Category Archives: Cryptocurrency

bitcoin tax laws

Digital Coin Integration – A Marriage of Old and New Monies

bitcoin tax laws

With digital coin prices linked to the fluctuating value of companies like Bitcoin, the future of cryptocurrency is often in doubt. Recently, Coinbase, the largest platform for Western purchases of fiat digital currencies, announced they are beginning token integration. Digital coins, like Ethereum, are being paired with U.S. dollars and other fiat currencies for sale. It gives cryptocurrencies an increased level of stability because it is no longer tied to one company’s profitability. Digital currency can now gain better global acceptance in the marketplace. Average investors feel more confident buying crypto coins that are the equivalent of USD.

How Are Cryptocurrencies Taxed?

In the beginning, some investors hoped digital currencies would be a way to avoid taxes. The IRS has been watching the development of this new monetary platform since its conception. In April 2014, the IRS released limited guidelines for the taxation of digital currencies. From their point of view, the purchase of crypto coins lies somewhere between currency and investments and is treated as property.

How Are Taxes Calculated for Digital Currency?

Crypto coins are considered assets. Any gain or loss from the sale or exchange of digital currency is taxable. The length of time you own the coins determines whether you will pay short-term (one year or less) or long-term (over a year) capital gains taxes. The First In, First Out rule is used to calculate the period of ownership for an investor who purchases coins multiple times.

What Do I Need to Document for Taxes on Digital Coins?

Before buying any cryptocurrency, consult with a tax professional who understands the regulations, which continue to be defined for this new platform. You should keep track of three things for all digital coin investments:

  • Purchase Price – The original cost of the coins is called your basis. It is needed to calculate your earnings.
  • Sale Price – The amount you are selling or exchanging your coins.
  • Earnings – The basis amount minus your sales price.

Did the 2018 Tax Law Affect Digital Currencies?

In the past, investors could avoid taxes by exchanging crypto coins for an equal valued commodity. It is called a like-kind exchange. The new 2018 tax law has eliminated this opportunity. These exchanges are now limited to real estate only. If you sell your crypto coins for cash or use it to purchase anything other than another cryptocurrency, it is seen as income and capital gains taxes apply.

Is Cryptocurrency Still a Questionable Investment?

Digital currency appears to be the wave of the future, although it is still experiencing growing pains. Understand the tax implications this new monetary format brings before investing. Consult a tax professional and do your research.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.

bitcoin and cryptocurrency

How Bitcoins Are Taxed

bitcoin and cryptocurrency

Cryptocurrency is shaking up the banking industry the same way the internet is changing the entertainment industry. In 1791, Alexander Hamilton establishes the first bank in the U.S. and all currency and financial dealings begin to revolve around centralized banks. In 2008, the peer-to-peer electronic cash system known as Bitcoin introduces a new currency into the market called bitcoins. Rather than money printed by a bank or backed by a government, bitcoins are a virtual currency that uses a cryptographic encryption method to secure transfers and storage. Everything about bitcoins exists in digital form and is sent through the internet. Bitcoins are kept in a digital wallet on a computer or phone. Using them is as simple as sending an email. 

What Are the Advantages of Cryptocurrency?

  • They are accepted by many countries and businesses
  • Transactions are person-to-person without going through bank
  • Fees for transactions are lower than with traditional currency
  • Accounts cannot be frozen
  • There are no account prerequisites or limits

How Do You Get Bitcoins?

You obtain them from Bitcoin miners or as a payment for a product or service. Every financial exchange involving bitcoins is verified and recorded in a transparent public ledger or blockchain. Miners are paid with bitcoins for their work (mining). The fees charged for transactions generate new bitcoin currency. An encryption algorithm regulates the number of units created by each event.

Does the U.S. Government Recognize Bitcoins?

The U.S. Federal Reserve views financial transactions and investments using cryptocurrency as legal. The IRS requires users to report all buying, selling, investing or use of bitcoins. The United States and many countries, as well as worldwide businesses are accepting them. Unfortunately, not all bitcoin exchanges are reported. The international banking industry is concerned criminals use cryptocurrencies to hide illicit activities because overseas transactions are extremely difficult to track.

How Is Cryptocurrency Taxed?

The IRS views bitcoins as assets and are treated as intangible property, not currency. You must pay short-term or long-term capital gains tax on your use of cryptocurrency, depending on how long you have held onto the units. Bitcoins you mined and sold get taxed as personal or business income. Consulting a good tax lawyer or accountant to discuss your use of bitcoins is recommended.

Should I Invest in Bitcoin?

Cryptocurrency prices fluctuate wildly. The March 2018, the unit cost for one bitcoin (BTC) is $11,090.70. In July 2010, the unit cost was $.08. Many investors think a collapse of bitcoin’s price bubble seems likely, which would threaten Wall Street and the U.S. economy. Others think cryptocurrency is here to stay. Smaller altcoins have sprung up like Ethereum, Ripple, Bitcoin Cash and Cardano. Acquiring some of this cryptocurrency requires you buy bitcoins first and visit another website to make the exchange. Recently, hackers have targeted several smaller altcoin cryptocurrency companies, stealing millions and putting them out of business. Deciding to enter the bitcoin arena is up to you. Our advice – buyer beware and always have a good tax lawyer.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your taxes and how the TCJA affects them. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.