On behalf of Silver Tax Group posted in IRS Tax Audits on Thursday, September 21, 2017.
As digital currency is not the same as real currency, taxing of digital currency transactions is complex. Since digital currency can go up and down in value, exchanges and sales of digital currency trigger capital gains tax treatment.
Because the price of digital currency has gone up dramatically in recent months, Congress is hoping to simplify the reporting process. If passed into law, a bill called “The CryptoCurrency Tax Fairness Act” would create an exemption for digital currency transactions of less than $600.
Digital currency law
Under current digital currency laws, taxpayers need to track every digital currency transaction in gauging their tax obligations. Passing this new bill would mean that some reporting of transactions would no longer be necessary.
In this bill, Congress is also looking towards the Treasury Department to prepare guidelines concerning reporting of digital currency gains and losses. The goal is to make the process simpler for taxpayers trying to keep track of their obligations.
Common usage of digital currency
Use of digital currency is increasingly common. Yet according to the IRS, only 802 taxpayers reported gains or losses pertaining to bitcoins in 2015. From the agency’s perspective, there are likely many more individuals than this who would owe unpaid taxes regarding these transactions.
Also, there is significant fluctuation in the value of digital currency. The value of bitcoin, for example, has risen during 2017 from $1,000 to as high as $5,000. Bitcoin owners are thus facing significant capital gains tax treatment – which could potentially be an unpleasant surprise for them come tax time.
For Michigan taxpayers, knowing what they owe in taxes prior to tax filing can be difficult. Having a tax plan in place is therefore essential. Experienced legal counsel may be a good place to start.