Tax season is ramping up in the United States and Uncle Sam is looking to get his cut from the cryptocurrency pie; that is a slice of your profits. Last year was hot for bitcoin, Litecoin, Ethereum, and most all altcoins. With amazing percentage gains across the board, there were many investors who took profits. Now, Uncle Sam is looking for his cut, but despite the major tax reform put in place for 2018 by the current U.S. Administration, not much has been done to clear up the gray area on the taxation of cryptocurrencies.
Old laws on the books
The regarding cryptocurrencies was published by the IRS in 2014 and states that “virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as ‘convertible’ virtual currency.” Furthermore, IRS states, “For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.” Finally, concerning gains and losses, the IRS publication goes on to state the following:
The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or 4 business are examples of property that is not a capital asset.
According to the IRS, bitcoin is not a “currency” but rather virtual property that is subject to taxation as normal property would be subject to. This is pretty disadvantageous to anyone who suffers a loss because property losses are capped at $3,000 for a write off per year, for married filers. To assist tax filers, Investopedia has a to figure out this complicated situation. Working with an accountant to calculate taxes is recommended.
Uncle Sam 1, Crypto 0
After a court case in late November 2017, the IRS won the right to gain access to some 14,000 Coinbase accounts, in which users had bitcoin-only transactions in excess of $20,000, between the years of 2013 and 2015. After this ruling, Coinbase will be issuing 1099-K forms and reporting earnings to the IRS for users in excess of $20,000 for the 2017 tax year. The following is from Coinbase’s : “For U.S. users only, Coinbase provides to certain business users and GDAX users that have received at least $20,000 cash for sales of cryptocurrency related to at least 200 transactions in a calendar year.”
Tax Legislation down the Road
With Coinbase’s record profits this year (SAMBURAJ PLEASE LINK TO INTERNAL STORY) of more than 1 billion USD, it would come as no surprise if the IRS auditors have their sights set on Coinbase and its users. However, over the past few years, the IRS has been suffering from a shrinking budget and downsizing staff. The number of audits performed each year has been in general, but that is no reason not to report your cryptocurrency earnings. Since cryptocurrency gained international attention in 2017, there should be some developments in tax codes within the year. Remember, the U.S. Government needs to find a way to offset all the major tax cuts it approved for 2018 and cryptocurrency looks appetizing.
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Published at Tue, 13 Feb 2018 18:51:24 +0000
bitcoin Economics
