Are taxes applicable on Bitcoins?

More detailed information on this content can be found on our Free Crypto Signal — https://t.me/cryptosignalalert

Yes, it is.

The IRS has made it mandatory to report every Bitcoin transaction that you make. Therefore, it is your duty to keep a record of all buying, selling of, investing in or using Bitcoins to pay for goods and services. The IRS is also treating Bitcoin as an asset, in other words they can now tax all transactions with a capital gains tax depending on how long you have been holding your Bitcoin.

Not many ways to get around it either… The following acts will be taxed.

• Selling bitcoins, mined personally, to a third party.
• Selling bitcoins, bought from someone, to a third party.
• Using bitcoins, which one may have mined, to buy goods or services.
• Using bitcoins, bought from someone, to buy goods or services.

Act one and three refer to mining Bitcoin, using personal resources then selling them to someone for cash or equivalent in goods and services. Whatever cash that miner received from selling the Bitcoins, would then be taxed as a personal or business income after deducting any expenses incurred in the process of mining (Ex. Electricity, equipment, etc.)

Acts two and four are more like investments in an asset. Let’s say bitcoins were bought for $200 each, and one bitcoin was given up in exchange of $300 or equivalent value in goods.

If bitcoins are held for a period of less than a year before selling or exchanging, a short-term capital gains tax is applied, which is equal to the ordinary income tax rate for the individual. However, if the bitcoins were held for more than a year, long-term capital gains tax rates are applied. In the US, long-term capital gains tax rates are 0% for people in 10%-15% ordinary income tax rate bracket, 15% for people in the 25%-35% tax bracket, and 20% for those in the 39.6% tax bracket. Thus, individuals pay taxes at a rate lower than the ordinary income tax rate if they have held the bitcoins for more than a year.

However, taxation on bitcoins and its reporting is not as simple as it seems. For starters, it is difficult to determine the fair value of the bitcoin on purchase and sale transactions. Bitcoins are very volatile and there are huge swings in prices in a single trading day. The IRS encourages consistency in your reporting; if you use the day’s high price for purchases, you should use the same for sales as well. Also, frequent traders and investors could use “first in, first out” (FIFO) or “last in, first out” (LIFO) accounting techniques to reduce tax obligations. (Refer to the Bitcoin Tax Guide for a detailed explanation of issues in Bitcoin Taxation and reporting.)