In the early days, bitcoin was considered to be the perfect place to hide your wealth. Unfortunately for many enterprising nerds, those days are behind us, now that the bitcoin is being progressively more scrutinized by IRS. With the tax season almost upon us, here are five things you should know about how bitcoin is treated by the government.
Top Five Facts about Bitcoin and Uncle Sam:
1) When you transfer bitcoin from one wallet to another this is considered a sale. Sales are subjected to a capital gains tax. Coinbase actually has a tool that can help you keep track of bitcoin transfers.
2) Mining bitcoins or any other cryptocurrency is considered a business transaction, and therefore is subjected to a self-employment tax. That being said, mining hardware can be deducted so do keep your receipts.
3) Speaking of business, crypto-currency is considered to be an acceptable form of payment, if you pay an independent contracter $600 or more worth in bitcoin then you are required to report payment to the IRS.
4) In November 2016, in an effort to catch tax evaders, the US government ordered Coinbase to release records of all account holders. If you are looking to avoid taxes, look elsewhere, bitcoin is longer the tax haven it use to be in the early days.
5) Bitcoin is considered to be property, not a currency, and is taxed as such.
That covers the basics of how the IRS handles crytpo-currency.
Keep in mind I’m not an expert, and if you’re looking for a professional opinion seek out an accountant who specializes in crypto-currency. Hope you have better luck than me in finding one!