Just because you conduct transactions in bitcoin (BTC), doesn’t mean you don’t owe the Internal Revenue Service (IRS). And that goes for other cryptocurrencies, too.
The IRS released its first set of guidelines on cryptocurrency in 2014, but only a few individuals claimed them. As a result, the IRS is continuing its crackdown on those dealing in virtual currencies.
The IRS demanded the Coinbase cryptocurrency exchange turn over all data associated with their transactions in 2017.
These records impact more than 14,000 customers who received, bought, or sold more than $20,000 BTC between 2013 and 2015. Read on to find out what this means for you and how to claim bitcoin during tax season.
Bitcoin and Taxes
The 2017 move by the IRS was followed up two years later by a letter dated July 26, 2019.
This educational letter went out to 10,000 taxpayers who the IRS suspects failed to report income and pay taxes on virtual currency transactions accurately. And the letter must be taken seriously.
The IRS has already geared up to scrutinize tax filings from those dealing in BTC and other virtual currencies. It remains committed to enforcing tax laws, and this includes ensuring all taxpayers have met their obligations.
These moves on the part of the IRS have surprised some individuals in the cryptocurrency world. But no matter the cutting-edge technology, only two things remain sure. Death and taxes.
So, how should you deal with bitcoin taxes?
Your best line of defense? Educating yourself about your obligations to the IRS and then applying this knowledge to your taxes. Even if it includes amending past returns. This cryptocurrency tax software will help you do this.
Pointers to Help You Claim Bitcoin
Besides Bitcoin tax software, you must understand a few basic things about cryptocurrency and taxes. First, remember that record-keeping for bitcoin and other virtual currencies remains your responsibility.
Although you’ll find hundreds of exchanges, intermediaries, and brokers ready to do business in cryptocurrency, they are not obligated to provide you with tax reports.
Some, like Coinbase, provide a “cost basis for taxes.” But you can’t rely on others to do the same.
Ultimately, you are responsible for keeping records of your cryptocurrency dealings. And you’ll be left holding the bag if the IRS comes calling, and you don’t have appropriate documentation.
A critical piece of the puzzle? Documentation that shows the IRS when you acquired cryptocurrency-related assets. For example, if you bought 20 bitcoins at a rate of $6,000 halfway through 2019, they may now be worth $18,000 each.
In other words, the IRS might claim that you made a $12,000 profit on each coin. You need documentation verifying the value of the bitcoins at the time of your purchase. Otherwise, your holdings will get assessed at today’s value.
Keep Records and Provide Documentation
As with traditional dollars and cents, keeping meticulous records is crucial when dealing with bitcoin and other cryptocurrencies. If you’ve made mistakes in the past, now’s the time to amend them and claim bitcoin properly.
Staying informed and educated while maintaining the appropriate records and documentation will ensure you have no problems when it comes to future dealings.
Now that you’ve got a better handle on taxes on bitcoin, are you ready to explore more tech topics that affect your daily life? Browse our blog now for the latest in cutting-edge gadgets and concepts.