Among newcomers in the crypto-ecosystem, it is common to believe that the most challenging thing is the purchase and vending of bitcoin or its ilks. However, that is not what should make all bitcoiners scared of. The real issue is whether one has to pay taxes or not and if yes – in which cases, when and how.
Conditions for that vary from country to another country, but in the US, for instance, the deadline for tax wiling comes on April 17. And as in this country, the tax system is pretty strict, lots of crypto-hodlers are worried about their tax returns.
According to CNBC, lots of Americans get confused by sophisticated rules concerning taxes on cryptos, a plethora of which comes out of instructions, which were released by the US Internal Revenue Service four years ago. These particular rules define the taxation on cyber-coins.
Last year December the whole crypto market demonstrated a surge, with exceptional currencies soaring to their records – BTC and ETH. Therefore, given the complicated US rules, lots of crypto-investors became scared that the high crypto revenues left them with enormous tax bills. Sure, enough, nobody would like to become the target of the IRS.
The New York Times tried to figure out how to deal with taxation on cryptos in the US.
1. What to do if you sell bitcoin?
In case you are “hodling” BTC as an investment, any earnings or lesions on the vending are handled as capital assets. In other words, in this situation, your bitcoin is like a stock or a bond. Either income on them or losses is calculated against the market value of the cyber-coin when you obtained it.
The longer you “hodl” the crypto, the less you have to give out on taxes – from 0.15% to 20% on revenues. Otherwise, the gains are taxed as ordinary earning. Meanwhile, losses are taxed just as on the stock market.
2. Should you pay taxes if you bought an item for bitcoin?
Yes. Note, that you have to remember about tax implications based on your revenues. For instance, you piled into BTC when it was trading at about $1,200. And if you purchased a flat for BTC units, when each of them cost $19,000, you have to keep in mind that you had a long-term capital income of $17,800, and you should consider it when paying taxes. The same goes for losses.
3. Do you have to pay taxes if you are a miner?
Once again, yes. As a gross income, you ought to report the fair market value of the cyber-coin that you got as a reward for mining. That’s the price of the coin that was fixed on the day you acquired it.
And do not forget to pay taxes for being self-employed, in case mining is thought to be a trade or business.
4. Must you pay taxes if you were paid in cryptos?
Yes. And it applies to cases if you were paid on a private basis or by an employer. In the first case, you should report that as a gross income, in the second – your employer should report on a Form W-2.
5. What if you pay an independent worker in BTC?
Yes, that has to be reported to the IRS, but only of the payment exceeds $600.
Lots of other peculiar situations will require you to report to the IRS and pay taxes. For instance, it is relational when it comes to donating cryptos to charity. Another issue is that whether you will have to track your own transactions.
Hopefully, the system will become simpler with new laws and the purchase of bitcoin will be less burdensome.