For tax collectors at the IRS, bitcoin season is upon us. Today we’re taking a peek at the most basic elements – the need-to-know parts – of taxes in the United States when it comes to bitcoins and other cryptocurrencies. As one Redditor found out recently, taxes on crypto could be simple – or they could be absolutely terrifyingly bad to behold. OF NOTE: None of what we present here should be taken as financial advice, as we are not accountants – all users should seek professional help (especially if they’re frequent readers of articles here on SlashGear.)
A throwaway account on Reddit told a story this week about investments they made in bitcoins and altcoins over the past couple of years. They suggest that a $7200 investment in bitcoin in early 2017 ramped up to an intense amount over the next year. In late 2017, this user traded around $120k worth of bitcoin for altcoins. Fast forward to now, and his investment is worth closer to around $30k
Turning $120k into $30k is a bummer in and of itself, but there’s an additional bummer in the mix. When this user traded bitcoins for altcoins, they suggest they did not know they were making a transaction that could be taxed. Now, apparently, they owe around $50k.
Most sales of bitcoins and cryptocurrencies of many sorts are considered taxable as sales. The IRS currently considers cryptocurrency to be property, not currency, despite the name. Before December 31st, 2017, a “like kind exchange” under IRC Code Code Section 1031 was technically possible for some cryptocurrencies. BUT you’d have had to have found a tax professional willing to sign your tax forms with such a position.
With the newest tax law signed into law quite recently, section 1031 began only working with real estate. Because, you know, there’s no real good reason to get rid of THAT part since the leaders involved in the signing of the bill had no real-estate interests. Right? But that’s beside the point at the moment.
If you’re a law-abiding citizen, you’ll report all cryptocurrency buys and trades over the past year. The IRS is going to take the following position when they find out someone doesn’t report all of their buys and trades: Audit Time. That’s the place you do not want to go.
As it is with all cryptocurrency articles here on SlashGear, this writing should not be taken as investment or monetary advice in any way whatsoever. Users should seek out qualified professionals before taking any actions in any part of their life, whatsoever. All actions taken by readers before, during, or after reading this text remains the responsibility of the reader alone.