Cryptocurrency and Taxes: What You Should Know

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Have you ever heard of the saying, “knowledge is power?” Well, hang on, because this informational guide will introduce you to cryptocurrency and taxes. The cryptocurrency and tax information most of the population is unaware of. 

Cryptocurrency and taxes go together in more ways than you think. If you are a miner of cryptocurrency or a small business cryptocurrency start-up, there are taxes still to be paid. Those taxes still have to be paid through the currency of the American dollar. 

Cryptocurrency and tax information is given below to share how cryptocurrency and taxes work together. There are opportunities for innovation and investment that blockchain presents. This information is to make sure you are in compliance with your taxes.  

Tax Law Cryptocurrency And Taxes

Bitcoin Beginnings  

Introduced in 2009, Bitcoin was the first cryptocurrency and remains the most used. There are other forms popular now that include Litecoin, Ethereum, and Ripple. Cryptocurrency exchanges have experienced booms and busts in the financial market. Experts predict the use of cryptocurrency will continue to increase. 

The cryptocurrency market increase makes it imperative you use expert tax attorneys when filing your taxes.  Tax attorneys are used to help in understanding the tax implications of these virtual transactions. It is difficult to navigate the world of entrepreneurship when you are dealing with familiar products and services.  

But when you are starting or in a cryptocurrency based business, the rules change. Your business market is more complicated, and your taxes are difficult to understand. It is always worth your while to hire a tax lawyer for any business you are starting or buying. Hiring a tax attorney in a cryptocurrency business is vital.  

Cryptocurrency Tax Changes  

There are even more challenges when dealing with cryptocurrency regulations that can change month to month. In 2018, the cryptocurrency tax regulations were uncertain, complicated, and still developing. 

Business types, such as corporations, LLCs, and S-corps, are all taxed differently. The cryptocurrency business has even more details and specifications. These tax specifications vary because regulations are still trying to catch up.  It’s unlikely that you will have all the correct information to do your cryptocurrency business taxes on your own.  

You need a full-service tax compliance guide to help your business remain tax compliant. As a cryptocurrency business owner you need to stay ahead of cryptocurrency legislation. There are new tax regulations that happen on an ongoing basis. A tax attorney can help keep you out of trouble with the IRS. In the cryptocurrency arena, that is more important than ever due to its continual scrutiny.  

Tax Law Cryptocurrency And Taxes

Cryptocurrency and Taxes 

As an investor or owner of a cryptocurrency business, you want to make sure your transactions are reported. In 2019, the IRS taxes cryptocurrency as property.   

Any cryptocurrency investor is advised to get legal advice on cryptocurrency ICO’s white papers before they invest a dime. There have been so many bad players in Cryptocurrency ICO’s it is better to be safe than sorry. There are many cryptocurrency business failures based on paying attention too late to the law and taxes.  

The IRS and Cryptocurrency 

Under IRS Notice 2014-21, cryptocurrency is treated as property for federal tax purposes. Cryptocurrency is taxed as property. Cryptocurrency taxed as property makes for unique tax difficulties. to work through when doing your federal tax returns. The tax difficulties are because taxpayers must recognize any gain or loss on the exchange of cryptocurrency. The gain or loss occurs for cryptocurrency in cash or other property. 

The gain or loss has to be addressed every, single time cryptocurrency is used to buy goods and services. The complicated part is figuring out if your gain or loss is recognized on the transaction you took part in?  

The federal government can recognize your transaction for taxes based on length of time. The federal government can recognize cryptocurrency transactions on your position held. The federal government may want you to recognize and record your cryptocurrency transaction for both. The federal government may want you to record both each time you participate.  

Cryptocurrency Tax Future 

The beginnings of the future are already here in dealing with cryptocurrency. You need to remember, cryptocurrency is designed to create a decentralized currency of the people. That’s important to remember because cryptocurrency loosens the stranglehold of government banks. Cryptocurrency wants to place the power of wealth into the peoples’ hands. 

The government is aware that unlike cash transactions, no bank or federal authority verifies the transfer of funds. Instead, these virtual transactions are recorded in a digitized public ledger called a blockchain. Individual units of the currency are called coins. 

Cryptocurrency is a digital currency that uses encryption techniques. These encryption techniques are used instead of a central bank, to generate, exchange, and transfer units of currency. Digital currency makes the federal government watchful and alert. The federal government follows every cryptocurrency business for tax purposes for those reasons.  

Cryptocurrency and Fraud 

Money as it is used today as physical currency always performs a value transfer between people and an entity. Physical currency has a few layers. These layers include person to an entity, an entity to a bank, bank to the federal government. 

The links are subject to data mismanagement, fraud, or hacking attacks. These hacking attacks can expose your sensitive financial information to malicious actors. You don’t have to look far in the news today to find many examples of these worst-case scenarios.  

In fact, the IRS itself has been hacked. The IRS data retrieval tool in April of 2017 had up to 100,000 taxpayers personal information stolen. This hack centered on a scheme involving the Free Application for Federal Student Aid (FAFSA). But the hack wasn’t the first one and won’t be the last. Cryptocurrency provides both an answer and problem in having attacks.  

Cryptocurrency and FACTA 

You can keep informed about hacking  To stay abreast and ahead of cryptocurrency news in: 

  • Fraud  
  • Laws and Regulations 
  • Tax changes 
  • Investment taxation changes 
  • Business formation changes, and more 

Also the above doesn’t include any cryptocurrency treatment for international tax reporting. This includes Report of Foreign Bank and Financial Accounts (FBAR). It also includes Foreign Accounts and Tax Compliance Act (FATCA) reporting. 

You also need to know whether your cryptocurrency trades before 2018 are subject to the like-kind exchange rules. 

Tax Law Cryptocurrency And Taxes

Cryptocurrency and the Way Forward 

Cryptocurrency and taxes is a serious business that is ever-changing.  This informational guide is for understanding cryptocurrency and taxes. It’s important cryptocurrency businesses understand all the ways you need a legal interface.  

Cryptocurrency scrutiny surrounding its tax reporting will continue to intensify. It behooves you to consult with us regarding your cryptocurrency business today. We will keep abreast of cryptocurrency tax regulations. We offer the best way forward for your cryptocurrency businesses growth and development. 

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