Since the bitcoin’s launch, most of the people have enjoyed it without paying a single penny as the tax. However, today the situation has changed because in the U.S every cryptocurrency, i.e. bitcoin transaction, mining, trading, exchanging will be a taxable event from now on.
2018 a landmark year for US tax agency
This year is undoubtedly going to be the jackpot for the U.S tax collection agency IRS. The IRS always likes the people who come out on their own to pay taxes unlike those who hideaway. The people who are paying taxes on the bitcoins are doing themselves a favor because otherwise, the IRS plans to use criminal penalties on those who are hiding away their bitcoin income.
IRS has also claimed that only some people (in hundreds) are paying taxes on their cryptocurrency since the launch of cryptocurrency and IRS thinks that many people are evading the tax by hiding their crypto transactions.
IRS did not give a lot of information regarding the bitcoin taxation. Although everyone refers the bitcoin as a virtual currency, but IRS counts it as property. Due to this buying, selling, exchanging and other crypto procedures have capital gain implications. Similarly, receiving cryptocurrency also counts as an ordinary income.
Some tax implications
The tax implications do not only apply to bitcoin but also to all crypto, currencies as well because bitcoin is not the only cryptocurrency as there are hundreds of other cryptocurrencies.
Let us discuss some of the tax implications of crypto transactions.
- Exchanging: If you trade one cryptocurrency for another than it becomes taxable. For example, using Ethereum to buy another cryptocurrency. Here Ethereum is sold, which gives you capital gain or loss.
- Getting payments as crypto: If you get paid for your services or job in terms of cryptocurrency, then the cryptocurrency is considered as ordinary income.
- Mining: It falls into the category of ordinary income. The income is calculated by the market value of the coin.
- Purchasing with crypto: It is also a taxable event because it might generate capital gain or loss. For example, you bought a coin for $100, and the value of that coin was $200, and then you purchased a gift card worth $200 with that coin then there will be a $100 gain on which tax will be applied.
Not only the transactions mentioned above but also a lot of other crypto transactions like Air drops, conversion of a cryptocurrency are also taxable.