Bitcoin and other cryptocurrencies have experienced astronomical price increases te 2017, enabling many investors to reap significant profits from their investments. However, many investors express confusion about the onberispelijk way to report investment income to the Internal Revenue Service (IRS). Gratefully, the IRS has issued bitcoin tax guidelines that make it relatively effortless for investors to remain ter compliance, spil long spil they practice sufficient record-keeping.
Below, this guide explains the steps investors should take to obey with IRS guidelines for cryptocurrency investing:
Bitcoin Tax Guide: An Overview
The IRS issued guidance for cryptocurrency users te 2014. According to the bulletin, bitcoin and other cryptocurrencies are classified spil property for federal tax purposes. From the notice :
“For federal tax purposes, virtual currency is treated spil property. General tax principles applicable to property transactions apply to transactions using virtual currency.”
Consequently, cryptocurrency is taxed similarly to USD ter many cases (tho’ not all). If an employer pays wages ter cryptocurrency, the employee voorwaarde report it spil income for tax purposes. If a business accepts cryptocurrency payments, it voorwaarde pay tax on the fair market value of the cryptocurrency at the time of the sale, this is why many companies use payment processors such spil BitPay to automatically convert bitcoin payments into USD at the point of sale.
Where the property classification becomes most significant for bitcoin users is when it is used to pay for goods or services. Because the IRS does not presently treat cryptocurrency spil currency-even when it is used te this manner-U.S. residents are required to keep detailed records of every cryptocurrency transaction-even for transactions spil minor spil purchasing a cup of coffee-and report profit or loss realized at the time the transaction wasgoed executed.
Bitcoin Tax Considerations for Investors
Albeit the property classification makes bitcoin tax reporting a cargo for ordinary users, reporting requirements will be fairly familiar to sophisticated investors. If held spil a capital asset, cryptocurrency is treated similarly to stocks, bonds, and other conventional investments.
When investors sell their cryptocurrency holdings at a profit, they vereiste pay either short- or long-term capital gains taxes, depending on how long they held the asset. Similarly, investors may offset their tax bill by proclaiming capital losses on cryptocurrency investments they sell for less than their cost poot.
Despite thesis guidelines, the IRS says that many investors neglect to report cryptocurrency investment income on their tax comebacks, either because they are unaware they voorwaarde do so or because they mistakenly believe they can hide this income from the government.
Investors should also recall that albeit cryptocurrency is treated spil property for federal tax purposes, states and local jurisdictions may classify it differently. Investors should obtain professional tax guidance to ensure they conform with all applicable regulations.
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Note: This guide is intended for informational purposes only. Raadpleging your tax adviser for specific guidance on how to conform with bitcoin tax regulations.