Blockchain technology’s first official application is Bitcoin that is also considered “the forefather” of cryptocurrency. It is a disruptive technology right from its inherence. You must know how the technology of blockchain has disordered traditional ledger technologies; Bitcoin has also pushed tides in the currency and fintech markets by successfully supporting a decentralized solution for the digital currency which is secure as well.
In the beginning, the exchanges of cryptocurrency started twining Bitcoin to fiat counter-currencies like the dollar. Few previous platforms such as Binance and Coinbase are still popular. Grand institutional exchanges trade like the Chicago Board Options Exchange and the Chicago Mercantile Exchange trade in Bitcoin futures contracts is evidence of the presence of bitcoin’s increase in the financial sector.
With this acceptance and Bitcoin’s further journey into the financial market, it is evident that it will attract some kind of institutional pressure. And, in fact, it has regulatory bodies watching over the recent entry into their market have also expressed their inclination on Bitcoin. Visit here to know the advantages of virtual currency
The Internal Revenue System (IRS) recently claimed that 10,000 educational letters will be sent to taxpayers. The suspects have not paid any tax to the government in regard to the transactions made with virtual currency and they have to be accountable. There is a huge possibility that the feral body has made its recipient’s list on the available customer data is accessed from the cryptocurrency Coinbase exchange. Those who are not reporting their incomes in a correct manner will face penalties. They can also suffer interest payments or persecuted for criminal activities, as warned by the IRS.
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Bitcoin and Taxes
Although previously announced anonymous, the Bitcoin transactions are now transparent by the lion’s share. The governments have noticed the use of Bitcoin for black-market trading before as well. Hence, this has pushed the exchanges to levy requirements for anti-money laundering on traders of Bitcoins so that they can avoid drawing further attention of the regulators.
On the contrary, the largest change for the traders of Bitcoin traders has been brought by taxes.
While central bankers, federal judges, regulators have different perspectives on Bitcoin on whether to categorize it as a commodity or currency, they all agree that the currency should be taxed. The impactful countries tax cryptocurrency similarly, as well.
So where do the traders stand now?
The Essentials
The most basic thing that you must understand is- something will only matter when it is put under law. We have seen speculations on the happenings based on a specific financial regulator’s word. However, no single person will be allowed to alter tax code unilaterally or redefine an asset. Very little has altered since IRS had first addressed the cryptocurrency market in 2014.
The Notice of IRS 2014-21 in the United States considers virtual currencies a property. This means that whenever you purchase anything using the virtual currency taxes will be levied as a capital gain. This will be determined to look upon how long the assets were held be it a long term or short-term investment.
For example, if a cup of tea is purchased using Bitcoin, and it was worth $100 it is important to take the price of Bitcoin during the time of purchase into account. During the purchase of tea, if the Bitcoin rate is at $120, you will have an element that will be dollar-denominated with respect to another asset and now will have a much higher worth in dollars compared to its previous value. This implies the amount of Bitcoin you spent on the tea will be taxed according to the capital gains rules.
As the cryptocurrency brokers are not required to issue the clients the 1099 forms, everything should be disclosed to the IRS or one might face charges for tax evasion.
Transactions that are taxable include:
- Getting fiat money in exchange for cryptocurrency.
- Paying for services or products, like buying a cup of coffee using Bitcoin
- One cryptocurrency is exchanged with another cryptocurrency
- Receiving forked or mined cryptocurrencies
According to the IRS, these are not taxable events:
- Using cryptocurrency to buy fiat money
- When tax-exempt charity is done by donating cryptocurrency
- Cryptocurrency is offered as a gift to a third party
- Cryptocurrency is transferred from one wallet to the other
Neha Nidhi
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