IRS and Bitcoin Tax

IRS And Bitcoin Tax

IRS And Bitcoin Tax

Bitcoin, as opposed to Bitcoin Cash, is still a strictly digital currency. Most virtual currencies have no physical, palpable counterpart in the ‘real’ world. No guarantees in gold, no real estate, nothing like that. So, while some people may laugh at the question “is Bitcoin taxable by IRS?” and say “Why of course IRS Bitcoin tax exists. It is money, isn’t it?”, when we take the specific nature of cryptocurrency and virtual currency into consideration, it is easy to see how some may be confused. After all, many assume that Bitcoin and other virtual currencies, not being tied down, are exempt from government oversight. We hope this article will help shed some light on the many crucial issues concerning Bitcoin taxation, Bitcoin tax reporting and Bitcoin tax evasion, beginning with the entry-level, but still an all-important question, “Are Bitcoins taxed?”

IRS and Bitcoin tax | Are Bitcoins Taxed?

The basic information regarding Bitcoin taxation is actually relatively easy to find. In fact, most of the IRS and Bitcoin tax information you will ever need can be obtained from the official website of the Internal Revenue Service: (Paraphrasing) „Virtual currency (i.e. Bitcoin) is treated as property for U.S. federal tax purposes.  General tax principles that apply to property transactions apply to transactions using virtual currency”. So, is Bitcoin taxable by IRS? The law is simple and straightforward. Bitcoin is property, therefore it is taxable. Sadly, while it is true that Bitcoin taxation is indeed a thing, the information offered on the official website regarding the IRS Bitcoin tax and the subtle intricacies of Bitcoin tax reporting is actually very stripped down, even scarce. In short, general rules apply and transactions should be reported, same as with any other property.

If you want to know more, you’ll have to rely on other sources to show you the ropes concerning the IRS and Bitcoin tax information.

IRS and Bitcoin tax | How Is the IRS Bitcoin Tax Collected?

First of all, while it is true that Bitcoin is a virtual currency, it is not just something that is in the clouds. Bitcoin represents value and has its equivalent in real currency. As such, we refer to it as a “convertible” virtual currency. When this “convertible” virtual currency is used in real-world transactions which influence the economy, the exchange results in tax liability.

The IRS Bitcoin tax is collected in one of several ways. Bitcoin tax reporting is done either by employers or payers to independent contractors. If an employer pays his employees in Bitcoin, he or his Bitcoin accountant must report so on a Form W-2.

When it comes to service providers and independent contractors, self-employment tax rules are applicable as with other legal tenders. In such cases, Form 1099 must be issued by payers.

Bitcoin Tax

Bitcoin Tax

IRS and Bitcoin tax | Bitcoin Tax Evasion

If Bitcoin taxation is a thing, then you can bet that someone has a Bitcoin accountant with the intricacies of bitcoin tax evasion all figured out already. And truly, there are many who are not – how should we put this? – particularly diligent when it comes to their Bitcoin tax reporting. Apparently, government agencies have caught wind of this, judging by the paper on the additional actions needed to control taxation of virtual currencies, published by the Treasury Inspector General for Tax Administration (TIGTA). The IRS is involved in a sweeping information collecting campaign to uncover unreported Bitcoin gains hidden from the IRS Bitcoin tax.

The search for Bitcoin tax evasion draws resources and manpower from multiple law enforcement officials and agencies, including the DEA, FBI, IRS, DOJ and Europol.

Technology moves fast, especially in the field of cryptocurrency. But the IRS is catching up even faster, and is ready to crack down on anyone intent on breaking the law. You don’t want to be on the wrong side of the line when that happens.

IRS and Bitcoin tax | How to Stay out of Trouble

There are several ways to be a good bitcoin accountant and stay on the IRS’s good side, including:

  • Reporting foreign financial accounts. You must file a Report of Foreign Bank and Financial Accounts (FBAR), but only if the total value of the foreign assets is in excess of $10,000. How to comply: file the FinCEN Form 114.
  • Those who traded in Bitcoin must report their capital gains. Bitcoin trading basically counts as exchange of property, which is why Bitcoin taxation is something we are now obligated to discuss. How to comply? Simple: Form 8949.
  • Report payments made to foreign financial institutions. These include foreign bank accounts and Bitcoin exchanges. If the assets are more valuable than $50,000, fill out the Form 8938.
  • Forbes recommends reporting Bitcoin gains on line 21 of Form 1040 as “other income”.

You can see even from this very simplified explanation that the question “Are Bitcoins taxed?” is not quite as easy to answer as we made it out to be at first. The IRS would certainly like to tax cryptocurrency, but the regulations are still not properly defined, lacking clarity and proper categorization. The best you can do is play by the rules based on the guidelines that do exist.

IRS and Bitcoin tax | Conclusion

In essence, as far as the IRS and Bitcoin tax information go, there is more to it than meets the eye. Something based on such a simple prospect as “If it’s property, it is taxed” can easily turn into a daunting and confusing endeavor if you are not business savvy and if you’re struggling even when you’re doing your regular taxes. Especially if you have large investments, hiring a Bitcoin accountant may be the best choice of action. Even a run-of-the-mill tax preparer should have no trouble handling your IRS Bitcoin tax with ease.

 

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Author: Ben Prescott
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