Tax Implications of Having and Selling Bitcoins
by: The Knowledge GroupJanuary 16, 2018
With the craze of jumping into the digital currency trend, it’s not surprising many have felt an urge to take a stake in Bitcoin or similar computer currencies to protect a financial opportunity. However, as with anything that produces greater value, there are potential tax implications. Technically, Bitcoin and similar digital currencies are not considered official currencies by the U.S. government. That then means they are likely to be treated as an investable asset outside of recognized public stock markets, like land for example. In such cases, the tax laws have treated such investments as capital assets, and the gain or profit made when selling the capital asset becomes the taxable income.
Keep Good Paperwork and Records
To make sure one has accurate documentation, it’s essential to preserve and keep the original purchase/receipt records for the held Bitcoin in the first place, including the fees. This becomes the basis of the investment. Anything above this aggregate figure then becomes the profit if the asset is sold later on for more than it was bought for. If the Bitcoin was given the holder, then the entire asset is taxable as a gain when sold. However, be careful that transfer taxes don’t apply too. If gained in an inheritance or similar, the value can be treated similar to receiving a home or property in a will. If paid from an employer, then the taxable value is the worth of the Bitcoin at the time it was paid in the tax year. So again, a lot depends on exactly how a person received the digital currency in the given instance.
Not Everyone Knows What a Bitcoin Is (Believe It or Not)
It’s important, especially given the changing tax landscape and greater government awareness of Bitcoin values, to consult with a certified tax preparer or licensed attorney who is well-versed in digital currencies and the latest tax policies on them. Because this asset type is fairly new in many circles, one can’t expect every tax preparation service to automatically understand proper tax treatment of Bitcoin and similar. If unsure, err on the side of maintaining good documentation and assuming anything added will be taxable income. It’s better to be taxed a bit too much, then too low or not at all and then get audited with penalties for being late.