A crypto transaction is not a tax-free transaction.
U.S. taxpayers who sell domain names for cryptocurrencies such as bitcoin and ether must report these as income on their income tax returns. For this year’s tax returns, the Internal Revenue Service is setting a trap for anyone who doesn’t report cryptocurrency profits.
The Wall Street Journal reports that the standard 1040 tax form this year will include a new question:
At any time during 2020, did you sell, receive, send, exchange or otherwise acquire any financial interest in any virtual currency?
The IRS is making this explicit to avoid having taxpayers claim ignorance of the rules.
Of course, how this works for businesses might be a bit different than for individuals. It seems logical to report the value of the cryptocurrency when you receive it as income, but you might need to book a loss or gain when you dispose of it. Ask your accountant.
Squarely says
Bitcoin is a scam…cryptocurrencies are virtual scam.
Nobody knows who owns what except the owners getting rich, and nobody know who the real owners of bitcoins
No transparency.
LaughingBoy says
Ok, so if you never convert it into cash, then how are you supposed to pay taxes on it?
Oh, so now I guess the IRS will accept payment in Bitcoin, huh?
Haaaaaaaaaaaaaaaaaaaaaaaaaaaaaaah!!!
Lifesavings.online says
I wouldn’t bet on this laughing clowns take on this.
You’re playing with fire dealing with BTC. Any jury (if they even needed one) will not sympathize with your ignorance.
Most people think BTC is a scam – because it is.
First the fanboys claimed it was going to be ‘money’. That is until it blasted up to $20k on that idea. Great, except the transactions took around 3 hours and cost $30+ under relatively tiny volume.
So the ‘money’ narrative was shot.
And oh yea, for the purists, the new narrative: it’s now a ‘savings’.
So bitcoin is a savings. That is until everyone owns it, and everyone is a target. Right? Money NEEDS insurance. That’s why banks ever existed in the first place. Grandma/pa can’t be ‘their own bank’. It doesn’t work. Everyone gets scammed when everyone is a target.
Now look, I hate fiat more than ANY bitcoiner. I understand what bankers have done more than almost everyone.
But bitcoin isn’t a solution. You need hard-asset backing (stable coin), so that when the worst does happen, you can simply migrate to new, more secure tech. You need fundamental soundness because the tech alone gets outdated 100% every time, always.
What we have now sucks because it is corruption/lies founded on flawed principles to begin with – compounding interest / debt based = could never work in the long run.
Blockchain solves a lot of those problems. But it isn’t Bitcoin. It’s asset backed ones. And it’s coming soon in a big way.
Bitcoin is a toy that is absolutely prone to 51% attack. At that point, no entity (capable of much) will have incentive to protect it.
-Total- decentralization doesn’t work in MANY cases (money being one). LONG proven.
We even have electoral college etc, which all exist because humanity knows certain ‘majority vote/consensus’ systems simply don’t work.
There’s SO much wrong with bitcoin. Maybe most importantly, it is -DEFLATIONARY-. Every economist worth their salt knows this spell big trouble. Such a currency sends humanity BACK. Not forward! People are less prone to invest in new ideas/innovate when their money isn’t losing value.
Honestly. Inflation is good. 2% is bang on. Humanity at least has that part figured out. So argue with the science? I think bitcoiners are frauds, asking for trouble.
LaughingBoy says
What are you talking about? Maybe you need to read this article more carefully because you’ve obviously strayed off the focus.
The IRS is requiring that we pay taxes on Bitcoin, so then obviously IRS doesn’t think it’s a toy, right?
And so the question is, how are we supposed to pay tax on it if they don’t accept Bitcoin as payment to satisfy the tax they want to collect on it?
How will this be possible if someone never cashes out their Bitcoin to begin with?
john berryhill says
How do you pay any other property tax?
LaughingBoy says
Property Tax is more nominal compared to Capital Gains on Bitcoin, isn’t it?
So if we have no cash at the time, does that mean that the IRS is forcing us to convert enough of it into cash just to pay the IRS for the Capital Gains on Bitcoin?
james says
IMO property tax isn’t a good comparison. I think stocks would be more accurate. You pay on the gains once you cash out. To me that would make sense for bitcoin, does the IRS really not look at it this way?
LaughingBoy says
The reason the IRS doesn’t want to look at it this way is because their legacy taxation model isn’t sustainable in the new economy, so now they want to “cross the line” and change the rules to benefit them.
But they can’t have it both ways. If they want to tax Bitcoin, then then need to also accept Bitcoin to satisfy the tax they are wanting to collect on it.
They are obviously in a conundrum because if they allow payment in Bitcoin, then that will further legitimize and accelerate Bitcoin replacing USD and all other Country currencies.
They never could have imagined something would ever come into existence that is Property and also simultaneously Liquid Currency at the same time.
The IRS is quickly realizing that “they can’t beat it”, so it’s obvious they are wanting to “join it” with this new requirement that we have to report Bitcoin gains even if we don’t cash it out.
John Colascione says
Appreciate this post. Will look out for that question at years end.
DomainBoss says
Bitcoin is the biggest scam ever perpetrated on the humanity. It has no value in itself. All hype by either con artists or people who are stuck with losses in bitcoin.
Mark Thorpe says
Bitcoin=Tax loss selling
john berryhill says
Just to follow up on Laughingboy’s question above:
“ So if we have no cash at the time, does that mean that the IRS is forcing us to convert enough of it into cash just to pay the IRS for the Capital Gains on Bitcoin?”
The IRS is not asking about, or taxing, unrealized capital gains.
“ At any time during 2020, did you sell, receive, send, exchange or otherwise acquire any financial interest in any virtual currency?”
The question is not “During 2020, did you start the year with X virtual currency and did it hypothetically appreciate in value?”
Obviously, if you bought virtual currency – or anything else for that matter – and then sold it at a higher price, you would owe tax on the difference, but you don’t pay tax on unrealized gains any more than if the Picasso hanging in your living room goes up in value.
The question is directed to transactions (or series of transactions) in which you may have realized a gain.
But if I give you that Picasso as a gift, you owe tax on that too, without necessarily having enough cash to pay the tax.