Friday, April 7, 2017

As we get closer to tax day in the U.S., the IRS is paying close attention to Bitcoin traders paying their due

Tax day in the U.S. this year is April 18, and ironically it is on a Tuesday rather than Monday because of the recognition of 'Emancipation Day' on the 17th.  However this emancipation is tied to Lincoln's proclamation freeing the slaves back in 1863 rather than every American's emancipation from having to pay income tax or the myriad of other onerous government obligations.

Which brings us to the newest tax that must be paid by individuals who have conducted either commerce, or trade in the crypto-currency known as Bitcoin.  In a ruling by a Federal district court back in 2014, Bitcoin was deemed to be a security rather than money, and as such is to be taxed the same way one does with property.  Ie... if you made a profit from the difference when you bought and sold Bitcoin, you are required to pay taxes on those profits, and record it in your tax return.

Image result for taxes on bitcoin

Image use courtesy of Michael Carney/pondodaily
When you file your taxes this year, your accountant might ask if you own any bitcoin.
The popular digital currency recently hit an all-time high of $1,327 per coin, and while there arguably still hasn’t been a “killer app” (a mainstream purpose for a layperson to use bitcoin), its main use right now is as a speculative investment—and it has been a good investment
And if you’ve bought something using bitcoin, or sold something for bitcoin, or traded bitcoin for fiat currency, you should consider making that clear on your taxes.
Believe it or not, the IRS posted official language on digital currency back in 2014; it considers bitcoin to be property. “For federal tax purposes,” the IRS says in no uncertain terms, “virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.” 
If you’ve bought bitcoin simply to hold it as a speculative investment, you don’t need to disclose anything. But as with stocks, income from the sale of bitcoin would be taxed as capital gains, based on the value of bitcoin at the time you sold it. The same goes for if you receive bitcoin as payment, the IRS says: “A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in US dollars.” - Yahoo Finance
It is this recognition of Bitcoin as a security rather than as money that will make it more difficult to use Bitcoin in its original intention as a medium of exchange for goods and services.  Because in every single transaction you make, whether through the paying with or in the receiving of the crypto-currency, you have to keep a record of every transaction, and at the current market value of Bitcoin in U.S. dollars at the time of the transaction.

The IRS has stated recently that they are now planning to single out individuals who buy, sell, or use Bitcoin, and look closely to see if they are or have been recording their use of the crypto-currency on their tax returns.  And unfortunately this scrutiny will cause many who were considering buying some Bitcoin for commercial or investment purposes to think again as the government makes it nearly more trouble than its worth.

1 comments:

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