The IRS has stated that bitcoin is a form of property, not currency.
Bitcoin Is Not a Currency but Rather Property, Why?
Investors Might Stand to Benefit from the IRS Notice, but Taxes Will Still Apply to Transactions
The Internal Revenue Service of the United States announced on Tuesday that bitcoins and other virtual currencies are to be recognized, for the purposes of taxation, as property and not as cash. This comes as the agency wades into a difficult tax matter for the digital era.
Does the Internal Revenue Service (IRS) recognize bitcoin as a currency?
Your holdings in Bitcoin, Ethereum, and any other cryptocurrency you may have are subject to taxation. Your virtual currency is taxed in the same manner as any other assets you own, such as stocks or gold, because the Internal Revenue Service (IRS) considers cryptocurrency holdings to be “property” for the purposes of income taxation.
Bitcoin and all other cryptocurrency coins, along with any other form of digital cryptocurrency, is Property, Not Currency.
It makes no difference to the Internal Revenue Service (IRS) whether you sell Bitcoin as an investment or transfer it to another party as payment for goods or services because the IRS considers Bitcoin to be a capital asset.
The Internal Revenue Service does not recognize cryptocurrencies as a form of currency but rather as a form of property. You are required to pay taxes based on the current value of any Bitcoin payments that you receive as payment. If you sell a cryptocurrency for a profit, the difference between the price at which you bought the cryptocurrency and the amount that you made from selling it is subject to taxation.
If you fail to record the taxable crypto activity and are subsequently subjected to an audit by the IRS, you run the risk of being subject to interest, fines, and possibly criminal prosecution.
If you are wondering “how do I avoid paying taxes on Bitcoin? “, the answer is “save your receipts.” Buying cryptocurrency with funds from an individual retirement account (IRA), 401(k), defined benefit plan, or one of the many other types of retirement plans is the simplest way to delay or avoid paying taxes on your assets. When you acquire bitcoin using the funds from a regular individual retirement account (IRA), you can postpone paying taxes on the gains until you start taking distributions from the account.
According to the position taken by the IRS (that is, bitcoin is property), gains and losses are treated as capital in nature. Therefore, record gains either as short-term or long-term capital gains, depending on the circumstances. Because any “property train” can be ridden in either direction, bitcoin losses can be reported on a Form 1040 as either short-term or long-term capital losses, depending on the circumstances.
Avoid committing these crypto-related tax blunders at all costs.
Do I have to report my cryptocurrency holdings even if I didn’t sell any?
“If you only bought it and didn’t sell anything else, you can actually respond ‘no’ to that question because you do not have any taxable gains or losses to report,” says Woodward. “You can actually answer ‘no’ to that question because you do not have any taxable gains or losses to report.” However, you are required to answer “yes” if you have ever bought and sold cryptocurrencies, spent crypto in any other way, or traded it in for other types of digital tokens.
Failure to declare cryptocurrency gains could result in a protracted audit by the Internal Revenue Service and severe financial penalties. The Internal Revenue Service has “a lot of infrastructure and staff in place to go after known cryptocurrency users that don’t report,” according to a recent statement. Regardless of the size of their cryptocurrency holdings, investors have a responsibility to conduct themselves with due diligence and transparency.
Investors in cryptocurrencies also frequently have the misconception that they do not have to report their cryptocurrency holdings on their tax returns if they have never converted their cryptocurrency holdings into traditional currency.
However, in addition to these taxable scenarios, there are a number of others that need to be reported. The following are some examples:
- You made a transaction in which one cryptocurrency was exchanged for another (e.g. you traded your bitcoin for ether)
- If you have a cryptocurrency savings account, you will have received interest on your assets.
- You were the lucky recipient of cryptocurrencies in any quantity as a present.
- You made a purchase via cryptographic means.
You are required to respond with a “yes” if you have bought and sold cryptocurrencies, spent your cryptocurrency in any other way, or traded it for other digital tokens.
It is essential to check in with the Internal Revenue Service at all times.
Examine the tax guidance provided by the IRS about the use of virtual currencies in individual and commercial transactions, such as Bitcoin and other currencies of a similar nature.
Check it out and hopefully, you can have your accountant or any of the accounting firms guide you properly and legally.
(Just a friendly reminder that the purpose of this article is not to provide tax or investment advice; instead, you should seek the guidance of a qualified professional advisor regarding your specific financial circumstances regarding taxes and investments.)
And to sum everything up
Your holdings in Bitcoin, Ethereum, and any other cryptocurrency you may have are subject to taxation. Your virtual currency is taxed in the same manner as any other assets you own, such as stocks or gold, because the Internal Revenue Service (IRS) considers cryptocurrency holdings to be “property” for the purposes of income taxation.
