Paying Taxes on Bitcoin Profits
So, you just sold your motorcycle, and someone paid you for it in bitcoin. Lucky you! But don’t spend all of it at once. Whenever you earn anything of value, the chances are that the taxman will want a piece. Bitcoin is no exception, but just to make things more complicated, different tax departments deal with bitcoin in different ways.The US is one of the most advanced countries in terms of tax guidance at the time of writing, in the sense that it actually has some.
Some countries have made vague allusions to existing tax documents, without really attempting to accommodate the implications for a new kind of digital currency.
Is bitcoin actually currency? That’s an important question with dealing with tax issues, and as far as the US Internal Revenue Service (IRS) is concerned, it isn’t. Instead, the tax guidelines that it introduced in April 2014 categorize bitcoin as property, and that carries significant implications, depending on who you are and how you use cryptocurrency.One of the big differences between property and currency is that the former is subject to capital gains tax. If you buy property for $100 and then sell it for $200, then you must pay tax on the difference. Because bitcoin is treated as property, the same rules apply.
Paying Taxes on Bitcoin for Day to Day Users
If you are a regular bitcoin user, receiving bitcoin and then spending it for goods and services, then to be compliant with tax rules, you should declare its fair market value at the time of acquisition.That’s going to be an administrative nightmare for many users, who would theoretically have to keep track of every bitcoin transaction’s value in US dollars, all the time.
Whether anyone actually does this or not for small transactions like a cup of coffee is the question, but one service, Libra, offers a way to handle the administrative overhead.
Paying Taxes on Bitcoin for Miners
If you are a miner producing your own bitcoins, you also subject to taxation under US regulations. There are two separate charges. The first is the fair market value of the bitcoin on the day that you mine it. That becomes part of your gross income. Then, when you sell your bitcoin, you will be subject to capital gains on the difference.One potential upside here is that bitcoin might also go down in value between acquisition and when you sell it, which could save miners money. But before the IRS guidance, miners were not paying tax anyway, so they lose out either way.
Paying Taxes on Bitcoin for Investors
People investing in bitcoin are also subject to capital gains on the difference in bitcoin value between when they buy them, and when they sell them. Serious investors will probably be happy about this, because it provides them with some certainty, and also helps them to avoid foreign currency gains charges. They would have to pay these if bitcoin was viewed as a currency, and they are more expensive. In another win for long-term investors, if they hold their bitcoin for more than a year and a day, they will be subject to an even lower long-term capital gains rate.
This sits at 15%, at the time of writing.
Paying Taxes on Bitcoin for Merchants
Merchants dealing with payment processes probably won’t have to worry too much about taxation at all, because many of them have their bitcoins immediately converted into fiat currency.Paying Taxes on Bitcoin in Other Countries and Sales Tax
Other countries have varying rules when it comes to bitcoin taxation. In Singapore, the government has proposed guidelines that would see companies taxed when selling products and services in exchange for bitcoin as though it was a barter transaction.The danger here is that those countries may still charge sales tax when a company sells the bitcoin that it has acquired, meaning that a company effectively pays tax twice. Australia has proposed similar laws.
With different countries at varying states of maturity about how to treat bitcoin taxation from a tax perspective, it’s worth checking your own country’s approach.
They’re likely to evolve over time.
As an individual investing in bitcoin and potentially spending it, look for information about whether it’s treated as a currency or property, or maybe even something else. That holds the key to how – and how much – you’ll pay.Paying Taxes on Bitcoin Trading Conclusion
For more information about Paying Taxes on Bitcoin Profits visit TopForexBrokers.com crypto currency brokers comparison website.Tip ForexSQ.com Crypto exchange experts please by share this article about Paying Taxes on Bitcoin trading.
