Your IRS Weapon
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Spil wij go to press, the value of a bitcoin, which entered 2017 at less than $1,000, is poised above the $17,000 mark.
Reports on this spectacular rise might have you getting your feet moist with virtual currency. With bitcoin futures already available to traders, and the Chicago Mercantile Exchange having announced the December 18th opening of trading, it’s clear that Bitcoin has arrived ter the professional sphere.
Should you determine to leap ter, you might very first wonder what your spouse or significant other will think. But what will the IRS think?
The brief response is ordinary: The IRS will expect a declaration of your earnings (or losses) on Form 1040, Schedule D.
The IRS Treats Bitcoin spil Property, Not Currency
Ter 2014, the IRS defined Bitcoin and other virtual currency spil property. Accordingly:
- Paying anyone with virtual currency should be reported, spil expected whenever your property becomes a payment.
- If you pay anyone their wages ter Bitcoin-yes, some people do-the worker pays the tax, and you report the payment on a Form W-2. This makes wages ter Bitcoin subject to payroll tax and the IRS tax withholding system.
- If you pay a contractor for a service te virtual currency, be sure to punt a Form 1099.
For Bitcoin Earnings, Tax is Lower Than Income Tax
According to the IRS, gains or losses transactions te virtual currency (",cryptocurrency",) are taxable to the extent that the currency makes up part of your capital assets.
Taxes on capital gains, at a maximum of 20% for the wealthiest taxpayer (presently), are, spil a rule, lower than income tax rates.
Say you earn a salary of $60,000, which puts you ter the 25% tax bracket, and you bought your own bitcoin almost a year ago, for $1,000 (your cost onderstel). And say your investment aim wasgoed to dual your value, then sell. After the Bitcoin doubled te value, you sold-realizing a build up of $1,000. Spil you held your Bitcoin less than a year, your short-term build up, at your tax bracket’s 25% rate, means you owe the IRS $250.
Alternatively, say you’re still stringing up onto that Bitcoin. Fine! Spil of today you’re sitting on a $17,000 Bitcoin, and once you’ve held it for more than a year, whatever you make when you sell will be classified spil a long-term build up, taxed at only 15%.
IRS Comes Knocking spil Retail Buyers Fail to Report
Today’s main retail exchange for virtual currency is a startup called Coinbase, which major venture capital players have backed with more than $200 million. It’s a bustling, lightly entered market, and many of the podium’s users toevluchthaven’t yet figured out that virtual currency is taxable.
The Internal Revenue Service launched an investigation into customers who bought and sold Bitcoins through Coinbase once the currency’s value began its dizzying rise. Coinbase resisted the government’s request for information about its customers te federal court, and the IRS narrowed its search down to parties involved te moving $20,000 or more.
Still, the message is clear. Your virtual currency is real enough to the IRS.
Let’s say a revenue officer shows up at your wegens with a 433-A. He/She will ask about your financials, but how do you response for your Bitcoin investment? Do you know your rights? You can decline to reaction and let Travis W. Watkins Tax Resolution and Accounting Rock-hard take the weight off your shoulders. If you are or project to invest ter Bitcoin our accounting and bookkeeping services will treat all of your financial transactions, while this unfolds. Call us today at 800-721-7054.