Several investors are not aware of the tax rules governing cryptocurrency. It is a gray area that has left many confused. But it is your responsibility to know that any digital currency transaction is taxable by law. The lack of sufficient regulations and rules on this topic make it very ambiguous for an investor.
The Inland Revenue Service says that a cryptocurrency will be treated as property and not as currency. While not all cryptocurrencies have an equivalent substitute in real cash, bitcoin has and it is taxable.
What should you do when you sell bitcoin?
You must worry about taxes only when you sell the bitcoin and not when you buy it and hold it. Here is what you must do, should you transact in bitcoins:
- Report the sales: Not all cryptocurrency exchanges are obligated to report a sale, unlike a brokerage firm which will send you a 1099 tax form when you sell your bonds or stocks. It is your responsibility to find out the tax liabilities and do the needful.
- Treat as property: Just like you pay a tax when you buy or sell a property based on what profit or loss you made, you must pay tax for the virtual currency. So what you must do is to maintain a record with the following information:
- When did you buy your crypto
- How much did you buy it for
- When did you sell it and for what price?
There are several other factors that need to be considered and for those not well versed in the taxation rules, it can be very confusing. Thankfully, there are several websites which focus on helping bitcoin investors understand the tax liabilities. They will guide you in determining what you need to pay and how to pay it and which are the forms that need to be filled to report your capital loss or gain.
Don’t ever try to skip your taxes because no one is watching currently. If the IRS discovers what you owe you will end up paying a hefty sum in penalties and fines. And in severe situations, you may be subject to criminal prosecution for evading taxes.
Don’t let taxes scare you from investing in bitcoin. There are several automated trading systems like the bitcoin code which help investors interested in cryptocurrency. The bitcoin code software makes trading in cryptos a breeze for one and all.