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How to handle bitcoin gains on your taxes
How to handle bitcoin gains on your taxes

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. “This is the first year I’ve asked about it,” says Mark Stafford, a CPA in Maryland. “I had one client try to be a miner last year and I realized it was possible that clients were involved and might not think to tell me.” 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.” There were a number of ways the IRS could have classified bitcoin. It could have labeled it as currency, or a commodity, or a security or debt instrument, as corporate tax attorney Bob Derber has written at the web site of digital currency research group Coin Center. “Bitcoin has qualities resembling all of these property forms, yet it does not neatly fit any of them,” Derber wrote. “Had the IRS treated bitcoin as a currency, special tax rules would have applied to its use and ownership.” By labeling it property, a bitcoin-for-goods transaction is almost like bartering. If you sell your car for bitcoin, the IRS is saying, it’s property for property, rather than currency for property, which is treated differently. By not labeling it a currency, bitcoin does not generate a foreign currency gain or loss for tax purposes. That’s surprising, since so much bitcoin is purchased from international exchanges. On the other hand, you can’t physically hold bitcoins, so as Derber puts it, “We’re still not exactly sure how to define where the bitcoin exists.” Labeling it as property may not be a fully adequate description of what bitcoin is and does, but for now, Derber tells Yahoo Finance, “It’s the best one can do. What it really comes down to is, Who knows what it is yet?” Certainly the IRS doesn’t. Cameron Arterton, a tax attorney in Washington who worked in the Treasury Department’s tax policy office, helped work on the 2014 IRS notice on bitcoin. “I don’t think there was another way they could have done it at that point,” she says, “but that was 2014, and we haven’t seen anything else. I think taxpayers need more. The guidance they put out was a good start, but it left so many questions unanswered.” Bitcoin is still a nascent technology, still misunderstood by many, and still something regulators are puzzling over. In fact, last year the IRS demanded user transaction records from Coinbase, the leading US bitcoin wallet provider, from 2013 to 2015. The investigation is ongoing, but so far it has yielded the fact that only 800 people, over those three years, filed a Form 8949 to disclose property “related to bitcoin.” Form 8949 is for reporting sales of capital assets. It has no language specific to bitcoin, but it follows that if bitcoin is property, that’s the form you’d use to disclose gains from receiving or selling it. 39530.html If you are day trading, this article may apply. 2-25 Hot markets… Powered by CryptoCompare

from:

altcointoday.com
cryptoDATA 06 Apr 2017 cryptoTIME 3 min read
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