket, so you want to think this through. Weve spoke to accountants, crypto-gurus (if there is such a thing?) and friends of friends who know a bloke who once owned Bitcoin to understand the options further. The good news is cryptocurrency is stillkind of a grey area at the moment so you could be in luck but this is unlikely to last forever. RELATED: Cryptocurrency is the future of money Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes. The short of this is, if youre making profit from Bitcoin, even though its not recognised as money you still need to pay tax on any capital gains, much like selling shares or property. Jump to the Australia Business website and they are singing the same song. Bitcoin and other crypto-currencies arent considered to be money or foreign currency by the Australian Tax Office (ATO). Instead, theyre treated as assets for capital gains tax purposes, making them more like a barter arrangement. Regardless, any barter transaction must be recorded as stated by the tax of Continue reading >>
Are Bitcoin Profits Taxable?
If you sell or dispose of bitcoin at a higher exchange rate than you acquired it for, you may owe the IRS a cut of the profits. Virtual currencies, such as bitcoin, are still in the relatively early stages of adoption, and many legal aspects of them aren't well understood. One big example is taxation -- that is, if you buy bitcoin or any other virtual currency and sell it for more than you paid, do you have to pay taxes on your profits? The short answer is "yes," but how much tax you'll have to pay depends on a few factors. Here's a rundown of how the IRS classifies bitcoin and what it means for your taxes. In 2014, the IRS labeled cryptocurrencies "intangible property." That means that all cryptocurrencies, including bitcoin, are subject to capital gains tax rules, just like when you sell a stock or other type of capital asset. Capital gains tax is calculated based on the difference in dollar value between when the asset was purchased (your cost basis ) and when the asset was disposed of (the sales price). The capital gains tax rate depends on your marginal tax bracket, and how much time passes between the purchase date and the sales date. Specifically, any capital asset that is sold at a profit within one year of the purchase date is considered a short-term capital gain and is taxed at your marginal tax rate, or tax bracket . In other words, if you're in the 25% tax bracket for 2017, any profitable sales of bitcoin that you held for a year or less in 2017 will be subject to tax at that rate. On the other hand, long-term capital gains are taxed at more favorable rates. Taxpayers in the 10% and 15% tax brackets pay no long-term capital gains tax, while taxpayers in the 25% through 35% tax brackets pay a 15% capital gains tax rate. Finally, taxpayers in the top 39.6% ta Continue reading >>
Is Bitcoin Legal In India? What Is Tax Rate On Bitcoin Profits?
Bitcoin is one of the earliest forms of cryptocurrency, forming part of the worldwide peer-to-peer payment system. Cryptocurrency is digital money. It is considered to be more secure that the real money. Cryptocurrency uses something called cryptography to secure its transactions. Cryptography, to put it in simple words is a method of converting comprehensible data into complicated codes which are tough to crack. Cryptocurrencies are classified as a subset of digital currencies, alternative currencies and virtual currencies. Bitcoin was the first ever cryptocurrency created in the year 2009. Subsequently, there has been a rapid increase in the number of cryptocurrencies that have been created some of which are Litecoin, Ethereum, Zcash, Dash, Ripple etc. Bitcoins, in India, have slowly started gaining popularity, given the efforts of the government to move towards a cashless economy. However, one should know that bitcoins, as of today, are not centrally administered or regulated by any specific body like the RBI which administers physical currency in India. In fact, peer-to-peer transactions with bitcoins are managed using something known as the blockchain technology which serves as a public ledger for all transactions. 2. Where does bitcoin come from or how is it generated? Mining is an activity where an individual (called the miner) uses his computer prowess to crack computationally difficult puzzles. The process of cracking such puzzles which are integral to the blockchain technology, help in maintaining them. As a reward for this, the miner gets new bitcoins which is nothing but creation of a bitcoin or mining. Purchasing them from a bitcoin exchange against real currency Everyone cannot be a bitcoin miner. Hence, you can consider buying bitcoins from bitcoin excha Continue reading >>
What You Need To Know About Taxes & Cryptocurrency
What You Need To Know About Taxes & Cryptocurrency A visual representation of the digital Cryptocurrency, Bitcoin alongside US Dollars on December 07, 2017 in London, England. Cryptocurrency is riding high these days. But even as more investors are taking a chance on new currencies like Bitcoin, Ethereum, and Ripple, many are still confused about how to treat itfor federal income tax purposes. In 2014, the Internal Revenue Service (IRS) issued guidance to taxpayers (downloads as a pdf) making it clear that virtual currency will be treated as a capital asset,provided they are convertible into cash.In simple terms, this means that capital gains rules apply to any gains or losses. But taxes are rarely simple. Things can get complicated very quickly. Here are the basics: For those taxpayers buying and selling cryptocurrency as an investment, calculating gains and losses are figured the same as buying and selling stock.That's true, as well, when it comes tobasis, holding period and a triggering event. For those treating cryptocurrency like cash - spendingit directly for goods or services, or using it to buy other cryptocurrencies - the individual transactions may result in a gain or a loss. I know, the basics aren't quite so basic. Here's a deeper dive into some of the more complicated bits: First, how do you calculate capital gains? For tax and accounting purposes, capital gains and losses are calculated by determining how much your cost basis has gone up or down from the time you acquired the asset (in this case, cryptocurrency) untilthere's a taxable event. Okay, you've already lost me. What's basis? Basis is, at its most simple, the cost that you pay for assets. The actual cost is sometimes referred to as "cost basis" because you can make adjustments to basis over time. Continue reading >>
Coinbase | Taxes Faq
How do I report digital currency activity on my taxes? Although Coinbase cannot provide legal or tax advice, the IRS has released guidelines for how to report taxes relating to digital currency activity. You can read them on the official IRS.gov website here: Will Coinbase sent me a 1099 or similar form? With the exception of some business accounts , Coinbase does not provide 1099 forms. Coinbase does however provide a specialized Cost Basis for Taxes report which will help with filing your taxes. This reportprovides a summary of your digital currency purchases and sales, showing your cost basis and capital gain/loss. We use a FIFO (first in first out) method for this report. Transactions sending into or out of your Coinbase wallet are treated as buys or sells at the current market price in this report. However, you should keep your own records for best results and update the report accordingly. For example, if you transfer funds offsite to a desktop wallet, and then back again, you would not count this as a sale of digital currency. You can generate the reporthere , by clicking on "New Report" in the upper right hand corner. This report is still in beta and should be used with caution. Note that if you have any deleted digital currency wallets within your Coinbase account, they will not appear in the report generation tool. To restore them, navigate to your accounts page , select "Show Deleted" at the bottom, and then un-delete the wallet you'd like to run a report on. Disclaimer: This report does not constitute legal or tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved. You are responsible forconsulting with your own professional tax advisors concerning specific tax cir Continue reading >>
Bitcoin Investors Aren't Paying Their Cryptocurrency Taxes
Despite months of warnings to pay their taxes on cryptocurrency profits , American Bitcoin investors arent in a hurry to tell Uncle Sam what they owe. Early data from one popular tax preparation service shows that only a minuscule proportionjust .04%of U.S. tax filers have reported their cryptocurrency gains and losses to the Internal Revenue Service so far this year. Thats far fewer than the 7% of Americans who are estimated to own Bitcoin or another cryptocurrency, and who are likely to owe taxes to the IRS on those investments. Of the first 250,000 people to file their tax returns using Credit Karma, fewer than 100 of them disclosed any taxable event for cryptocurrency. Of those, only a single person disclosed a crypto gain or loss big enough to be significant, according to Credit Karma, a free credit-monitoring startup. While its still early in tax seasonat last count , the IRS had received only 18.3 million individual tax returns so far this year, or some 13% of the total expected this tax seasoncryptocurrency investors still seem disproportionately reluctant to report their earnings. (Read our guide on how to pay Bitcoin taxes here.) For example, in a survey of more than 2,000 American cryptocurrency owners conducted in January by Credit Karma Tax along with research firm Qualtrics, some 57% of respondents said theyd realized gains on their crypto investmentsprofits the IRS considers taxable. And yet even more Americans (59%) said they had never reported any such gains to the IRS. Although users of Credit Karmas tax prep service arent representative of all U.S. taxpayers, they do account for a significant part. One million people filed their tax returns through Credit Karma Tax last year, the first time the company offered the online product. That makes the servi Continue reading >>
How Is Cryptocurrency Taxed In Canada?
**Note, I am not an accountant, nor am I an expert on cryptocurrencies. You should seek the advice of an accountant with experience in cryptocurrencies if you have any serious questions or concerns. With the explosion of Bitcoin, Ethereum, and whatever other cryptocurrencies that currently exist or will come to exist, many people are starting to invest. These products arent exactly new, but theyve been making headlines as of late for their huge gains (and losses). If you invested early, you could have easily become a millionaire. As with any hot investment, many Canadians are trying to jump on the bandwagon so they too can make a fortune. Regardless of how much profit these investors make, theyre going to have to eventually deal with taxes. Below youll find some common questions and scenarios when it comes to cryptocurrencies in Canada and how to deal with them. Cryptocurrency is taxed like any other investment in Canada. 50% of the gains are taxable and added to your income for that year. Lets say you bought a cryptocurrency for $1,000 and sold it later for $3,000. You would have to report a capital gain of $1,000 (50% of $2,000) which would be added to your income and taxed at your marginal tax rate. Note that the above scenario applies to normal buy and hold investors. If youre a high volume trader e.g. someone who holds cryptocurrencies for a short period of time or day trades them, the CRA may consider it a business and youll have to file your taxes accordingly. Trading cryptocurrency in your TFSA and RRSP With any potential capital gain, investors will always try to shelter themselves from taxes. The next logical question people ask is can I trade cryptocurrency in my TFSA and RRSP? No, you cant. Nor can you transfer any Bitcoins you currently have into your TFSA Continue reading >>
Bitcoin, Cryptocurrency And Taxes: What You Need To Know
Bitcoin, Cryptocurrency and Taxes: What You Need to Know William M. Peaster on November 29, 2017 / 0 Comments Unless you live in Italy or another similar country where cryptocurrency gains arent taxed at the moment, youll soon be trying to figure out how to properly account for your bitcoin or other cryptocurrency holdings ahead of the upcoming tax season and beyond. Generally, ambiguity reigns presently, as cryptocurrency taxation is very much a work-in-progress for legislative bodies across the entire world. Nevertheless, as current cryptocurrency users, we must contend with the laws of our respective lands as they stand now, lest we commit tax offenses and cause major headaches for ourselves down the road. Today, then, well be breaking down the taxation models applied to cryptocurrencies in some of the worlds most influential nations to help give you a better sense of the current international regulatory spectrum. Most nations make their crypto users submit to one of three fundamental taxation categories: Income tax applies to all non-incorporated entities that receive Bitcoin or other cryptocurrencies as income. Company tax applies to enterprise-grade operations that are large and deal, accordingly, with huge amounts of crypto. Think of a cloud-mining company like Genesis Mining, for example. Capital gains tax applies to traders who have invested in crypto speculatively with the express purpose of making gains. Most nations split capital gains taxes into short-term gains and long-term gains categories depending on various criteria. Now, lets shift to specific national taxation approaches. In a legal sense, then, this means that your crypto investments will be subject to a capital gains tax either a short-term capital gain rate or a long-term capital gain rate depen Continue reading >>
How Do Taxes Work With Cryptocurrencies And Bitcoin
Entrepreneur, online marketing guru and startup addict How Do Taxes Work With Cryptocurrencies and Bitcoin I recently attended an ICO conference in Santa Monica, California, where the entire day was filled with excited discussions about the potential of launching a new cryptocurrency as a fundraising effort instead of a traditional IPO. Regulatory issues abound in this high-risk space, but one thing we did not talk about was taxes. Taxes are a big part of investments , though many investors, US based and otherwise, may be interested in skipping out on handing Uncle Sam his portion of their net gain. If you are interested in the world of cryptocurrencies, it is important to take taxes into account and stay on the right side of the law. If you buy a share of stock for $100 and sell it for $200, you earned a $100 profit. But you don’t get to keep the entire $100. US based investors, and investors in most countries, have to pay capital gains taxes on the $100 profit. While this is simple in theory, many people try to skirt the law and avoid paying out capital gains taxes. Depending on your income and the duration of your investment, capital gains taxes have varying rates . For long-term investments, defined as investments held at least one-year, the rate starts at 0% for the lowest income earners and tops out at 20% for those in the top tax bracket. Short-term taxes are taxed as ordinary income at your regular income tax rate. However, if you earn $200,000 or more per year (or $250,000 for married couples filing jointly), you pay an extra 3.8%. It doesn’t matter if it is a stock, bond, or other investment. If you earned a profit on an investment and fall into the 25% income tax bracket or above, you owe capital gains taxes. That includes Bitcoin and other cryptocurrenc Continue reading >>
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Got Bitcoins? Heres How The Irs Says To Report Them On Your Tax Return.
Got Bitcoins? Heres how the IRS says to report them on your tax return. By Brian Fung By Brian Fung March 25, 2014 Follow @b_fung The Internal Revenue Service has ruled that it considers Bitcoin a form of property, not a legitimate state-backed currency. The announcement is a big deal for Bitcoin holders nervous about staying on the right side of the law as tax time approaches. What does it mean for your tax return? Below, we'll try and sort out what the IRS statement implies for people who hold or transact in bitcoins. Wait. You're telling me I can be taxed on my bitcoins? But isn't the whole point of Bitcoin to allow me to escape the clutches of the government? Within reason. Bitcoin may be free from bank fees and delays that might affect other transactions. Still, the fact that you might be making money from your investments in Bitcoin or earning your salary in it, as many people who work for Bitcoin-related businesses do doesn't exempt you from owing taxes. In that light, it's only natural that Bitcoin transactions would be held to the same expectations. It depends. It's helpful to think about it more in terms of common stock that you might own as a shareholder in a company, tax experts say. When you sell stock within a year of buying it, the profit is taxed as ordinary income. But if you hold that stock for longer, it is taxed at the capital gains rate. The same is true for your bitcoins.Spend one at a coffee shop, and depending on the value of a bitcoin at the time, you may have incurred a gain or a loss compared to when you first got it. Regardless of which it is, that's what the IRS would call a taxable "event." This is potentially really great for people who use Bitcoin mainly as an investment tool. That's because capital gains, as you may know, are taxed at l Continue reading >>