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How To Report Gains And Losses On Bitcoin And Other Cryptocurrency

How To Report Gains And Losses On Bitcoin And Other Cryptocurrency

How to Report Gains and Losses on Bitcoin and Other Cryptocurrency Bitcoin is no longer the theoretical money of the future. Plenty of people are trading in Bitcoin and using it to pay for everything from coffees to furniture. Some people even speculate that it will become the currency of the future. If you are trading in Bitcoin or other cryptocurrencies, you may think that you are somehow skirting the system, that you are off grid. But The Man always finds a way to take his cut, and you arent going to get around your tax obligations by using Bitcoin or cryptocurrencies instead of cash. Youll need to talk with a Gilbert tax lawyer to be sure you are meeting your obligations, but here are the basics for how the IRS treats cryptocurrencies: Basically, the IRS treats cryptocurrencies like property. Just like a gold bar or a house can go up or down in value, so can a cryptocurrency. The IRS taxes you based on what you gain when you trade in the currencies. For example, say you own five Bitcoins that you purchased for $1,200 each. You use one to pay for a $2,000 sofa. Since you only paid $1,200 for the coin but got a sofa valued at $2,000, you now have $800 worth of assets in your possession. Therefore, the IRS would consider that you owe taxes on that $800. The rate at which the gain is taxed depends on how the amount is classified. For example, if the gain is part of an investment transaction, it would likely be taxed at the same rate as capital gains. Consulting with a tax law attorney near Gilbert is essential so you know how to classify these gains and pay the right tax rate. If you suffer a loss from your Bitcoin trading, you can also deduct those losses, but there may be limitations. Trading in Bitcoin for Everyday Purchases Maybe you have become a Bitcoin devotee a Continue reading >>

Few Americans Reporting Cryptocurrency Trading To Irs For Now: Report

Few Americans Reporting Cryptocurrency Trading To Irs For Now: Report

February 13, 2018 / 8:04 AM / a month ago Few Americans reporting cryptocurrency trading to IRS for now: report NEW YORK (Reuters) - Less than 100 people out of the 250,000 individuals who have already filed federal taxes this year through company Credit Karma reported a cryptocurrency transaction to U.S. tax authorities, the company said on Tuesday. FILE PHOTO: Bitcoin (virtual currency) coins placed on Dollar banknotes, next to computer keyboard, are seen in this illustration picture, November 6, 2017. REUTERS/Dado Ruvic/Illustration/File Photo This is despite nearly 57 percent of the 2000 Americans surveyed by the credit score startup and research firm Qualtrics last month saying they had realized some gains from cryptocurrencies, according to a Credit Karma study. Roughly the same percentage said they had never reported cryptocurrency gains to the Internal Revenue Service, while nearly half of those polled said they understood how owning cryptocurrencies affected their taxes, the study said. The IRS considers cryptocurrencies such as bitcoin as property for federal tax purposes, meaning any profits or losses from the sale or exchange of the virtual coins should generally be reported as capital gains or losses. Trading of cryptocurrencies, digital tokens whose value is not backed by central banks and hard assets, surged in 2017 amid a rally in their price. A single bitcoin is worth more than $8000, compared with $1000 a year ago. Despite the surge it remains unclear how many Americans hold cryptocurrencies as these are bought and sold on online platforms, sometimes anonymously or using pseudonyms. US-based cryptocurrency exchange Coinbase says it has 10 million users, although it is unclear how many of these are in the U.S. Jagjit Chawla, general manager for Credit Continue reading >>

Coinbase Releases Cryptocurrency Tax Calculator

Coinbase Releases Cryptocurrency Tax Calculator

Coinbase Releases Cryptocurrency Tax Calculator Mar 13, 2018 at 04:30 UTC|UpdatedMar 13, 2018 at 04:35 UTC Cryptocurrency startup Coinbase has launched a new gain/loss calculating tool as part of an effort to help its user base keep up with U.S. tax requirements. In a blog post published on Tuesday, the firm explained that the calculator can be used to generate a report which outlines their capital gains (or losses) on its platform, using a first-in-first-out (FIFO) accounting method. The tool comes with a few caveats, however, namely that it's primarily aimed at users who have bought and sold on Coinbase exclusively - and isn't recommended for those who have purchased digital assets elsewhere or participated in an initial coin offering, per the blog. "This tool provides a preliminary gain/loss calculation to assist our customers, but should not be used as official tax documentation without validating the results with your tax professional," the startup also cautioned. Its release follows an earlier step by Coinbase on the tax front, when, in January, the startup reminded its users that they are liable for U.S. capital gains, even going as far as posting a consistent banner about the issue. The issue of taxation and cryptocurrencies has always been someone of a contentious topic, ever since the U.S. Internal Revenue Service announced in 2014 that it would treat such assets as a taxable form of property rather than, say, a currency. Concerns over the ambiguity of the IRS guidance - in its new blog, Coinbase itself writes that "we understand taxes for digital currency can be complicated" - have fueled complaints from professional circles. The topic also carries an added degree of weight for Coinbase specifically, which was the target of a lawsuit by the IRS as it sought Continue reading >>

Uncle Sam Doesnt Care How You Report Crypto Tax Gains Just Do It

Uncle Sam Doesnt Care How You Report Crypto Tax Gains Just Do It

Uncle Sam doesnt care how you report crypto tax gains just do it By Perry Woodin, opinion contributor 02/15/18 11:30 AM EST The views expressed by contributors are their own and not the view of The Hill If you havent heard about a company called Coinbase in the past 12 months, youve either been living under a rock or deliberately avoiding the bitcoin hype train. Ill make it quick. Coinbase is a San Francisco based cryptocurrency brokerage and exchange; its the blockchain industrys first unicorn, and has accrued over 13 million customers in less than six years. The exchange lets people link bank accounts to buy and sell four digital currencies, including Bitcoin, Bitcoin Cash, Litecoin and Ethereum. The reason for the background is because the millions of Coinbase users across the country who made gains in their cryptocurrency portfolio (or digital wallet) in 2017, must report their gains to Uncle Sam. Now that we are in the midst of tax season, crypto enthusiasts are scrambling to do the right thing before the April 15 deadline. And it is extremely important they know a few things. First, while its has been a legal requirement since 2014 (digital currency is currently identified as a form of property), very few Americans actually disclose their capital gains to the IRS . Some deliberately avoid it because they think blockchain is synonymous with anonymity and therefore wont get caught. Bad move. The government is already working with blockchain analytics companies like Chainalysis so they can uncover large USD sells that go unreported. Some simply forget about cryptocurrency tax compliance, because they only have experimental stakes in the asset class. Also a bad move. Every digital currency transaction incurs a gain or loss and therefore triggers taxable event, no mat Continue reading >>

How To Tax Your Cryptolosses

How To Tax Your Cryptolosses

Subscribe for the latest in L.S.C. articles and news! The previous article covered cryptocurrency gains, which is a popular topic within the space because of the upside of the market and the past history of spectacular returns. Many investors are jumping in on ICOs that saw the boom this summer in terms of volumes of cryptos and amounts of funds raised. But the truth is, investors also loose money on trading and participating in ICOs. Part of the ICOs that took place were simply scams that fooled the investors by presenting a fake concept, product and promises of high returns. An example of such ICO is Ziber. According to rabulbhuyan9 : They left no chances to have a doubt. Ziber merchandise, stickers, office, suited men, presentations, brainstorming sessions, intro video, product already available for download each and everything seemed legit. What if you looked through the project, it interested you and you decided to participate? The funds you sent to Ziber is worth nothing. Any Investor would freak out. But there is still an advantage that can be taken from the loss. A taxpayer may use his total net loss to reduce income dollar for dollar, up to the $3,000 limit. If the total net loss exceeds the yearly limit on capital loss deductions, carry the unused part over to the next year and treat it as though it had incurred in that next year. If capital losses are more than capital gains, a taxpayer may claim a capital loss deduction. The allowable capital loss deduction, figured on Schedule D, is the lesser of the following: $3,000 ($1,500 if taxpayer is married and files a separate return) The taxpayers total net loss, as shown on Schedule D John Doe decided to send 1 BTC to Ziber ICO in exchange for 1000 tokens. He should already report the transaction on form 8949 an Continue reading >>

Tax Issues Facing Us-based Cryptocurrency Holders And Miners: Part 1 Capital Gains/losses For Crypto

Tax Issues Facing Us-based Cryptocurrency Holders And Miners: Part 1 Capital Gains/losses For Crypto

Quick summary of capital gain/loss taxation and accounting challenges for crypto traders The IRS wants you to account for cryptocurrency as property. This means that if someone pays you in crypto, you're expected to declare it as income at the value it had at the time you receive it. If you trade it for money or some other form of property, you are required to report any capital gain or loss associated with that trade. As a simple case, if you bought a Bitcoin for $300 and later sold it for $400, you would report a gain of $100. Vice versa, you can also report losses on your trade which can be used to counterbalance gains you've had during that tax period. But unfortunately for tax payers, tax accounting for gains and losses are not symmetrical. If you gain $10K during your first year of trading, you have to pay taxes on the total amount. If you lose $10K during that time, you can only deduct up to a fixed amount (limit has been $3K for many years now) and must carryover any additional losses to offset potential gains in future tax years (or take another $3K deduction each year if you have no gains in any given future year). It's also possible to carryback the loss to a prior year where you had gains (assuming you're willing to file an amendment to your prior year's tax form). All of the above accounting is a bit of a pain, as you might imagine or perhaps have experienced, but many people successfully file tax returns every year with capital gains and losses (and at least a decent portion of them are probably filed correctly). But gains/losses in cryptocurrency can be much more difficult to account for compared to trading in traditional securities, primarily because many cryptocurrency exchanges don't offer adequate tax calculators like those that are typically found o Continue reading >>

Why Cryptocurrency Could Be Your Worst Tax Nightmare

Why Cryptocurrency Could Be Your Worst Tax Nightmare

Why cryptocurrency could be your worst tax nightmare Bitcoin gains and losses are taxed like property, but a lack of information could make filing a challenge. Investors peppered wealth managers with questions about bitcoin throughout 2017 and the cryptocurrency soared in value and mainstream awareness. While most professionals did not recommend buying the volatile asset, many clients took the plunge anyway and it could result in some tax headaches for advisers. Bitcoin entered 2017 trading under $1,000 and surged to an all-time high of $19,783 on Dec. 17, according to Coindesk . Other popular cryptocurrencies like Ethereum and Ripple had bull runs of their own, meaning a lot of investors could be facing a lot of crypto-gains this year. The IRS classifies bitcoin and other cryptocurrencies as property, meaning it's treated as a sale even if the cryptocurrency was used to make a purchase. Any increase or loss in value would be taxed as any other capital gain or loss. The challenge is that many people don't closely track the spending and trading of cryptocurrencies, said Jamie Hopkins, an associate professor of taxation at the American College of Financial Services. (More: Cryptocurrency frenzy poses a challenge to advisers ) Further, many of the cryptocurrency exchanges people use aren't providing taxable income forms for trades and transactions, leaving the burden on individuals to track losses and gains. The extreme fluctuations in value, the lack of consistency across exchanges, and individuals not understanding the impact of their own basis makes that task a challenge. "Digital currencies are all the rage today, but without proper planning they might just cause you rage come tax time," Mr. Hopkins said in an email. "Tax planning and tracking is really on the shoulde Continue reading >>

Tax Tips For Bitcoin And Virtual Currency

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 >>

Bitcoin Tax Guide: Trading Gains And Losses - Wash Sales: Impossible To Track?

Bitcoin Tax Guide: Trading Gains And Losses - Wash Sales: Impossible To Track?

Bitcoin Tax Guide: Trading Gains And Losses - Wash Sales: Impossible To Track? Bitcoin Tax Guide: Lost Or Stolen Bitcoins As if the bitcoin tax situation werent complex enough, theres at least one more interesting feature of digital currencies because of their status as property. This is the concept of wash sales , situations in which a taxpayer sells off an investment, realizing a tax loss, and then immediately buys it back at a bargain price. Wash sales typically apply to stocks and securities, o its unclear exactly how it will impact bitcoin and other digital currency traders in the years to come. Because bitcoin is not considered a stock or security, the IRS would likely only go after investors for non-economic substance transactions which cover broader property rules. The fact is, most traders make investment decisions in bitcoin and other digital currencies because of market-moving news and based on the wide swings in price levels of these currencies, not for tax purposes. Because of that, it is unlikely that bitcoin traders would be penalized by the U.S. government under these rules. Should the IRS eventually close off the wash sales loophole, which would potentially have implications for a bitcoin investor. He or she would need to wait at least 30 days before buying more bitcoins in order to realize a loss on another sale of his holdings. Depending upon the exchange and the wallet that our sample investor makes use of, the IRS will probably be able to catch him if he tries to claim improper losses on wash sales. More likely, though, and given the global, decentralized nature of digital currencies and their exchanges, it would be very difficult for the IRS to flag him for under-reporting on wash sales. This doesnt even take into account cold storage, referring t Continue reading >>

Cryptocurrency And Taxes: 4 Things To Know About Reporting Your Investments - Mar. 26, 2018

Cryptocurrency And Taxes: 4 Things To Know About Reporting Your Investments - Mar. 26, 2018

4 things to know about your cryptocurrency at tax time by Anna Bahney @annabahney March 26, 2018: 12:37 PM ET Although cryptocurrencies are nothing new, 2017 saw more mainstream investors buying in and cashing out. Now they could be staring down some major tax liabilities. But how tax laws apply to virtual currencies like bitcoin and ethereum is still a gray area that confuses people. "I think a lot of people who got in to cryptocurrency maybe didn't even think about the tax implications," says Janna Herron, a tax researcher and writer at Value Penguin. The Internal Revenue Service says virtual currency transactions are taxable by law. The agency issued its first and only guidance on how tax principles apply to transactions using cryptocurrency in 2014. "The one notice is considered tax authority," says Sarah-Jane Morin, an attorney in the tax practice group at Morgan Lewis. "It isn't as binding as regulations, but it is all we have to go on." The guidance says that for tax purposes, cryptocurrencies should be treated as property, not currency. And cryptocurrencies, in this guidance, include anything that is considered a "convertible virtual currency," which means it has an equivalent value in real currency or acts as a substitute for real currency. Not all cryptocurrencies act this way, but most of the major ones, like bitcoin, do. "Some people with bitcoin may think of it as dollars or cash," says Morin. "But for IRS purposes it should be treated as a house, stocks, bonds. You have to look at the general tax principles that apply to property and how it impacts your gains or losses." Basically, if you bought bitcoin and haven't sold, you haven't realized any gain. You probably don't have any reporting obligations. But if you sold bitcoin or any other cryptocurrency in Continue reading >>

Tax Treatment Of Crypto-currencies In Australia Specifically Bitcoin

Tax Treatment Of Crypto-currencies In Australia Specifically Bitcoin

Tax treatment of crypto-currencies in Australia specifically bitcoin This guidance paper provides an overview of the tax treatment for transactions associated with crypto currencies, specifically bitcoin. This guidance also applies to other crypto or digital currencies that have the same characteristics as bitcoin. The guidance in this paper is general in nature only. Statements about deductibility assume that the ordinary conditions for a deduction are satisfied. For GST purposes, the paper assumes supplies are connected with Australia, relevant taxpayers are registered or required to be registered and supplies are not GST-free. It is assumed that acquisitions satisfy the creditable purpose requirements. Note: The GST guidance in this document is subject to pending legislative changes on the GST treatment of digital currency (such as bitcoin) which will have effect from 1July 2017. The amending legislation received royal assent on 30October 2017. However, the new legislation will not have the full effect until the corresponding amendments to the A New Tax System (Goods and Services Tax) Regulations 1999 (GST regulations) are amended. For further information and the administrative treatment you can apply from 1July until the GST regulations are amended, see GST removing the double taxation of digital currency . This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances. Transacting with bitcoin is akin to a barter arrangement, with similar tax consequences. Our view is that 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. You need to keep t Continue reading >>

Cryptocurrency Could Carry Tax Bite: Guest View

Cryptocurrency Could Carry Tax Bite: Guest View

Cryptocurrency could carry tax bite: Guest view By Benjamin R. Bostic, February 16, 2018 at 3:00 AM With catchy names and compelling headlines about breathtaking increases and decreases in value, cryptocurrencies like Bitcoin, Ethereum, Litecoin and others are making many investors swoon. While these assets have "currency" in the name even the IRS calls it "virtual currency" do not make the mistake of thinking it behaves like the dollar bills in your wallet. Yes, you can buy everything from cars to vacations with Bitcoin and its peers, but there is a significant catch. When you buy cryptocurrencies, you are not getting an asset that behaves like money, but something that under federal tax law gets treated like stock. You are required to account for every transaction, and increased value realized on use of the cryptocurrency results in recognition of capital gains, which are subject to tax. Thinking about using some Bitcoin profit to buy that new car you have been eyeing? When tax time comes, you may be paying more for the car because you may have income tax to pay on the gain realized on the liquidation of the cryptocurrency to pay for the car. Heres some advice to help you avoid turning your cryptocurrency investment into a financial headache. As the popularity of Bitcoins took off over the past year, many accountants were wringing their hands about the tax-filing nightmares ahead. Compounding the problem is that unlike stock, brokerage firms, which provide year-end documents that track gains and losses, the cryptocurrency exchanges so far are leaving the tracking up to clients. Like everyone else, the IRS has taken notice of Bitcoin-mania. From 2013 through 2015, fewer than 900 people declared Bitcoin-related transactions on their taxes, despite the millions that obv Continue reading >>

Bitcoin Tax Guide: Lost Or Stolen Bitcoins

Bitcoin Tax Guide: Lost Or Stolen Bitcoins

Bitcoin Tax Guide: Lost Or Stolen Bitcoins Bitcoin Tax Guide: Lost Or Stolen Bitcoins As bitcoin and cryptocurrency trading has become more popular, the number of incidents of thefts, scams, and fraudulent activity has also increased. How does the IRS deal with these situations? Unfortunately, the IRS reaction is not always beneficial to the investor who has had bitcoins go missing. Typically, losses which apply to bitcoin are governed by Section 165 of the tax code. Individual losses are thus subject to a $100 floor and are deductible, but only to the extent that the taxpayer has a total loss for that year which is in excess of 10% of adjusted gross income. S if an investor loses $20,000 in bitcoin holdings when an exchange goes defunct, but that quantity of bitcoins also had $10,000 in realized capital gains. The investor would be entitled to claim a loss for the tax year in which he discovers the loss. Still, though, he would need to pay $1,500 in capital-gains taxes for the gains that were realized previously. Mt. Gox, the popular cryptocurrency exchange that became defunct, caused millions of dollars of losses for investors . However, the fact that the lost bitcoins were, in some cases, recovered means that investors may not have been able to claim their missing coins as losses at all. The reason for this is that the IRS likely considered there to be a reasonable chance of recovery of the coins. Issues with cryptocurrency exchanges become even more complicated when you consider the fact that exchanges are based all over the world. In the case of Mt. Gox, the exchange was Japanese, and it was not a fully licensed U.S. bank. Part of the appeal of the cryptocurrency industrythat it provides investors with anonymity and decentralizationalso means that the taxation of Continue reading >>

How To Handle Cryptocurrency On Your Taxes

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 >>

Warning, Crypto Investors: You Must Pay Taxes On Your Bitcoin

Warning, Crypto Investors: You Must Pay Taxes On Your Bitcoin

Warning, crypto investors: You must pay taxes on your bitcoin Even if you made just one transaction, you likely have to pay The celebration of bitcoins explosion may ease when newly minted millionaires have to pay taxes. Many people holding bitcoin have seen massive gains, some becoming overnight millionaires after the currency soared more than 1,000% in value over the last 12 months . Now comes the less fun part: Paying taxes. One office assistants struggle was shared on Reddit on Thursday , when he discovered he owed $50,000 to the Internal Revenue Service in taxes on cryptocurrency exchanges. The user, who makes about $47,000 per year at his job, said he bought eight bitcoins in 2017 for $7,200 and raked in a profit when bitcoins value soared in late 2017. After selling about $120,000 of coins, he found he now owes $50,000 in taxes but only has $30,000 left in crypto. He said he only has $5,000 in savings left. He either spent his windfall or invested in other coins, or both. I feel like I might have accidentally ruined my life because I didnt know about the taxes, he wrote. Its likely he owes some taxes on these exchanges, though the exact amount can likely be shaved down by a tax professional, a spokeswoman from personal finance website ValuePenguin said. In fact, anybody involved in cryptocurrency transactions should be paying taxes on them, said Kirk Phillips, a tax professional who specializes in cryptocurrencies and goes by the moniker The Bitcoin CPA , whether they have sold hundreds of thousands of dollars worth of coins or a made a single $2 purchase. Because bitcoin BTC, +2.85% and other cryptocurrencies are seen as property by the U.S. government, capital-gains taxes apply to every transaction made. It can be very tedious, Phillips said. I call it the cof Continue reading >>

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