It does not matter whether you use the most known cryptocurrency in the world bitcoin for storing your funds or for making relatively quick and cheap transactions, you owe some taxes. At least to the American government, in case you live in the US.
Tax Explanation #1. Buying Products With BTC
As CNBC reports, the American government does not consider bitcoin as a currency. Instead, it is defined by authorities as property. Therefore, anytime you make a purchase, using BTC, you conduct not one operation but two.
Let’s make it clear. When you are buying something with this coin, you, initially, vend goods, which are, apparently, the ‘Bid Daddy.’ Important to emphasize, you sell it for fiat money value. After that, you use the gained funds from the previous ‘deal’ to purchase something. Yes, it happens so fast that you cannot even notice it. However, as long as you make these transactions with bitcoin, everything has to be reported on the taxes.
Tax Explanation #2. Investing In The ‘Big Daddy’
Sure, a plethora of people prefer piling into bitcoin rather than buying products with it. Even still, if you are among these individuals, you have to pay taxes. In case you are a short-time ‘hodler’ and stored the coin for less than 365 days before selling it, that money will be taxed as revenues.
But if you are surpassed the limit of one year in ‘hodling,’ your money will be taxed as a capital gain. Just be ready that in the second case it could be 20% on top. Add to it other actions such as accounting fees or transactions, and the tax could surge to 60%. By the way, that’s what happened to one early bitcoin investor, according to CNBC.
So What? Who Pays Taxes?
Well, you may ask: “But who reports it?” Roughly, nobody. Between 2013 and 2015, before bitcoin soared to $2,000 per unit and was mostly traded at below $1,000, fewer than 900 individuals annually reported their BTC operations to the US Internal Revenue Service.
Thus, four years ago the American agency was induced to define digital money as property. Furthermore, recently IRS even has served a summons to the California-based crypto exchange, which functions in 32 countries. The agency called the platform to produce the data concerning its 14,000 clients who have been making transactions with bitcoin for over $20,000 each worth.
The American federal court diluted the IRS ambitions, even though it finally ruled in its support. Nevertheless, what is happened to those transactions – were they taxed or not – remains unknown.
Notwithstanding the above, there might come some ease. The bill "The Cryptocurrency Tax Fairness Act," which has been issued by both Republicans and Democrats in the US, was presented a few months ago to the US Congress. In case the bill is supported, only bitcoin transactions above $600 will be taxed.
Will be Americans fortunate or not, nobody knows yet. But it is evident that the country’s government is intending to hutch a jackpot on cryptocurrencies.