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.

What You Need To Know About Bitcoin and Crypto Taxes

By: CryptoTaxWizards. In the year 2017, bitcoin rocketed from trading just below $1,000 in the early part of the year to over $19,000 by December, while a number of the other virtual based currencies also experienced gains. For any person that ignored the crypto-slang advice of “HODL” which stands for “hold on to your investment for dear life” and made the decision to cash-out, these profits are regarded as a type of income according to the IRS.

If you were one of many that sold your crypto coins or used your crypto for buying anything in the year 2017, you more than likely owe bitcoin taxes to the IRS. Not paying for these taxes can result in consequences. If the IRS finds out that you under-reported or failed to report this income when filing your taxes, you could be subjected to a “failure-to-pay penalty” of 0.5% every month, starting from the month after it happened to be due.

To avoid such penalties here is what you need to know about paying for taxes associated with bitcoin.

Crypto Currencies Are Been Monitored By The IRS

Bitcoin Crypto Taxes

While the amount of people that own these virtual currencies is not certain, the U.S cryptocurrency exchange  Coinbase has estimated that they already had approximately 11.7 million users by the end part of October 2017. However, unlike traditional investment where you are usually issued with a 1099 form that you send to the IRS to track your tax obligations and holdings, this is not usually the case when it comes to virtual currency. Coinbase does provide the 1099 forms to specified business customers as well as customers who received a minimum of $20,000 cash on sales associated with virtual currency associated with a minimum of 200 transactions within a calendar-year.

Without this type of documentation, it becomes difficult for the IRS to enforce their rules. Recently the IRS has started to take the necessary steps in order to identify tax-payers that are making profits but have failed to report. In fact, in 2016, Coinbase was summoned by the IRS to produce their records, and the courts ruled that the company would need to disclose information on around 14,000 users that had either received, sold, sent or bought a minimum of $20,000 worth of bitcoins in the given year. Even if you are not a Coinbase user, you are still obligated to disclose and report, and each U.S. taxpayer could be faced by an audit from the IRS.

You Owe Bitcoin Taxes If You Have Spent Or Sold Crypto

In the year 2014, the IRS issued their first official guidance on how virtual currencies should be treated, that outlined the fact that crypto is regarded as property. What this means is if you happened to unload bitcoin in the way of gifting it, selling it or using it for buying anything from a car to a pizza you have triggered a “taxable event.” You are then held responsible to pay taxes on appreciation on this virtual-currency on the price that you purchased the currency at to the price that you spent or sold it at.