Tax Treatment of Bitcoin
By : Alyse.email@example.com -
Do you happen to own some bitcoin? Are you thinking about selling it? Or are you thinking about purchasing some? Well, before you do anything, you need to know that the IRS considers bitcoin “convertible virtual currencies” and they are considered property, not currency. Due to this fact, if they are bought, sold or traded, they may be subject to tax consequences through capital gains and losses. If you need a better idea of how it is classified, the IRS has released a guide on how bitcoin and other cryptocurrencies should be treated.
Bitcoin being considered property is actually more beneficial when it comes to paying taxes on gains because the tax is lower for property gains than income gains. Check with a tax advisor to figure out the difference in percentage based off of bitcoin vs. income gains. Meanwhile, if you lose on selling bitcoin and have reported it to the IRS, you could use that to offset taxes you owe on better-performing investments. However, this net property loss is capped at $3,000, meaning that losses are less favorable than if it was classified as income.
The IRS knows most people who own bitcoin don’t report it to them. In response, the IRS has pushed for and succeeded in getting files on people who make certain amounts or higher from bitcoin. You may or may not make much from it, but regardless, it is safer to report selling it to the IRS to avoid the multiple penalties and fees you will have to pay for not reporting it.
There is no need to pay tax for buying bitcoin if you do not sell it. However, you need to keep an accurate record of buying and selling costs. The IRS will only tax the profit gained from selling it later, but if you can’t report what the initial buying cost was, then you are taxed on the full selling price.
If you want to learn more about bitcoin taxes or if you want some help handling these taxes, feel free to reach out to me by phone or email!
A Mazzo Accounting provides a variety of tax and accounting services to individuals and businesses in the Wyomissing, Reading, West Reading, Sinking Spring and Kenhorst areas, as well as towns and villages around the Greater Reading area. Our services for small to mid-size businesses include taxes, payroll services, accounting services, and bookkeeping services. We also provide a variety of services for individuals and they include tax return preparation as well as some accounting assistance.