Every year at this time, the same question comes up: do I have to claim my bitcoin profits on my tax return?
And with more and more people getting into digital currency lately — as well as more and more people making bank due to skyrocketing prices — this is something you really need to know.
Because the answer is yes … you do need to claim digital currency profits on your tax return.
Bitcoin and other digital currency can be used as both a currency (means of exchange) and asset (store of value). But the government taxes it as a property. Huh?
“Most countries, like the US, tax cryptocurrency as property,” explains CoinTracker, a portfolio tracking service. “Therefore, if the asset appreciates in value and you sell/trade/use it for profit, the gains are taxed like capital gains. If the asset depreciates in value and you sell/trade/use it at a loss, you may be able to deduct the losses against other capital gains to reduce your taxes.”
So in the eyes of the government, bitcoin is an asset rather than a currency. But the type of asset is treated like a property to keep things simple. It either goes up or down in value, netting you a profit or a loss.
If you own the coin for less than a year, it’s subject to short-term capital gains tax. If you hodl it (save it for a rainy day), it’s subject to long-term capital gains tax, but only if you ever sell it for profit, or do another transaction that the IRS considers a “taxable event.” And some taxable events, like bitcoin mining, are treated as normal income.
So how do you know if it’s a taxable event or not? Let’s take a look at the types of transactions the US government considers taxable and non-taxable.
So, when it comes time to do your taxes this year, please be sure to follow the guidelines to avoid tax penalties.
Disclaimer: The information and views supplied on the Coin Cloud blog are for educational and entertainment purposes only. We are not financial advisors, so please do your research and consult with a trusted financial specialist before investing your money.
Founded in 2014 in Las Vegas, Nevada, Coin Cloud is the leading digital currency machine (DCM) operator. With over 4,500 locations nationwide, in 48 states and Brazil, Coin Cloud operates the world’s largest and fastest-growing network of 100% two-way DCMs, a more advanced version of the Bitcoin ATM. Every Coin Cloud DCM empowers you to quickly and easily buy and sell over 40 cryptocurrency options with cash.
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