At the time of publishing this blog, Bitcoin had hit a value high of $16246.70 US. That’s a profit margin which could not have been achieved in centralized banking systems, or by any investment of the stock market or even land deals.
The patience early miners have shown by investing in ‘virtual money’ since it advent in 2009 is commendable. While Nay Sayers tried to dissuade them from investing any time, money or energy these trail blazers made their own path in this new world. Today they are earning their returns thousand folds!
A Possible Party-Pooper!
While the Bitcoin highs continue, there may be many new investors who want to join the bandwagon. What they and many others may not know is that with every positive, comes a negative. The profit generated is taxable by the IRS (Internal Revenue Service).
Must Read: How To Avoid Bitcoin Scams
In 2014, the IRS issued a show cause Notice 2014-21, which, for the first time, set precedence on the IRS position on the taxation of virtual currencies, such as Bitcoin. According to the IRS Notice, “Virtual currency is treated as property for U.S. federal tax purposes.” They also stated that, “General tax principles that apply to property transactions apply to transactions using virtual currency.”
What the above-mentioned means, is that by treating Bitcoins and other virtual currencies as property and not currency, the IRS is imposing extensive record-keeping rules and significant taxes on its use. Its short-term or long-term gains shall be subject to capital gain tax rates.
What adds a spanner into the works is that, the Internal Revenue Service (IRS) recently won a lawsuit against Coinbase, one of the largest Bitcoin wallet and exchanges, requiring it to hand over records relating to users who conducted Bitcoin trades worth more than $20,000 dating from 2013 to 2015
So how do we safeguard against it?
Ways To Ethically Save Tax on Bitcoin Transactions
Record all your transactions. With complete details ranging from where they have purchased the Bitcoin from and if it has been personally mined, then its specific unique code needs to be registered.
It is very important that Cryptocurrency investors keep a safe stack of amount for their future tax deductibles. This storing of currency can be virtual or real depending upon how you want to utilize your currency.
There is no point in trying to hide your cryptos from the IRS. Their win against Coinbase has established that. So be sure that the wallet you are utilizing is safe and following all the protocols of a Blockchain and hence secure and it is not a wallet provider’s personal online ledger. Keep your keys personal and safe.
So, there you have it. All those who want to invest in this roller-coaster world of cryptocurrencies, you have been warned. The IRS means business. Cryptocurrencies especially Bitcoin is on their mind and you are in the crosshair!