If you are a bitcoin investor and have cashed in on your gains, or made purchases using the cryptocurrency, don't forget the IRS is entitled to a piece of the action.
The value of one bitcoin in 2010 was less than a dollar. It has escalated to almost $10,000 as of Thursday morning. There's a good chance if you have cashed out or paid for anything using this cryptocurrency, you have capital gains to report to the IRS.
Essentially, the IRS has ruled that bitcoin and other cryptocurrencies are viewed as property and not currency for tax purposes. Although you may not receive a 1099 from whatever platform you trade on, you remain responsible for paying taxes on gains.
Those transactions generate either short-term capital gains or losses or long-term capital gains or losses. For many investments, individuals receive a Form 1099 showing their taxable gains. The form also is sent to the IRS, which gives the agency a way to identify any differences in what's reported between brokerages and taxpayers.
A U.S. District Court judge in California ordered Coinbase, a popular platform for buying and selling bitcoin and other cryptocurrencies, to turn over identifying information on accounts worth at least $20,000 during 2013 to 2015.
The court case arose after the IRS found that for in each year from 2013 to 2015, only about 800 taxpayers claimed bitcoin gains. During that time, the cryptocurrency rose from $13 to $430.
So how do you determine what you owe?
If held it for 1 year or less, it is a considered a short-term gain and is taxed as ordinary income. Depending on your tax bracket for 2017, that could range from a tax rate of 10 percent to 39.6 percent.
Any bitcoin you sold or spent after owning it for more than one year is taxed as a long-term gain. that could range from a tax rate of 0 percent to 20 percent.
In a nutshell, although bitcoin is often viewed as being anonymous, not reporting your gains could be viewed as tax evasion by Uncle Sam.
BluePoint Financial, LLC
151 Regions Way, Suite 6B
Destin, FL 32541