Cryptocurrency and the IRS
As Bitcoin, Ethereum, Zcash, and other forms of virtual currencies become more and more prevalent, many people have begun facing the tax implications of their trading, buying, and selling activities on the blockchain. Numerous individuals have accumulated a great deal of wealth thanks to this new technology, and the IRS has taken notice.
As the technology and the usage thereof develop, so too will the codes and rules set forth by the IRS over how this type of income should be reported and taxed. When it comes to planning for the tax implications of buying and selling cryptocurrencies, making an ICO, or engaging in other business transactions involving blockchain technology, you need an attorney who is both experienced in tax law as well as up-to-date on the latest developments.
Hart David Carson, LLP, can provide the legal guidance you need with respect to determining the tax implications of using blockchain-based currencies.
Definition of Cryptocurrencies in Tax Law
To begin, while most people refer to Bitcoin, Ether, and so forth as “currencies,” the IRS does not. Instead, these are defined merely as “property.” This means that capital gains taxes often apply, and that requires keeping thorough records. Gains and losses from trading cryptocurrencies must be carefully tracked in order to determine your total tax burden.
While many exchanges allow you to download a record of all your transactions with cryptocurrencies, a number of them don’t, and often, exchanges are shut down, taking important information with them. Keeping a careful record of your purchases, sales, and expenditures using blockchain-based currencies is vital to making your reporting as accurate as possible.
IRS Statement on Virtual Currencies
Additional details on how taxation of cryptocurrencies are to be handled were given in 2014 by the IRS. For instance, payments and wages using virtual currencies are subject to the same reporting standards as actual currency. Self-employment taxes may apply depending on the nature of the individual’s cryptocurrency-related activities.
Cryptocurrencies and Tax Planning
The primary challenge that businesses, individuals, and other entities face when trying to determine the tax implications of their dealings with virtual currency is that the law is liable to change in future years. Guidance from the IRS has been largely incomplete, and many businesses are calling upon the IRS for more details on how their cryptocurrency-based income should be reported.
As laws develop, your tax burden could be drastically affected. In addition, the protocols in place for reporting income from virtual currencies could change, so you will need to be well aware of developments in the industry and in the tax code if you trade, sell, or develop cryptocurrency.
Determining how the laws apply to your situation will require a thorough understanding of how IRS tax code operates. In addition, further developments in these laws will likely occur in the future, so keen legal guidance is advised. Our attorneys are well equipped to help you through the process of determining your current tax burden while also planning for future changes or additions to the law. For more information, contact Hart David Carson, LLP, today.