How To Handle Cryptocurrency On Your Taxes
How to handle cryptocurrency on your taxes You sold some bitcoin. Now the IRS wants its cut. Before you jump into this explanation of how cryptocurrency affects your taxes, check out our first article in this series: Bitcoin, explained . It's been a wild ride for cryptocurrency enthusiasts over the past few months. After ascending to a high water mark of $19,205 in December 2017 , the world's preeminent cryptocurrency -- that's bitcoin -- shed more than half its value over the 60 days that followed. (As of mid-February, it's climbed back past $10,000.) Other virtual currencies, including Litecoin and ether , also saw precipitous drops. Now, in the wake of that dramatic swing, it's time to start thinking about taxes. The freewheeling universe of cryptocurrencies has so far mostly evaded the cumbersome, complex regulations customary in most other US financial markets. That's likely to change in 2018, however, given the SEC's closer scrutiny of virtual currencies . In fact, a number of state and federal agencies are increasingly concerned about the individual and systemic risks cryptocurrencies pose. Those range from good old-fashioned fraud to more novel cybercrimes, as well as the distinct possibility the government has forfeited massive amounts of tax revenue to this secretive market since 2013. The chairmen of the US Securities and Exchange Commission and Commodity Futures Trading Commission testified at a Senate hearing about virtual currencies in January. The attention is likely warranted. An SEC lawsuit filed against Coinbase last year revealed that fewer than 900 taxpayers reported gains related to bitcoin between 2012 and 2015, even though more than 14,000 Coinbase users recorded transactions of $20,000 or more during the period. Read: The IRS guidance on cryptoc Continue reading >>
Bitcoin Tax Guide: An Introduction | Investopedia
Bitcoin Tax Guide: Lost Or Stolen Bitcoins Investors looking to make a move into the digital currency space have several things to learn. They must determine which currencies best meet their needs; they should look into the start-ups, ICOs, and blockchain-related technologies and systems that relate to the digital currency industry; they must keep their assets secure. Like any investment, individuals venturing into the cryptocurrency space must also learn about the tax repercussions of their investment decisions. In this tutorial, well examine the implications of IRS Notice 2014-21, a set of guidelines and rules for investors which was first issued in early 2014 . One of the major implications of IRS Notice 2014-21 is that the U.S. government has decided to treat cryptocurrencies like bitcoin as property instead of as currency. The result is that a wide-ranging group of bitcoin stakeholderseveryone from consumers and merchants to bitcoin miners and service providerswill now fall under the larger umbrella of bitcoin investors in some way or another, and this group will now have to deal with complicated and sometimes daunting reporting requirements. The first thing that well look at in this tutorial is what any individual who has explored the cryptocurrency investment arena should talk about with his or her tax adviser before filing personal tax returns ahead of the April 15 deadline. Lets assume that our prototypical investor Max is married, and he and his spouse made $100,000 in total taxable income for the previous tax year. How should Max report trading gains and losses for bitcoin and any other cryptocurrency investments? How does this relate to purchases that he made with those currencies? If he lost funds in a wallet that was affiliated with an exchange that was h Continue reading >>
How Do You Claim Losses From Crypto Currency Theft?
How do you claim losses from crypto currency theft? My crypto currency wallet was hacked and emptied out. I want to report it as a loss on my tax return. Can I claim it as capital loss against other capital gains? Can I use the exchange rate at the time of the theft? This answer will point you to clarify the different types of cryptocurrency thefts, whether it's a capital loss or a theft depending on the circumstances. Understand that this is a complex subject and in a state of flux as is the bitcoin phenomenon. This answer culls portions of a blog that apply to you. I suggest further research for you to determine where your situation lies. "Generally, for U.S. income tax, a loss from the three schemes above could be a theft loss or a capital loss, depending on the circumstances. For US tax purposes, theft generally means criminal appropriation of anothers property, including loss from swindling, false pretenses and guile (Revenue Ruling 2009-09). Generally, whether a theft occurred for tax purposes would be based on laws in the jurisdiction where the theft occurred and, and it occurred with criminal intent. A conviction is not required to determine a theft occurred (Revenue Ruling 2009-09). A capital gain/loss is the loss on the disposition of a capital asset. A disposition/worthlessness of stock tradeable on the open market is a capital loss (not a theft loss), even it relates to fraudulent activities of the board of directors/officers (Revenue Ruling 2009-09, Revenue Ruling 77-17). A U.S. persons loss from capital assets (after netting against gains) is limited to $3,000 per year (see section 1211 and 1212)." If a theft, is the Loss from a Profit Activity or an Unrelated Activity? "There are two general types of theft (non-capital) losses which are deductible as ite Continue reading >>
Paying Taxes On Bitcoin Isn't Nearly As Hard As It Sounds
Bitcoin has soared in value over the past year. Paying taxes on bitcoin may seem daunting to people selling off their investments. The reality is straightforward for most investors, based on how much you bought bitcoin for, how much you sold it for, and what you make in income. Bitcoin's incredible rise in value from just shy of $1,000 per bitcoin on January 1 to more than $19,000 on December 8 has likely caused many bitcoin owners to sell all or part of their investment. But as tax season approaches, it may not be immediately clear how the IRS imposes taxes on bitcoin: Are the gains considered income? Are they capital gains? Something else entirely? With some help from financial experts, Business Insider dug into the tax code to make the process of paying taxes on bitcoin as simple as possible. Before we get lost in a forest of jargon, here's a handy glossary for common tax terms, which in this case apply to buying and selling bitcoin: Capital asset: Basically anything you own, from a house to furniture to stocks and bonds - and bitcoin. Basis: The amount you paid to buy bitcoin (including any fees you paid). Realized capital gain or loss: The profit or loss you made when you sold bitcoin (i.e. the price you sold it for minus your basis). Losses can be deducted from your taxes (more on this below). Unrealized gain or loss: The profit or loss you have on paper but have not actually cashed in on. You do not pay taxes on unrealized gains until you sell, at which point it becomes a realized gain or loss. Short-term gain: Realized gain on bitcoin or any other investment held for one year or less before selling it. Long-term gain: Realized gain on bitcoin or any other investment held for longer than one year before selling it. Bitcoin investments are taxed as a capital asse Continue reading >>
How Do I Report Earnings Or Losses From Bitcoin And Other Digital Currencies?
If you were not given a 1099-MISC for your Bitcoin, here are the steps to follow in TurboTax . Employees must report their total W-2 wages in dollars, even if earned as Bitcoin. If you are an employer paying with Bitcoin, you must report employee earnings to the IRS on W-2 forms. You must convert the Bitcoin value to U.S. dollars as of the date each payment is made and keep careful records. Wages paid in Bitcoin are subject to withholding to the same extent as dollar wages. Bitcoin held as capital assets is taxed as property: If you hold Bitcoin as a capital asset, you must treat it as property for tax purposes. General tax principles applicable to property transactions apply. In other words, just like stocks or bonds, any gain or loss from the sale or exchange of the asset is taxed as a capital gain or loss . Otherwise, the investor realizes ordinary gain or loss on an exchange. Bitcoin received as incomeand then held and sold for profitis taxed as both: If you were paid in Bitcoin, you first pay taxes on the employment income. If you later sell the Bitcoin for a profit, you then pay the capital gains tax. Continue reading >>
Bitcoin At Tax Time: What You Need To Know About Trading, Tipping, Mining And More
Bitcoin At Tax Time: What You Need To Know About Trading, Tipping, Mining And More If you have come into possession of Bitcoin or any other digital currency such as Ripple or Litecoin that is convertible to a real currency or can be used to pay for goods and services, it may seemvirtual. But the Internal Revenue Service considers it very real and you need to account for it at tax time. If youre not doing the accounting [on your digital currencies], you are on the line for tax evasion or misfiling, says Jake Benson, CEO and founder of Libra Tax , which offers accounting software for digital currencies. The reason youd want to account for your Bitcoin and the gains and losses is the exact same reason you need to do it when you trade stocks. If you dont, youre breaking the law. According to IRS guidance notice 14-21 , Bitcoin and cryptocurrencies are capital assets, similar to stocks and bonds. That means that for Bitcoin, and any existing cryptocurrency, the framework that applies to gains and losses, and the taxation and accounting of capital assets applies to cryptocurrency too, says Benson. However, since stocks, bonds and other capital assets are not usually used as an everyday payment mechanism the way that Bitcoin and virtual currencies are, that introduces some complications. Here are the seven ways you may come into possession and/or dispose of Bitcoin and other digital currencies and how you need to account for them at tax time, plus explorations of two major gray areas. (For expediency, the article will refer mostly to Bitcoin, but the rules apply to all virtual currencies.) New Bitcoin are being issued by the system roughly every 10 minutes by a process called mining. In mining, computers running the Bitcoin software around the world attempt to solve math prob Continue reading >>
Filing Bitcoin Taxes Capital Gains Losses 1040 Schedule D
, tagged on 1040 , capital gains , bitcoin , tax The US Tax season has now opened and while the IRS are accepting returns you may be looking at your 1040 and then at your Bitcoin wallet and thinking, "What do I do?". Fortunately BitcoinTaxes is here to help you work out all the overly-complicated and burdensome tax calculations that are required when trading, spending or mining Bitcoins and any other crypto-currencies. This is the first of three parts that will begin explaining what taxes you might owe and how they are calculated, and finally showing you how you can do this with BitcoinTaxes. The first thing to know is what you need to declare. Here is the typical list of events that have tax consequences: You sold some Bitcoins for dollars or any other foreign currency You traded some Bitcoins for another crypto-currency, e.g. ETH, or vice versa You donated some Bitcoins to a registered charity You mined Bitcoins or any other crypto-currency If none of these apply then you do not have to include anything about Bitcoins on your tax return. For instance, if you only bought Bitcoins this year then you do not need to report anything. However, you should keep records because they will be needed when filing taxes after you have sold or spent those coins. This is most likely where you will need to add details into your tax return. In March 2014, the IRS published a notice clarifying that all crypto-currencies should be treated as property for tax purposes. Therefore any gains from exchanging such property would be considered capital income, and taxed as capital gains. Capital gains, like stocks and shares, are reported on your 1040 tax form as part of Schedule D. However, unlike stocks and shares, we don't have a broker that works out all the figures and provides us with a 1 Continue reading >>
Serious Tax Query. Can You Write Off Realized Losses For 2014? : Bitcoin
Do not use URL shortening services: always submit the real link. Begging/asking for bitcoins is absolutely not allowed, no matter how badly you need the bitcoins. Only requests for donations to large, recognized charities are allowed, and only if there is good reason to believe that the person accepting bitcoins on behalf of the charity is trustworthy. News articles that do not contain the word "Bitcoin" are usually off-topic. This subreddit is not about general financial news. Submissions that are mostly about some other cryptocurrency belong elsewhere. For example, /r/CryptoCurrency is a good place to discuss all cryptocurrencies. Promotion of client software which attempts to alter the Bitcoin protocol without overwhelming consensus is not permitted. Trades should usually not be advertised here. For example, submissions like "Buying 100 BTC" or "Selling my computer for bitcoins" do not belong here. /r/Bitcoin is primarily for news and discussion. Please avoid repetition /r/bitcoin is a subreddit devoted to new information and discussion about Bitcoin and its ecosystem. New merchants are welcome to announce their services for Bitcoin, but after those have been announced they are no longer news and should not be re-posted. Aside from new merchant announcements, those interested in advertising to our audience should consider Reddit's self-serve advertising system . Do not post your Bitcoin address unless someone explicitly asks you to. Be aware that Twitter, etc. is full of impersonation. Continue reading >>
Loss Of Bitcoins In Bitfinex Could Be Deducted On Us Tax Returns
Loss of Bitcoins in Bitfinex Could be Deducted on US Tax Returns Following the hack at Bitfinex, many people stand to lose money as the company spreads losses among users. A 36% haircut was announced, but some users claimed even bigger losses. American tax accountant Daniel Winters explains how the IRS could allow U.S. taxpayers to deduct their losses from the Bitfinex hack. Accountant Daniel Winters, founder of Global Tax AccountantsLLC., has over 12 years of tax experience. He was previously employed by KPMG, Ernst & Young and Schonbraun McCann before starting his own business.His firm provides tax and accounting services to the blockchain space. It may be small consolation for the US users of Bitfinex, but IRS tax rules allow you to take a loss for the stolen Bitcoins, he wrote in his blog post , and noted that: For US persons reporting the loss on their tax return, the basic question is whether this will be a capital loss, or a theft/casualty loss. Also, if Bitfinex provides partial reimbursement of losses, this will affect the loss calculation. Attempting to explain to how to generally deduct bitcoin losses on US tax returns, Winters stressed that The characterization of the loss has very different tax consequences. Specifically for the Bitfinex hack , Winters said that since the Bitfinex hack was a theft, you may be eligible to deduct this is a theft/casualty loss, depending on your personal circumstances. He cited that for customers in the business of trading with trader status, the treatment may be different and beyond the scope of his post. Bitcoin is Property, Treated Like a Capital Asset The IRS classifies bitcoin as property, so it is generally treated as a capital asset, said Winters. Anyone selling bitcoin would report the sales on Schedule D, as they w Continue reading >>
If I Buy Bitcoins Can I Deduct That From My Taxes?
if i buy bitcoins can i deduct that from my taxes? Some things that you buy for use in business may be deductible business expenses if you use them to earn taxable money. Otherwise, stuff you buy (gold, cars, furniture, clothing) is never a tax deduction. It's just stuff you buy. If in the future, you sell something for more than you paid for it, you have a gain that is usually taxable. And if you sell an investment for less than you paid for it, you usually have a deductible loss. Bitcoin is treated like other investments like gold coins or stocks. Keep track of the price you pay now; if you sell in the future, you may have a taxable profit or a deductible loss, but only if you have the proof of what you paid. This post has been closed and is not open for comments or answers. People come to TurboTax AnswerXchange for help and answerswe want to let them know that we're here to listen and share our knowledge. We do that with the style and format of our responses. Here are five guidelines: Keep it conversational. When answering questions, write like you speak. Imagine you're explaining something to a trusted friend, using simple, everyday language. Avoid jargon and technical terms when possible. When no other word will do, explain technical terms in plain English. Be clear and state the answer right up front. Ask yourself what specific information the person really needs and then provide it. Stick to the topic and avoid unnecessary details. Break information down into a numbered or bulleted list and highlight the most important details in bold. Be concise. Aim for no more than two short sentences in a paragraph, and try to keep paragraphs to two lines. A wall of text can look intimidating and many won't read it, so break it up. It's okay to link to other resources for mo Continue reading >>
Capital Losses On Bitcoin | Are Losses Deductible?
This post deals only with capital losses. If your bitcoin losses are characterized as ordinary losses, then these rules wouldnt apply. However, very, very few people will have ordinary losses from bitcoin. Unless you qualify as a day trader (which is not easy to do) and have elected to use the mark to market method for determining your gains/losses, its very likely that your bitcoin losses are capital losses. If youre unsure, talk to a tax professional to determine whether your losses are ordinary or capital. Yes. Well get more into the mechanics of calculating gains and losses below, but for now all that matters is that capital gains are determined on a net basis. This means that all your gains and losses for the year are added against each other to reach either a net gain or a net loss. So, yes, losses do offset gains. Example: Bob owns three bitcoins and sells all of them in 2014. He had a gain of $600 on coin #1, a gain of $400 on coin #2, and a loss of ($900) on coin #3. Bob has a net gain of $100 for the year. What about long-term vs. short-term? Do these apply to losses also? Yes. This is where the mechanics of the calculation start to come into play. Remember that when calculating gain or loss, all gains and losses are sorted into either short-term or long-term depending on whether the underlying bitcoin was held for more than one year. So, this means that there are actually four categories of gains and losses: (1) short-term gains, (2) short-term losses, (3) long-term gains, and (4) long-term losses. The short-term gains and short-term losses are added together to reach a net short-term gain or a net short-term loss. The long-term gains and long-term losses are also added together to reach a net long-term gain or a net long-term loss. Finally, the long-term an Continue reading >>
Can I Write Off Bitcoin Losses Against Capital Gains/profits From Stocks?
Answered Sep 13, 2017 Author has 484 answers and 81k answer views Both gains and losses from sale or disposition of bitcoin are capital gains/losses, just like gains and losses from selling stocks. To the extent that a capital loss is eligible to be used to offset a gain, it makes no difference how you incurred the loss. As someone already mentioned, however, if your $2000 loss is just a decrease in value, and has not yet been realized, then there is no actual loss and it cannot be used to offset gain. 463 Views View Upvoters Answer requested by Answered Jul 11, 2017 Author has 1.3k answers and 3.2m answer views You need to talk to an accountant. From my understanding, BTC is seen as property and the tax code is different from investments. But that doesnt mean things cant be written off. Answered Jul 11, 2017 Author has 115 answers and 65.6k answer views Schedule D which is attached to your US form 1040 is where you will report your gains or losses from Bitcoin. The annual loss limit on schedule D is $3,000 with any additional loss being carried over to future years. Only Bitcoin you have sold or used is reported on Schedule D so in order to take your $2,000 loss you will need to sell, use or convert your Bitcoin by year end to realize your tax loss and be able to report the realized loss on Schedule D. Continue reading >>
Tax Tips For Bitcoin And Virtual Currency
Tax Tips for Bitcoin and Virtual Currency Tax Tips for Bitcoin and Virtual Currency Virtual currency like Bitcoin has shifted into the public eye in recent years. Some employees are paid with Bitcoin, more than a few retailers accept Bitcoin as payment, and others hold the e-currency as a capital asset. Recently, the Internal Revenue Service (IRS) clarified the tax treatment of Bitcoin and Bitcoin transactions. Convertible virtual currency is subject to tax by the IRS Bitcoin is the most widely circulated digital currency or e-currency as of 2017. It's called a convertible virtual currency because it has an equivalent value in real currency. The sale or exchange of a convertible virtual currencyincluding its use to pay for goods or serviceshas tax implications. The IRS answered some common questions about the tax treatment of Bitcoin transactions in its recent Notice 2014-21 . Tax treatment depends on how Bitcoins are held and used. Bitcoin used to pay for goods and services taxed as income If you are an employer paying with Bitcoin, you must report employee earnings to the IRS on W-2 forms . You must convert the Bitcoin value to U.S. dollars as of the date each payment is made and keep careful records. Wages paid in virtual currency are subject to withholding to the same extent as dollar wages. Employees must report their total W-2 wages in dollars, even if earned as Bitcoin. Self-employed individuals with Bitcoin gains or losses from sales transactions also must convert the virtual currency to dollars as of the day earned, and report the figures on their tax returns. Bitcoins held as capital assets are taxed as property If you hold Bitcoins as a capital asset, you must treat them as property for tax purposes . General tax principles applicable to property transaction Continue reading >>
Counting Cryptocurrency Gains And Losses Without Running Afoul Of Irs Rules
Counting Cryptocurrency Gains And Losses Without Running Afoul Of IRS Rules A collection of bitcoin tokens sit in this arranged photograph in London, U.K., on Tuesday, Jan. 9, 2018. Billionaire Warren Buffett said on CNBC that most digital coins won't hold their value. Photographer: Chris Ratcliffe/Bloomberg 2017 is viewed by many as the year of the crypto. However, with the increase in popularity and surge in value of cryptocurrencies, a significant number of cryptocurrency investors are now finding themselves in the uncomfortable position of trying to determine what, if any, is their tax liability attributable to their 2017 cryptocurrency transactions. The heightened level of taxpayer concern with correctly reporting the tax liability associated with their transactions can be directly associated to the John Doe summons the Internal Revenue Service (IRS) issued to Coinbase, one of the largest cryptocurrency exchanges in the United States. The IRS is concerned that many U.S. taxpayers may not be accurately reporting the gains or income they have generated from their cryptocurrency transactions. Since the majority of cryptocurrency transactions have likely resulted in significant gains due to the surge in value in most cryptocurrencies, coupled with the fact that the gains are likely short-term capital gains (subject to ordinary income tax rates) since the cryptocurrencies were likely held less than 12 months, the IRS has good reason to be concerned. As a result, in a petition filed November 17, 2016 with the U.S. District Court for the Northern District of California, the U.S. Department of Justice (DOJ) asked the court for a John Doe summons to be issued to Coinbase. The John Doe summons would require Coinbase to provide the DOJ with information related to all Bitcoin Continue reading >>
The Secret To Getting A Tax Deduction For Buying Bitcoin
The Secret to Getting a Tax Deduction for Buying Bitcoin Considering a Bitcoin investment? Here is a tax efficient approach. You've seen all the headlines. Bitcoin is huge, and not going away anytime soon. The volatility can be difficult to stomach. But if you are ready to take the plunge, it would be nice to do it in a tax efficient manner. What if you could invest in Bitcoin and get a tax deduction? What if you could buy and sell Bitcoin without having to report taxable gains and losses each year? There could be an innovative answer for you. I imagine that you have heard of a 401k plan. In fact, you may have had one at a prior employer. But many entrepreneurs don't realize that they can have a 401k for their business...a certain kind of 401k that is. The plan is actually called a solo 401k. The key to qualifying is that you need to be the only full time qualified employee. You cannot have any employees who work more than 1,000 hours and are age 21 or older. If your spouse is employed by the business, he or she can contribute as well. Solo 401ks are suitable for sole proprietorships, limited liability companies (LLCs) and corporations. They work for companies in a wide range of industries. So long as you meet the requirements and have a desire to fund the account, you are set. The great news is that the IRS allows you tremendous flexibility in what you can invest in. You are prohibited from investing in certain insurance policies, S corporation stock and collectibles. Bitcoin does not fall into any of these categories, and is therefore an allowable investment. The true beauty of a solo 401k plan is that you can be your own trustee. Instead of having a custodian that manages your assets, you have total control. This effectively allows you to "self-direct" your investme Continue reading >>