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.
