With the heated discussion about crypto currency and block chain lately, the topic of taxes and financial impact has perked up. The crypto currency continues to gain traction in everyday life. However, there is still no solid guidance and adequate advice for tax professionals. With different theorize, here are seven things you should know about crypto currency tax.
1) The two tax forms. Majority investors in crypto currency are investor themselves. To report on digital trades, they use Sales and Other Dispositions of Capital Assets Form 8949. They describe the assets they’ve traded along with the dates they acquired and sold it. They also include things such as the cost of doing the trade, how much they made, and their net gain or loss. Other than that, the form is also distinguished in short-term and long-term capital gains and losses. The second form concerns crypto trades is Form 1040 Schedule D. This has short-term and long-term gains and loss with the going off information from Form 8949.
2) As the IRS confirmed, value of $600 or more done through virtual payment, which includes wages, annuities, rent, salaries, and compensation, it must be reported to the IRS. If there are no independent contractors, it must be reported on Form 1099-MISC by using the fair market value on the date of payment.
3) Crypto currency can also be subjected to income tax. This is for the miners who are paid through bitcoins for their work which makes it eligible for income tax. Mining also can be qualified for self- employment which also requires self employed tax.
4) All crypto currency sales and trades are taxable. You have to report all your gains and losses on your trades to the IRS. If you are exchanging a crypto currency for another one is also taxable. This includes converting it back to USD or spending crypto currency.
5) The IRS is more focused on keeping tabs on every trade. It was reported that over $20,000 was traded without proper taxation. If you try to avoid crypto currency tax or indulge in other forms of fraud, you can be sentenced to a maximum sentence of five years in prison or a maximum fine of $250,000. If you are not filing for crypto currency taxes, the IRS is sure to keep a very sever watch on your activities.
6) The crypto currency tokens are potentially tax free. With the upgraded crypto currency guidance by IRS a lot has changed in crypto currency space. The crypto currency that represents a service or asset and not a currency do not come under federal law tax. This it is a virtual currency that has equivalent value in real currency or act as a substitute for real currency. However, it is best to consult a qualified and certified accountant or lawyer before making any decisions regarding what you choose to include or exclude from the crypto currency taxes.
7) Paying taxes for crypto currency is like paying any other type of capital gains or income tax. However, there is one major difference. It is up to the investors to compile the information themselves. This needs planning and recording over thousands of data. You need to determine if you are a trader, employee or a crypto currency miner first.
As for now, the finer details of the crypto currency tax are not known. Many of IRS’s stands on certain status are not unclear. However, it can be assured that sooner or later, like most tax related issues, it will become more clear and simple for the public to understand.