Bitcoin Tax Guide – The Ultimate Guide!

By Alexander Joe

As simple as it is, if you own or use a Bitcoin, there is a chance that you owe taxes. This is irrespective of how you acquired or used Bitcoin. 

If questions like – how are using Bitcoin similar to taxes? And, how does owning a Bitcoin equal an affected tax situation? pop in your mind, you’ve arrived at the right place. The blog post below will help you find answers to these questions.

A Bitcoin or any other cryptocurrency that is brought, sold, mined, or used as a medium to pay for things is all taxable. This is true even if an employer pays you in bitcoin or in other cryptocurrencies, that too is a taxable income. 

Why? 

During the process, you are expected to report the transactions in U.S. dollars, this, for obvious reasons, means converting the cryptocurrency value into dollars when bought, sold, mined, or used.

The Bitcoin Effect On Taxes: The Guide!

Here are more ways on how the simple act of using a Bitcoin could cause an effect on your taxes:

1. “Record-keeping” the Key Element

It is extremely important to make sure that you stay on the “good” side of the rules by keeping track of the cryptocurrency activity. But first:

  • You must keep records of the Bitcoin value of the fair market value at the time of mining or buying and also the records of the fair market value when used or sold. Knowing this factor helps ease out the taxes on your Bitcoin
  • The 1099-K form can be issued if you are transacting for anything more than $20,000 payments and 200 transactions a year. But, even here, the conditions are to be met. If you cross these thresholds or not, you may still owe taxes on any gains.
  • It is true that in a few cases of not paying taxes could be a result of an honest mistake, you can’t expect the IRS to take pity on it. As per records, the agency has sued a cryptocurrency broker for not reporting the bitcoin gains.

2. Bitcoin Along With Other Cryptocurrencies As “Property”

Adding to this, these Bitcoin tax consequences revolve in and around what the government agency calls – “realization event.” Here:

  • If an individual acquires a Bitcoin to mine, then the value immediately becomes taxable. You need not sell or create a tax liability to the currency
  • On the other hand, if you usually dispose or use Bitcoin by cashing in exchange for buying goods and services, even then you owe taxes, provided the realized value is greater than the price acquired by the bitcoin. 

3. Stolen Bitcoin 

As opposed to the earlier tax law, if a Bitcoin is stolen, s/he was able to deduct the same as a theft loss on the taxes. However, for now, unfortunately, due to the new rules of tax, there is no deduction for personal losses due to theft.

4. Bitcoin And Its Relief Factor

As awful as the Bitcoin tax may seem so far, there are positive sides to it too. An individual is capable of deducting capital losses like when the losses are deducted on stocks/bonds. Losses like these can offset the capital gains on sales. 

Therefore, despite this, you must be mindful while tallying the winners as opposed to the losers, you cannot write a loss for more than $3,000. 

Given the drastic fluctuations in the prices of Bitcoin, most Bitcoin currencies have losses. If you are one of them, it is of utmost importance to make sure to declare the same in the tax return to see if tax liability can be reduced.

To Conclude:

We hope that the article above has helped you understand the tax implications on Bitcoin and how it can be looked into to be on the safer end of taxation. Having known these, we’re sure for you to have a much better and learned experience with Bitcoin and other cryptocurrencies. 

FAQs: Bitcoin Tax Guide – The Ultimate Guide!

  • What is the formula to calculate taxes on Bitcoin?

To know the total profits, you must multiply the crypto sale price by the amount on which the coin was sold;

For example: If there are 2 Bitcoins with a selling price of $10,000, then the total sale amount would be, $10,000 x 2 = $20,000. 

  • What is the short-term and long-term capital tax rate?

The tax rates on short-term capital gains and long-term capital gains range from 10% to 37% and 0% to 20% respectively.

  • What if my Bitcoin is stolen?

As for the earlier tax law, if one was robbed of the Bitcoin, s/he was able to deduct it as a loss of theft on the taxes. However, for now, unfortunately, due to the new tax rules, there is no deduction for personal theft losses.

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