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Pay your taxes on bitcoins … or anything else.
At the end of last year, the Internal Revenue Service persuaded a federal judge to ask Coinbase, a portfolio and a digital currencies platform based in San Francisco, with about 20 million customers, to deliver customer information . Leading the IRS decision was the belief that few bitcoin investors seem to be paying sales taxes. The court order is one of the first moves by the agency that represses the scofflaw of cryptocurrency.
By 16 March, IRS will have data on approximately 13,000 Coinbase account holders who bought, sold, sent or received digital currency valued at $ 20,000 or more between 2013 and 2015. The data includes the name of the customer, taxpayer identification number, date of birth and address, plus statements and counterparty names.
Criminal lawyers expect the IRS to act on the information and follow high-profile cases.
Some cryptocurrency holders are now divulging past tax deadlines to avoid potential criminal proceedings.
Bryan Skarlatos, a lawyer with
Kostelanetz & Fink
with many of these cases, reminds cryptocurrency investors about the success of IRS in penetrating the veil of Swiss banking secrecy. Since 2009, over 56,000 Americans who have hidden money in offshore accounts have paid over $ 11 billion to solve tax problems.
"Digital currency holders should not think they can hide from the IRS," he says.
Even the smallest investors feel the heat. Many were traded during last year's price hikes, and tax editors are now regularly asking customers for cryptocurrency sales. They should not sign returns with undeclared income.
To be sure, the IRS has not clarified important questions about digital currencies, and these gaps leave room for favorable interpretations.
But the gaps do not leave room to hide the income. With the April tax date approaching, here is the important information.
Resource type. In 2014, IRS issued a notice stating that cryptocurrencies are properties, not currencies like dollars or francs. They are often real estate investments similar to shares or real estate.
Thus, if an investor sells a cryptocurrency after holding it for more than a year, profits are typically long-term capital gains. The tax rate is 0%, 15% or 20%, plus a 3.8% surcharge in some cases, depending on the owner's total income.
Short-term gains on cryptocurrencies held for a year or less are generally taxable at higher ordinary income rates. Capital losses may offset capital gains and up to $ 3,000 of other income per year and unused losses may be reported for future use.
If digital currencies are held for personal use, as a home is, rather than primarily as an investment, profits are taxable but losses are not deductible. IRS has not provided indications in this area.
Tax Trigger. The sale of a cryptocurrency for cash generally triggers capital gains or losses. Using it to buy something like a meal or a car also counts as a sale by the buyer, even if the recipient accepts the cryptocurrency.
The beneficiaries of these payments often also have taxable income. If a worker is paid in bitcoins, they may also have to pay taxes on salaries or self-employment.
Cryptocurrency operations. An exchange of a digital currency for another, for example bitcoin per ether, is taxable, as of January 1, 2018, due to the tax audit.
What about the previous swaps? The IRS did not say, but some specialists think that these could qualify as "non-taxable" as-type exchanges.
While the bitcoin has emerged from the underground world of nerds and criminals to become a mainstream investment, the risk of hacks and scandals has also blossomed. What must a government do? Steven Russolillo of the WSJ travels the world (sort of) to see how regulators are responding to the notable increase in cryptocurrencies. Video: Sharon Shi and Crystal Tai
Let's say that an investor bought some bitcoins for $ 100 several years ago and traded it for ether last year. Ryan Losi, a public accountant certified with
Piascik
in Glen Allen, Virginia, he says that the taxpayer could reasonably treat it as a non-taxable exchange. If so, it should be reported on IRS Form 8824.
He notes that when the ether is sold, the "base" of the investor in the ether would be $ 100, as transferred from the bitcoin. The basis is the starting point for measuring taxable gains.
Lot identification. If an investor bought bitcoins for $ 100, $ 2,000 and $ 15,000 and sold a little bit for $ 14,000 last year, what was the investor's base?
The rules are not clear. CPA of Deloitte CPA Jim Calvin advises investors to sell partial lots to identify them specifically and obtain confirmation from third parties prior to sale. "Ideally, there would be a time stamp," he says.
Disclosure of the account. Good news: According to a Treasury unit, investors are currently not required to report cryptocurrency holdings on FinCen Form 114, known as Fbar, which is often required for foreign accounts in excess of $ 10,000.
Chain-divides. These occur when a cryptocurrency branches into two or more versions, such as Bitcoin and Bitcoin Cash last year. Investors are often entitled to new coins as a result.
Does this right generate taxable income? After many studies, Calvin believes it is not taxable as long as the investor does not claim the new currencies.
Statute of limitations. In general, the IRS has time up to three years after the expiry date of the return to assess a deficiency, but extends to six years if the income is underestimated by more than 25%.
There are many exceptions. Among them: the statute does not begin to function until the declaration is presented, and there is no time limit for civil fraud.
Write to Laura Saunders at [email protected]
