Excited for the approaching New Year? Will you be as elated if you are reminded that New Year brings for you a fresh taxation season as well? No, we guess. However, the point is you cannot escape this impending reality. The US’s Internal Revenue Service has set its eyes on crypto and taxes from the digital currency traders.
Now is the time to get your financial knowledge brushed up and thereby preparing yourself for the necessary tax compliance and filling. If even you are new to this crypto-world, then a through read of this article will familiarize you with tax regulations that control the entire crypto dealings.
Let me first clarify that the discussion attempted in this article is general tax guidance. It elaborates the Notice of 2014-2021 given out by the IRS. In no way does it provide professional tax filing guidance. Since every circumstance has its own gravity, you are requested to put in rational and logical thoughts before any suggestion application in real life.
Know what virtual currencies are
Virtual currencies are the name given to the digital or crypto currencies that are becoming extremely popular in global commercial arena. These are not stored in physical format but in electronic format. Storage and transactions of these digital fortunes are possible only through the use of computer software, mobile application and digitalized wallets.
The factor fluidity and security in its payments make virtual currencies extremely trustworthy among every crypto trader. Moreover, the virtual currencies whose value is tantamount to the worth of real currencies are called to be convertible virtual currencies. An example of such currency is the Bitcoin. It has emerged as one of the most popular crypto currencies and has garnered considerable governmental attention for vigilant regulation.
Is crypto-currency a property?
Despite the misleading nomenclature, crypto-currency is considered to be a property instead. Thus, it is neither a domestic nor international currency. It is treated as property and identified in same genre as bonds and stocks of capital market. Due to this particular reason, capital gains taxes imposed on properties are imposable on the virtual currencies as well.
In order to prevent legal complications stemming from non-payment taxes and face loss, one must remain tax complaint. Lay your hand on the most positively reviewed cryptocurrency tax software online, for carrying out document consolidation and updating the reports for tax filing.
Crypto-currency exchange with other kinds of properties
People can receive a virtual currency in exchange of online products and services. If you are an expert in crypto dealings then you ought to add Flair Market Value of digital currencies received till a specified time. A taxpayer will experience loss if the value of FMV fails to exceed the adjusted base for digital currency.
Quite the opposite happens when a taxpayer encounters a profit that is when the FMV exceeds adjusted base of taxpayers’ crypto-currencies. You can take the help of reliable online software for obtaining capital loss or gain from your bitcoin or any other crypto currencies. It will make sure that you are neither underpaying nor overpaying your taxes.
Mining of new crypto coins
Let us first understand what crypto mining is all about. Since, there is centralized bank regulating the flow of crypto currencies, its every transaction gets accumulated in the decentralised ledger. These accumulated crypto dealings are known as the block and it gives rise to the blockchain technology. This entire process of keeping record and adding of crypto currencies to blockchain is called mining.
The IRS has made it clear that you are required to pay the crypto mining taxes for the mining actions. It is very much included in the grossed income and its value is determined by the crypto currency FMV on the receiving date. Mining leads to income and income is going to be taxed. It is as simple as that.
Obligation of information reporting
If you have received payments in crypto currencies, you are mandatorily required to report it to the concerned government agency. However it is not universally applicable. The government has set a benchmark and if a payment is equal to or goes above that amount then it is a transaction that requires reporting. So, if you are an employer that has paid his employees in bitcoins or crypto-currencies, the rule does not change for you.
The IRS 2014-2021 Notice still necessitates you to report the payments made and issue the employees with 1099s and W-2s tax forms. Currently, the IRS regulates the USD only, thus you are required to translate crypto payments values on the basis of FMV of paid currency on payment date.
No point in hiding trades
IRS regulations do mention of penalties in case of non-compliance of taxes. Our suggestion to you is to never hiding a crypto trade because you never what future is holding for you. If your undisclosed trading history resurfaces in the future, then you will be made to pay heavy fines and an obvious face loss. If you are a wilful evader, then in an extreme case criminal charges can be summoned against you. Be smart to resort to Bitcoin tax calculator software for sorting your taxes this year and earn the tag of being a responsible citizen.
The above discussion has been intended to enlighten the readers on recent IRS guidelines on crypto tax payments. Since it is not an expert guidance, seek advices from professional consultants on how to go about taxes this season.