Bitcoin and Taxes: Coinbase is Complying with the IRS’s Reporting Requirements.
Remember to Report Your Bitcoin Transactions.
Tax consequences from the sale and trade of bitcoins vary around the world, U.S. taxpayers must treat bitcoins and other “convertible” virtual currency as capital assets and not as currency. Internal Revenue Service (IRS) guidance released in 2014 made clear that capital gains rules apply to any gains or losses following a taxable event.
The capital or asset treatment does have an upside for some taxpayers since capital gains rates are favorable. This year, for example, capital gains rates for long-term gains (those held more than a year) range from 0% to 20%. Moreover, capital losses can be netted against capital gains, and the excess losses can be deducted from ordinary income (up to $3,000 each year).
IRS vs. Coinbase
The IRS won its fight in November, as the federal court ordered Coinbase to turn over records on more than 14,000 users who met the $20,000 standard. That is a far cry from the estimated 6 million customers that Coinbase had at the time, but the court defeat was a major blow for those proponents who value cryptocurrencies based on financial privacy.
What many investors do not understand is that even without the lawsuit, Coinbase was complying with IRS rules in providing specific information returns to the IRS. Coinbase currently completes Form 1099-K for customers who have received at least $20,000 in cash for sales of virtual currencies that are related to at least 200 separate transactions in a calendar year. A copy of the Form 1099-K gets sent to you, with the IRS also receiving the same information.
The IRS has been cracking down on virtual currency reporting. The agency has been doing some digging, and it has not been pleased with the results. In 2016, only 802 individual tax returns out of the 132 million filed electronically with the IRS reported income related to cryptocurrencies. The IRS is taking a closer look since Coinbase alone boasts 8.9 million customers (granted, not all of them are in the U.S.).
What this means is that IRS is likely to make reporting virtual currency transactions for tax purposes a compliance priority. Stay ahead of the game by making sure your records and tax reporting are above-board, no matter what happens to crypto.
Remember, If You Only Bought and Held Coins, You Do Not Have A Tax Liability.
Contact Palma Financial Services, Inc. today to assist you with your bitcoin tax questions.