Cryptocurrencies have been on the rise in recent years. This is mainly due to its decentralized nature, which means that no government or bank rules it. Cryptocurrencies are typically used for online transactions, but this may change as more and more people start using them to pay for goods and services in the real world. It is important to know how cryptocurrencies will be taxed if you own some of them. In this article we will talk about the taxation of cryptocurrencies.
Treatment of cryptocurrencies by the IRS
The Internal Revenue Service (IRS) recently published a guide on handling virtual currency transactions. The IRS treats cryptocurrencies as property for federal tax purposes, not as a dollar or a euro. This means that whenever someone buys something with Bitcoin, they are also subject to capital gains taxes, paying a percentage of the profits made from trading Bitcoin over the course of their life.
Let's say you buy a Bitcoin today for $ 1000 and sell it tomorrow. In this case, you will be taxed as if you bought BTC Inc stock because your holding period was less than twelve months - any profit between now and then would be considered short-term capital gains, which are taxed higher than capital gains. long-term. Bitcoin Profit is a leading trading platform that could make you big money.
Trading with other cryptocurrencies
Let's assume you are trading on Bitcoin Revolution of your cryptocurrency with other cryptocurrencies. In this case, the gain or loss is calculated in US dollars and then converted to the appropriate currency at the exchange rate on the conversion date. For example, if you buy a Bitcoin for $ 8000 and then sell it for $ 10000, you make $ 2000.
This would be reported on your tax return as income in the year you sold the Bitcoin. If you traded your Bitcoin for Ethereum, and the exchange rate was $ 1000 for Ethereum on the date of the trade, then you should report a profit of $ 1000 (not $ 2000) on your tax return.
Application of the IRS
The IRS has stepped up its enforcement of cryptocurrency taxation in recent years. In October 2017, the agency sent letters to more than a thousand taxpayers who may not have reported their digital currency holdings in their tax returns. The IRS also worked with exchanges to obtain customer transactions.
In December 2017, the IRS published guidance on the treatment of virtual currencies for tax purposes. The guide stated that virtual currencies are treated as property and that the gains and losses from virtual currency transactions should be reported as holding gains and losses.
The IRS will likely continue its crackdown on cryptocurrency taxation in 2018 and beyond. Taxpayers who have not properly reported their digital currency holdings should consult with a tax professional to determine their best course of action.
Cryptocurrencies are treated as property in the eyes of the law, not as a currency. The IRS treats cryptocurrencies like stocks or an investment asset. This means that it is subject to capital gains taxes, which means that you will have to pay tax on any profits you make from the sale of your crypto coins.