Crypto Currency

How are Cryptocurrencies Taxed in the US?

The value of most Cryptocurrencies has skyrocketed over the last six months. Although there has been a recent fall in…

The value of most Cryptocurrencies has skyrocketed over the last six months. Although there has been a recent fall in prices, if you invested in a Cryptocurrency or received it as payment before December 2017 you are still probably sitting on a substantial financial gain.

As with any financial transaction you are subject to tax in the United States if you are a US citizen. The IRS has been very clear on this since 2014, it’s therefore important for you to understand whether you have a tax liability and how much that liability may be.

This short article will give you some guidance as to how you might begin to figure out what that tax liability might be.

 

How Cryptocurrency is defined by the government

 

According to the IRS virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. That describes Bitcoin or any Altcoin you may hold or have sold at a profit. The IRS has stated that the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.

For federal tax purposes, Cryptocurrency is treated as property. General tax principles applicable to property transactions apply to transactions using Cryptocurrency. Under the currently applicable law, Cryptocurrency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

This is an important technical distinction to note as many people view Crypto trading like forex trading, the IRS ,however, view it as a sale of property.

 

When does a tax liability arise?

 

Taking payment in Cryptocurrency

 

A taxpayer who receives Cryptocurrency as payment for goods or services must, in computing gross income, include the fair market value of the Cryptocurrency, measured in U.S. dollars, as of the date that the Cryptocurrency was received.

For U.S. tax purposes, transactions using Cryptocurrency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of Cryptocurrency in U.S. dollars as of the date of payment or receipt. There is an easy way to calculate the fair market value If a Cryptocurrency is listed on an exchange and the exchange rate is established by market supply and demand.

The fair market value of the Cryptocurrency is determined by converting the Cryptocurrency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.

If you are self-employed and received Crypto as payment this includes you too. Self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. The fair market value of Cryptocurrency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt is such income too.

 

Making an investment gain from trading Cryptocurrency

 

A taxpayer generally realizes capital gain or loss on the sale or exchange of Cryptocurrency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. For most investors in Cryptocurrency, their coins will be a capital asset as they are bought as an investment, not as part of any business.

If this is you then you have to make a capital gains tax (CGT) payment on any gain.

For tax and accounting purposes, capital gains and losses are calculated by determining how much your cost basis has gone up or down from the time you acquired the asset. When you calculate your basis, you’ll figure the purchase price plus any related costs, such as commissions.

You need to pay the CGT when you sell or dispose of the Crypto. You may have a taxable event even if you don’t formally cash out. Anyone using cryptocurrency to pay for goods or services must treat each purchase as a sale.

Some exchanges will offer a summary of transactions which can be used to help you file your taxes but if you withdraw cryptocurrency from an exchange, the exchange can no longer track what happens, so you must make sure that you do.

 

What about mining Cryptocurrency?

 

When a taxpayer successfully “mines” Cryptocurrency, the fair market value of the virtual currency as of the date of receipt is includible in gross income.

If a taxpayer’s “mining” of Cryptocurrency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self-employment income and are subject to the self-employment tax.

 

What if I swap my Crypto for something else?

 

If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the Cryptocurrency, the taxpayer also has a taxable gain.

 

In summary

 

Whilst trading or taking Bitcoin or any Altcoin may seem like fun, as many projects involving blockchain technology most certainly are, these activities generate serious financial obligations in the United States.

It is important that you are careful and maintain detailed records of any transactions you make using Crypto, in particular, the equivalent US dollar value of the Crypto at the time of the transaction.

As summarised above your tax liability, be it CGT or otherwise, depends on how you are using Cryptocurrency. This short guide will give you a start, but it is always best to get professional advice when it comes to your exact tax liability, especially if your activity in this area is substantial.

Taxpayers may be subject to penalties for failure to comply with tax laws and they can be very large.

Be the first to write a comment.

Leave a Reply

Crypto Currency

How much do you know about blockchain, cryptocurrency, and Bitcoin?

How much do you know about blockchain, cryptocurrency, and Bitcoin? mashable.com


How much do you know about blockchain, cryptocurrency, and Bitcoin? mashable.com
Read More

Continue Reading
Crypto Currency

The trailer for ‘CRYPTO’ just dropped, and cryptocurrency is good now

With all the exit scams, weird meat obsessions, and cantankerous fan-boy culture, the world of cryptocurrency is kind of a drag. And that’s without even touching on the current and persistent bear market.  But all that has changed, denizens of the internet. Cryptocurrency is good now, and we owe it all to the trailer for…


With all the exit scams, weird meat obsessions, and cantankerous fan-boy culture, the world of cryptocurrency is kind of a drag. And that’s without even touching on the current and persistent bear market. 

But all that has changed, denizens of the internet. Cryptocurrency is good now, and we owe it all to the trailer for the upcoming crypto-themed action flick starring none other than Snake Plissken himself. Say hello toCRYPTO, the film that, like its eponymous subject matter, features a bunch of idiots fighting over bullshit and terrible security practices. 

The trailer for the film, featuring an appropriately bedraggled Kurt Russell, hit the internet on March 11 and oh boy did it get our blood flowing. Go ahead and take a peek. We’ll wait. 

Breathtaking, right? Did you take a moment to bathe in the reflected glory of Luke Hemsworth and Alexis Bledel. Yes? Good, let’s move on.

The story, as much as there appears to be one, follows an anti-money laundering expert’s trip to small town America and a subsequent run in with the Russian mob. But put that aside for a moment, and let’s focus on the verisimilitude of the thing. 

It can only go up.

It can only go up.

Image: screenshot / “crypto”

From the amazing file labeling system (hello “KICKBACKS”), to the apparent Coinbase knockoff DELTA COIN listing bitcoin cash at $983.74 (which, LOL),CRYPTOproves that the true cryptocurrency

Read More

Continue Reading
Crypto Currency

9 Questions for Facebook After Zuckerberg’s Privacy Manifesto

presented an entirely new philosophy. For 15 years, the stated goal of Facebook has been to make the world more open and connected; the unstated goal was constructing a targeted advertising system built on nearly infinite data. Yesterday, though, Zuckerberg pronounced that the company is reversing course. The social network of the future won’t be…


presented an entirely new philosophy. For 15 years, the stated goal of Facebook has been to make the world more open and connected; the unstated goal was constructing a targeted advertising system built on nearly infinite data. Yesterday, though, Zuckerberg pronounced that the company is reversing course. The social network of the future won’t be one where everyone connects openly together, as in a town square; it will be one where more connections happen one to one, as in a living room. Instead of data permanence, data will disappear.

Facebook isn’t putting the current platform—worth roughly half a trillion dollars—in the garbage disposal. As Zuckerberg made clear in a Wednesday afternoon interview with WIRED, Facebook as we know it now will still exist. But it will change. And there will also just be something new.

It’s unclear the extent to which Facebook will ultimately push users toward privacy, and in what exact ways. But Zuckerberg controls Facebook, and his manifesto will make its gears start to turn in different directions. As that begins, here are nine important questions the company will have to think through.

1. Facebook knows how to make money in the town square. How does it make money in this new living room?

Private, encrypted messaging is hard to monetize. In our interview, Zuckerberg demurred when asked what the new business model will be after clamping down on the data firehose. The company would, he said, build the product first and figure out the financials later. Facebook does have nascent efforts in commerce and cryptocurrency, but there’s no question that figuring out revenue on the new platform will be a hard problem for Dave Wehner, Facebook’s chief financial officer. A former Facebook employee told me last night, “Mark is like a cartoon character who walks through a bunch of dangerous situations and always comes out on top. Dave is the guy running behind him catching the cat, stopping the ladder from tipping, deflecting the flying axe with a manhole cover.”

2. What does this do to safety on the platform?

Facebook rightly faces endless criticism for all the data it collects. But there are benefits to data collection as well. It can help stop bullies, or even potential suicides. Once those communications become private, Facebook no longer has the same powers to track and moderate. The public—from the media, to nonprofits, to academics, to individuals, to the government—also uses the public nature of Facebook to track bad behavior. If Russian intelligence operatives had just used private encrypted messaging to manipulate Americans, would they have been caught? As Facebook knows from running WhatsApp, which is already end-to-end encrypted, policing abuses gets ever harder as messages get more hidden.

In our interview, Zuckerberg explained that this, not fears about the business model, is what keeps him up at night. “There is just a clear trade-o

Read More

Continue Reading
Crypto Currency

Cryptography experts are already laughing at ‘Facebook Coin’

Facebook’s rumored cryptocurrency project hasn’t even launched, and yet it’s already a punchline for the tens of thousands of security professionals, cryptographers, and researchers gathered at the annual RSA conference.  On March 5, in the San Francisco Moscone Center, the hotly anticipated Cryptographers’ Panel met to discuss the future of cryptography, the internet, and e-commerce.…


Facebook’s rumored cryptocurrency project hasn’t even launched, and yet it’s already a punchline for the tens of thousands of security professionals, cryptographers, and researchers gathered at the annual RSA conference. 

On March 5, in the San Francisco Moscone Center, the hotly anticipated Cryptographers’ Panel met to discuss the future of cryptography, the internet, and e-commerce. Of course cryptocurrency came up, with a mention of the so-called Facebook Coin drawing perhaps the biggest laugh of the talk. 

Speaking of the problems inherent in putting even great research ideas into practice, panelist and cryptography expert Paul Kocher (known for, among other things, co-discovering Spectre) told attendees that the blockchain only makes things trickier. 

“[The] idea of combining Bitcoin’s theft mitigation and Facebook’s privacy seems particularly toxic for users.”

“When you add the froth of blockchain into there, these just sort of things that seem crazy just keep amplifying,” he explained. “I think the latest one that I saw is one where you can take Bitcoin where you can lose your money, Facebook you can lose your privacy, and now t

Read More

Continue Reading