Bitcoin trading is completely out of control these days, hitting $16,000 after starting the year below $1,000, so you know that Uncle Sam is salivating at his cut of those gains.
Because yes, your gains on that digital currency are taxable.
Surprisingly, the IRS has been ready for this craze and created tax policy around the cryptocurrency back in 2014.
So don't blow it off.
Because just last week, the IRS won a lawsuit against Coinbase, one of the largest Bitcoin wallet and exchanges, requiring it to hand over records relating to users who conducted Bitcoin trades worth more than $20,000 dating from 2013 to 2015.
It's hunting for tax receipts.
Now remember, in the government's eyes, bitcoin is an asset or property, not money. And the purchase and sale of an asset is a taxable event.
Lisa Greene-Lewis, CPA and tax expert at TurboTax came in from their HQ in San Diego to help us decipher all this.
So be sure to listen to the video above but here are some highlights:
- If you trade bitcoin, treat it like you would a stock. Any gains or losses are subject to the capital gains tax rules and reported on your Schedule D - Capital Gains and Losses. And while the rates vary with your income, the top capital gains rate is around 20%
- If your employer pays you in bitcoin, that amount will show up on your W-2 and you will need to report it like your other earnings on your Form 1040 - U.S. Individual Income Tax Return. In addition, your employer will owe regular employment taxes, like Social Security and Medicare, to the government on that amount.
- If you're self-employed and paid in bitcoin, it is taxed just like your other earnings.
Oh, and if you mine bitcoin, you'll also need to report that income to the IRS as well.
So keep good records and watch the video!
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