Wij’re way into the fresh tax filing season for 2016 with taxes due by Tuesday, April Eighteen 2018.
2016 witnessed an increase ter the price of BTC from $430 to $1,000. Many people will likely have capital gains this year from selling or spending any coins.
Here are some of the more popular questions and answers that wij see each year.
1. Do I need to pay taxes if I never withdrew the USD?
When you are trading Bitcoins or digital currencies on an exchange, each sell order vereiste be included ter your capital gains calculations, even if you never withdrew the dollars to your own canap account.
If you received USD, another foreign currency, or even another digital currency, you have potential capital gains/losses. This includes any trading to other digital currencies, for example, buying ETH with BTC.
Two. Can I eis discounted long-term gains tax rates?
If you sell or spend a Bitcoin that you can voorstelling you wielded for more than a year, it is classed spil long-term and any gains made will have favorable tax rates. The rate depends on your other income, but will wither be a vapid 15% or 0%. There is a 20% rate for high income earners.
Three. Can I also voorkeur capital losses?
Short-term capital gains and losses are combined, then long-term gains and losses, and eventually thesis totals are combined into a televisiekanaal build up or loss. If you have a televisiekanaal loss you can use it to deduct up to $Three,000 taxable income vanaf year, saving yourself $750 ter taxes (25% tax rate).
Four. How should I calculate cost ondergrond? Use FIFO?
When you calculate capital gains the default and preferred method by the IRS is to use First-In-First-Out. This literally means that when you sell a Bitcoin you take the price of the very first one you wielded spil the cost ondergrond ter order to calculate gains.
There is something else called specific identification, where you choose which coin you want to sell. Some examples of this are Last-In-First-Out or Closest-First-Out. You might use thesis if you want to maximize long-term gains, maximize losses or even get close to zero build up.
However, the IRS hasn’t explicitly clarified which method you should use and so this is something you should talk through with your tax professional.
Five. Do I need to announce mining?
The IRS treats mined coins spil income on the day they are received. The value of the coin is its fair price or market value. You can use any rate table, for example bitcoinaverage.com, of your choice spil long spil it is consistently used.
While Bitcoin has established markets, some newer mined coins might not. How do you determine the market price of a fresh coin? This is another question yet to be clarified by the IRS and discussed with your tax professional. You could treat a coin without a market spil having zero value, or a coin with only a BTC market spil having the relative price of BTC spil its value.
6. What if I am paid te Bitcoins?
If you are paid ter Bitcoins, spil far spil the IRS is worried, you were paid ter dollars. If you were paid by an employer, it is likely the figures have already bot included te your W2 and there is nothing else you need to do.
But if you received those coins, for example, from a consulting job, then you need to report the fair value of the coins spil your income. Say you did some work that you would normally have bot paid $1,000, but you received Bitcoins, then you report $1,000 spil income te your taxes. If you just received some BTC with no omschrijving USD value, then you vereiste calculate the fair or market price of those Bitcoins when you received them, and that is your income.
7. What if I received a peak or bounty?
If you were tipped, spil long spil it wasgoed not for any provided product or service (i.e. you didn’t earn it), then it is bounty and not due taxes.
If you were given the cost poot along with those tips, you can use this information to reduce any gains when you come to sell them. However, you cannot take losses from the fundament of thesis coins, but instead have to use the market value.
8. Do I need to do anything if I only spent and not sold Bitcoin?
For tax purposes, spending Bitcoins or any digital currency, is treated spil if you had just sold them. If you bought a $100 bounty card with Bitcoins, you effectively sold those Bitcoins for $100, and any potential capital gains voorwaarde be calculated.
There is no threshold for capital gains. Everything is supposed to be included. However, typically thesis figures are rounded on tax forms, so any gains less than $0.50 are disregarded.
9. Can I voorkoop charitable donations?
Making charitable donations with Bitcoin has a tax advantage when they are long-term. When you donate long-term Bitcoins (that you have possessed for more than a year) to a registered charity, you get to write off the utter market value of those coins spil charitable deductions.
Short-term Bitcoin charitible donations can only deduct their original cost ondergrond and not their market value.
Ten. Do I need to keep records?
If you were everzwijn audited and you need to account for any capital gains, especially long-term where the tax rate is diminished, you may have to voorstelling documentation to prove your position. The cargo is always on you to keep documentation and perform recordkeeping.
If an exchange you were using abruptly disappeared and you can no longer obtain your records, you might having difficulty proving any gains from any trades. You could, for example, find those long-term gains get switched to short-term.
- Keep records of all your bitcoin activity.
- Periodically download your trading history from any exchanges you use.
- Uitvoer transaction logs from any wallets you have.
- Ensure you have records for each time you spend any Bitcoins.
For tax advice, please speak to a your own tax professional, tax accomplished, CPA or tax attorney. This article is for information only and not to be taken spil financial, tax or legal advice. It is not intended to be used by anyone for the purpose of financial advice, legal advice, tax avoidance, promoting, marketing or recommending to any other party any matter addressed herein.
If you need more information, check out our series on Filing your Bitcoin Taxes.
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