The most widely reported aspect of the IRS ruling on Bitcoin has something to do with its treatment as property. This is a favorable ruling for most investors given Bitcoin’s stellar performance to date.
IRS wants you to account for cryptocurrency as property. Therefore, capital gains tax applies. A good idea would be to check with an accountant experienced in commodities and property. Here at Camuso CPA PLLC, we provide consultations and services for better understanding and ease in doing business where virtual, digital money is involved “cryptocurrency’ – a new business paradigm supported by blockchain technology.
IRS refers to Cryptocurrency to be treated like Property and as a commodity. IRS may not have all the capabilities to assess accurate compliance behind crypto activities. Good-faith in reporting and determining a reasonable price will satisfy IRS. This means if you are paid in crypto, you are expected to declare it as an income at the value it had at the time you received it. If you trade it for some other form of property, you are required to report any capital gain or loss associated with that trade. Gains or losses in cryptocurrency are difficult to account for because many cryptocurrency exchanges don’t offer adequate tax calculators like those found on traditional stock exchanges. Another problem is that many cryptocurrency trades are made between two different cryptocurrencies instead of having a common base currency of US dollars like traditional stock exchanges do. Accrued long-term gains and losses will be taxed at the taxpayer’s applicable capital gains rate rather than ordinary income rates.
The Internal Revenue Service issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as Bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in or transactions that use virtual currency. You may refer to this link for better understanding(https://www.irs.gov/newsroom/irs-virtual-currency-guidance).
As of this date there is still significant amount of uncertainty about the taxation of cryptocurrency. So many questions arise that make sense impacting the compliance in filing taxes as individual investor or by business per se` like:
- Are gains on Bitcoins taxable?
- When do my gains become taxable?
- What if I sell my bitcoins but do not withdraw the proceeds from the exchange?
- What if I exchange my bitcoins for altcoins?
- Is this a like-kind exchange?
- So how can I avoid realizing gains on my bitcoins?
- How does the IRS know about my gains?
- How do I calculate my gain or loss?
- How do I determine my basis in each bitcoin?
- What if I mined my bitcoins, what is my basis then?
- What if I received my bitcoins as payment, what is my basis then?
- How do I determine amount realized (Sales Price)?
- Are my gains, capital gains?
- What if bitcoins are treated as a foreign currency?
- What kind of expenses can I deduct as an investor?
These are questions that needs accurate answers. On the IRS website you would find general tax principles that apply to property transactions, apply to transactions using virtual currency. Among other things, this means that: Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes. Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted on IRS.gov. which was issued March 2014 but in a 31-page report from the Treasury Inspector General for Tax Administration, released Sept. 21, 2016, the IRS basically admitted that though a Virtual Currency Issue team had been created, guidelines for compliance had not been developed. The recommendations from this report included developing a coordinated virtual currency strategy, providing updated guidance for requirements and tax treatments, and revising third-party reporting requirements and documents.
The Bottom line is, if you had involved in any cryptocurrency investments in and out and if you do not have adequate information as to what and what not, and how it should be declared? Contact your CPA.
Here at Camuso CPA PLLC, we do have the ability to offer services to our clients. If you are interested to know more about how we can help you with your ICO, Bitcoin and other cryptocurrency inquiries please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answer any questions you have.