The Wild West days are over for cryptocurrencies. In the past year, we have seen how unregulated cryptocurrencies were. In one way or another, this has been the main appeal of cryptocurrencies to investors within the crypto space. People are flocking to words speculative investments such as cryptocurrencies because it has a decentralized structure which enables them to be free of any central institution such as the bank or the government. However, those days will soon be over because the IRS is stepping up their enforcement.
Today, a lack of information from the government may leave a lot of cryptocurrency investors in the dark when it comes to taxation. In fact, many are already writing to the IRS asking for the agency to clarify on much-needed guidance on virtual currency taxation. Organisations are also approaching the agency to define its policy on cryptocurrencies. Understandably, many are concerned as different governments around the world are regulating cryptocurrencies in different manners not most recently, South Korea has made it mandatory for cryptocurrency investors to trade on a real name basis.
In fact, there are already private services that help people to file their tax returns on cryptocurrencies. Those who have found it is business will find it highly popular in the next few years as investors have gained fat return from Bitcoin in 2017. Many are also realizing that the Wild West days of cryptocurrency is quickly coming to an end. The IR as is not ignorant of what is happening in the cryptocurrency space. They are aware that a lot of people are making big money with cryptocurrencies.
Back in 2014, the Internal Revenue Service issued guidance on how the taxation will be done to virtual currencies. However, the government has not decided that cryptocurrency isn’t a currency. Therefore, cryptocurrencies were not subject to those taxes. Although people call these cryptocurrencies as currency, the government is not legally treating it as a currency because it is not issued by a sovereign.
Today, there is a virtual currency team, which is working with the IRS.Chainanalysis is a cryptocurrency software company, which is currently working with the agency to trace the movement of money through the Bitcoin economy. In 2016, the agency has called uponCoinbase, which is one of the most popular cryptocurrency exchanges in the world. They called upon the cryptocurrency exchange because they wanted data on United States taxpayers not. As a result, the exchange had to disclose information on more than 14,000 users. The agency functions as a forward-thinking organization for the government body.
No running away from taxes
As more people realize that virtual currency is constantly on the minds of government officials, they are also trying to figure out how they can report cryptocurrency transactions on their tax returns. Since 2014, the agency has not issued more guidance. However, many are anticipating the release of guidance which is updated to reflect the current situation in the cryptocurrency space. A clear definition of the taxation methods and also ways to father returns are important in a relatively new industry.
The main question of people is asking is how is Bitcointaxed? If you don’t hold a Bitcoin, you are technically not taxed. Here are some of the measures you can take to stay ahead of any tax problems ahead of you is the IR as comes out with another guide that will make it compulsory for cryptocurrency investors to file their taxes.
- Keep detailed records
- Calculate your gains and losses
- Find an accountant who has experience with cryptocurrency.
- Stay alert for new information
The IRS has classified virtual currencies as property. Hence, this means that profits and losses are going to be taxed at an individual’s capital gains rate. Therefore, they will be applied at every taxable event. This includes whenever an investor buys, sells or users to cryptocurrency to make a purchase. Unlike other investment accounts, you may not get aForm 1099to summarize those gains.
This places a huge burden on taxpayers. In fact, cryptocurrency investors can have tens of thousands of exchanges that they did not trace. Therefore, it would be close to impossible to recall all these events. However, it is recommended that you download a transaction report from your cryptocurrency exchange. Most exchanges will provide this option.
If it does not, you will have to record every transaction that you make with cryptocurrency personally. In any case, this is always a good idea because there are instances where exchanges shut down,and you will not be able to have access to those records.Keep in mind that if you have lost your records, it is your responsibility as a taxpayer to reconstruct those records as best as possible.
So, you have all the transactions in one place. Here is another challenge. You have tofind all the gains and losses that you obtain from each one. If you held the cryptocurrencies were less than a year, this is considered as a short-term gain. Meanwhile, if it’s more than a year, you can consider this as a long-term gain. Is no different than any other asset. If you bought a cryptocurrency and held it for more than a year, your tax rate is going to be a lot less than you would otherwise pay.
Investors are advised to turn to software services that can help people to calculate their losses and gains not there are no finer details from the IRS that can help investors on how they can do this. Using the software, you can calculate your releases capital gains, exported as the report and use it to file your taxes.
You can use the first in first out method in which gains are calculated from the first purchases or are last in first out method which calculates gains from the most recent purchases. Although there is no current prescribed method, you must use the method that is most reasonable. Therefore, the first in thefirstout method is considered the most reasonable as it is the most common.
One issue that many investors have today is that there are counted have no idea what to do when it comes to cryptocurrencies. Therefore, be on the lookout for an accountant who has experience with cryptocurrencies.
When it comes to cryptocurrencies, there are still a lot of unanswered questions about taxes. Therefore, keep a close eye on the development appearing within the cryptocurrency market. As of today, the IRS still hasn’t released any finer details, and they are undoubtedly currently working on a solution for it. People will go to prison for not reporting their foreign bank accounts. Today, people don’t know yet if a cryptocurrency exchange is considered a foreign financial institution.