By: CryptoTaxWizards. Bitcoin, a digital currency launched in 2009, are transactions made without banks or credit card fees. These transactions are done without your name or financial information disclosed. Therefore, Bitcoin transactions are always anonymous. It’s estimated that over 11 million people use it, and it can be used to pay for a variety of items online in addition to international payments. You can transfer Bitcoins to people through various mobile apps. Bitcoin is also heavily traded in the hopes that its value will go up. You can buy and sell Bitcoin through marketplaces known as Bitcoin exchanges and identities of Bitcoin users are always anonymous. They are stored in what is known as digital wallets which are not insured by the FDIC.
What about Bitcoin taxes?
Do you have to pay taxes on Bitcoin? Yes, and here’s what you need to know.
Although Bitcoin has grown in popularity with less scrutiny than working with money, credit cards and banks, Bitcoin taxes are becoming a reality. There have been some people who have become millionaires with Bitcoin, which has drawn attention to placing the digital currency under the umbrella of taxes. If the taxes are not paid, eventually the IRS will catch up with you. Currently, the Internal Revenue is taking steps to see who earns Bitcoin and is not paying the government. Recently, they summoned records from Bitcoin [Coinbase is a primary exchange the IRS targeted] companies to determine who the users are. Bitcoin, even though it is digital, is considered a property of the United States’ government. Therefore capital-gains taxes apply to each transaction.
Crypto Taxes: When Do You Owe the IRS?
But how do you pay Bitcoin taxes? Unfortunately, you’re not issued a 1099 from the IRS, and furthermore, the IRS is not clear on the procedure and because they don’t issue 1099s for Bitcoin, it’s hard to enforce their rules. However, if you didn’t hold on to your Bitcoin and instead cashed out, particularly last year, your profits are considered income, and you should be prepared to pay the IRS. Make a good faith effort to report Bitcoin earnings to the IRS with the help of a professional CPA. An employer paying with Bitcoin must report earnings on W-2 forms just like normal currency. One of the forms currently used to report capital gains, for examples, is Form 8549. Taking a loss on Bitcoin can be used to offset capital gains up to approximately $3,000 of standard income. Mining Bitcoin means to mine a computer to collect a block of Bitcoin transactions and then turn that into a mathematical puzzle. A miner who finds the solution is awarded Bitcoins. If you mine Bitcoins, you are considered self-employed.
Not paying the IRS can lead to serious consequences if the IRS discovers your non-payment. For example, there are failure-to-pay penalties of 0.5 percent per month. These can add up to be significant amounts, particularly if you earned a large amount of Bitcoin. Always keep records of how much Bitcoin you’ve bought, sold and spent. There are forms online that can help you keep track of your Bitcoin transactions. Or – better yet – collaborate with the Team at CryptoTazWizards.com to report your crypto taxes AND maintain ongoing records into the future in order to avoid IRS CRYPTO PAIN!
PS: IF YOU are a tax professional in need of crypto tax strategies and counsel for your clients, reach out to our crypto tax specialist, Thomas.
