CRYPTOCURRENCY
There’s a lot that you should know about virtual currency
If you own bitcoin or any other cryptocurrency (virtual currency) or if you’ve been thinking about getting some of this virtual currency, then you should know that the IRS does not consider it the same as cash.
However, to get cash from your virtual currency, you will need to sell it for fiat. And when you do, the IRS sees this as an investment or property of sorts that can be taxed. This is particularly true if you receive your pay in bitcoin because this is taxable income.
So beware. Virtual currency will have real-world taxes imposed, and if you dodge paying taxes on your bitcoin and other crypto, then you could face interest, penalties, or even criminal charges. Be sure to keep good records of your cryptocurrency transactions.
How? In ways you may not have even thought of.
As of yet, legal requirements for reporting cryptocurrency trades are not in place. However, if a business pays over $600 to anyone, the person must report it as income for tax purposes.
This is going to include income earned from bitcoin and other virtual currencies.
There is a question added on the 1040 tax forms as of 2020 that asks,
“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
— CNBC
Of course, there are people who lie on this question, and the IRS is not stupid. They figure that. This is why the IRS And the US Department of Justice have come up with some other ways to force compliance on this issue, with their Virtual Currency Compliance Campaign. This could result in more tax audits.
The IRS also found out about some people’s cryptocurrency income and sent out letters to 10,000 of them in 2019, reminding them of their tax obligations. They were given a chance to amend their returns with back taxes and interest penalties, of course.
One way the IRS got informed about people’s crypto incomes is by filing legal summonses on cryptocurrency companies to provide them their customer lists.
Try dodging that!
Selling crypto is just like any other sale and capital gains or capital losses must be reported. Gains and losses are calculated as the difference between what you paid for the crypto and how much you sold it for.
Taxes on your crypto will depend on when you bought it. It’s important to note that virtual currency held for less than a year as an investment, is taxed as ordinary income, if it had appreciated in value when you sold it. But if you had it more than a year, you’d have to pay capital gains tax.
By the same token, if you had a loss when you sold it, you can report a capital loss on your taxes.
Any salary, wages, or payments received in bitcoin or other cryptocurrency is taxable and should be reported as ordinary income, as how much it was worth when it was paid.
If you pay crypto to someone, then it’s treated like a sale for which you can report a gain or loss, as determined by the IRS, which is the difference between fair market value adjusted in the virtual currency exchanged.
No. You do not have to report bitcoin or other cryptocurrency that you are simply holding as a purchased investment, no more than you would investments held in a brokerage account. But you would report any type of dividends or interest paid out from it as taxable income.
Any cryptocurrency you receive as a gift is not taxable until you sell it for fiat. So, you do not have to report it as long as it’s being held as cryptocurrency and you are not getting an actual income benefit from it as of yet.
The Department of Revenue for every state will have their own policies on taxing cryptocurrency at the state level. Although, most states have no specifics in place regarding this yet. So, they will likely go with federal guidelines on the matter.
Depending on your state, the IRS will factor any profits you receive from cryptocurrency investments or income payments into your AGI (adjusted gross income). Two states that have no income tax (Nevada and Wyoming) have stated that virtual currency transactions will not be imposed state property taxes.
You can read FAQs on virtual currency transactions by the IRS here.
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Source: https://medium.com/illuminations-mirror/think-the-irs-cant-tax-bitcoin-and-other-cryptocurrencies-think-again-58af6bd3fbf9?source=rss——-8—————–cryptocurrency
