Bitcoin is one of the most traded cryptocurrencies that has gained mainstream and global adoption. People can use this digital currency as a store of value and a medium of exchange.
However, using this digital money has federal income tax implications. For instance, in the United States, the IRS won a case against one of the biggest exchanges known as Coinbase. The IRS considers Bitcoin holdings as property that can be taxed. So, here is everything about Bitcoin tax implications and how to report Bitcoin to the IRS. You can trade more efficiently by using trading platform like thequantumai.app
When to Pay Bitcoin Taxes
The IRS treats this digital currency like a capital asset that should be taxed. So, if you sell or trade this virtual currency at a higher price than you bought it when investing, you will have to pay a tax for the capital gains. On top of that, if you own this virtual money and use it to pay for a product, the IRS views that as selling, so you will have to pay for capital gains, so you will have to pay capital gains taxes. However, the capital gains taxes are eligible if the amount of this digital money that you own is worth more than what you paid when you purchased it.
Also, your digital currency starts becoming taxable when you use this digital money as a method of exchange. For instance, you can sell this digital money in exchange for US dollars or even exchange Bitcoin for other cryptocurrencies via a platform.
As a result, people must be extra careful when trading this digital currency since each trade is taxable. As a result, the IRS is looking for people who make Bitcoin transactions and try to evade paying taxes.
How to Report Taxes on Bitcoin
You will incur capital gains or losses every time you transfer your ownership of this digital currency. However, to calculate your profit or loss from each transaction, you will have to assess how the price of each one of your assets changed from the time you originally received them. In other words, you can calculate your capital gains and losses by subtracting the value of this digital currency at the time of sale and the cost basis.
After calculating your capital gains and losses, you must complete IRS form 8949. The IRS issues this 8949 form to report the sales and disposals of capital assets. While filling out the 8949 form, you will provide valid information on a description of this digital currency that you sold and the date you originally acquired this digital currency.
On top of that, you will indicate the date you sold or exchanged this digital currency and your gains or losses. Once you complete your 8949 form, you will be required to demonstrate your total net gains or losses on Schedule D. Schedule D allows one to report long-term or short-term gains or losses.
Finally, you will complete the rest of your tax return after including any other Bitcoin income. In the end, all your Bitcoin capital gains and losses or income events must appear on your tax return.
On the contrary, evading reporting Bitcoin on your taxes is tax evasion which is punishable by law. Sometimes, those who evade reporting Bitcoin returns get five years imprisonment.
The Bottom Line
Reporting Bitcoin on your taxes is essential. Generally, this guide provided helpful information on how to file this electronic currency to the IRS. Follow it to avoid trouble with the taxman.
