Bitcoin Industry

The IRS Wants to Tax Your Cryptocurrency

Thomas Delahunty | January 26, 2018 | 9:18 pm
Taxes Key

The IRS Wants to Tax Your Cryptocurrency

Thomas Delahunty | January 26, 2018 | 9:18 pm

As we know, blockchain technology is premised on anonymity. Transactions are public, but linked only to an electronic address. Anonymity, though, is the main fuel for underground economies, whose transactions are currently conducted primarily through cash. If cryptocurrencies were to replace cash as the preferred medium of exchange, they could potentially expand the underground economy because of associated anonymity and convenience.

The U.S. Government recognizes this. Steven Mnuchin, Secretary of the U.S. Treasury, said recently that Bitcoin could become “the next Swiss bank account.” And the Internal Revenue Service estimates that it loses about $500 billion annually because of unreported wages alone. But although the IRS has been pushing to break the anonymity of cryptocurrencies, the agency has hit a hurdle: From 2013 to 2015, less than 900 people each year reported Bitcoin transactions on their taxes.

That said, every purchase you make with cryptocurrencies, is supposed to be reported. So whether you’ve used Bitcoin — or any other coin — as an investment or a currency, in their eyes, you owe taxes on it. Let’s say you’ve held Bitcoin for less than a year and sell them, that cash could be taxed as income. If you’ve held for more than a year, it could be taxed as a capital gain — which run up to 20%. Furthermore, adding on transaction and accounting fees could raise costs to a staggering 60%.

Exchanges are facing trouble, too. Last year the IRS served a summons to Coinbase. In the summons, the agency called for the records of over 14,000 users who “bought, sold, sent, or received at least $20,000 worth of Bitcoin in a given year.” A federal court ultimately ruled in favor of the IRS, but the tax status of those transactions is still unknown.

Moving forward, things have looked slightly better. A bipartisan bill, “The Cryptocurrency Tax Fairness Act,” was presented to Congress this past September. The bill seeks to create a tax exemption for transactions under $600. Regardless, though some remain hopeful for amnesty, it looks like the IRS is going to continue to pursue a cut of the cryptocurrency market — only the future will tell how successful they are.

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  • AJ Fonz

    That’s crap on the highest level, we done pay taxes on purchasing it, so them can not be watching our profits and then want to tax it, rubbish! If we were making a lost, they would of never thought about it. If it’s something new, about purchasing crypto now, then ok that’s fine, but don’t attack our pass.

  • MongoMove

    Unchained podcast recently had two tax expert guests that said they filed more than 900 returns with cryptocurrency. Not sure where or how IRS is calculating the number but it is wrong.

    Make it simple. Tax crypto when you sell to Fiat. That’s the only time you should be able tax if you made money. Bitcoin doesn’t belong to a country so why Does anyone get to tax it especially crypto trade to crypto trade. That’s just a corrupt money grab and we must fight this!

    • Kresp Rowland

      I agree. Until it has been converted to fiat it is not really money. I mean my co-workers have been rolling around on the floor laughing at me for buying “thin air” as they called it. They think I’m certifiable. Or I should say they “thought”. After Bitcoin shot past $18K and I converted some of it back to fiat they all grudgingly gave me a bit of respect. But until it’s back in fiat it could collapse the very next day. Why should I pay taxes on my Bitcoin at 19K per coin when it might only be worth 10K per coin the next day? Taxing the fiat is the only “fair” way to handle it. Someone who understands cryptocurrency better then the current administration needs to get this sorted out properly! And each country I presume would enact similar laws.

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