Generally, cryptocurrencies have been perceived to be good and bad in different parts of the world. Countries that have structured bitcoin tax reporting regulations have their population buying into cryptocurrency in a big way. They are becoming increasingly aware and interested in the impact of cryptocurrencies on the economy.
On the other hand, people in countries with unstructured Bitcoin tax reporting laws are on the fence about cryptocurrencies. Such is the case with the Indian population.
Bitcoin announced its existence in 2009 and is now at the helm of a new digital economic revolution.
The concept of digital money is not new. However, previous attempts at never materialized. However, Bitcoin has somehow managed to thrive despite the chaos and confusion in today’s financial world.
Bitcoin was created and released in 2009 by an unidentified person or an organization under the name Satoshi Nakamoto. It is based on Blockchain technology.
A blockchain is a type of distributed ledger that does not have a centralized controlling system. The members of the network are known as nodes. They verify all the ledger entries. The issue with centrally controlled systems is that they are prone to manipulation and failure. This is because the entire system runs from a single point of control.
Several crypto owners and traders make attempts to avoid paying Bitcoin tax from profits they’ve made trading from exchanges like the bitcoinup.io app, while most of them wish to comply with the tax rules.
It is important to note that the IRS treats all cryptocurrencies as property. Purchasing Bitcoins does not trigger a taxable event, but using Bitcoin to buy something else is considered a Bitcoin sale. Bitcoin sales are taxable events.
The IRS needs the taxpayer to track and pay crypto taxes on Bitcoin and other cryptocurrencies.
The taxpayer is expected to comply with the tax rules, irrespective of whether or not the IRS is aware of his crypto transactions. Therefore, you must keep track of every Bitcoin transaction.
When you sell your cryptocurrency or use it to purchase goods, you need to track which trade lots include sales because selling Bitcoins triggers taxable events. Cryptocurrencies like Bitcoin are treated as property, not currencies.
In other words, they are liable to capital gains and losses, just like various other forms of property.
If you buy a bitcoin at a particular rate and make a profit after a few months, you will have to pay Bitcoin tax.
You do not have to pay any taxes as long as you don’t sell or trade your Bitcoin. Crypto to crypto trades also trigger taxable events.
However, the capital gain or loss calculations cryptocurrency trades are more complicated than regular cryptocurrency sales because your trades are not specified in FIAT currencies.
Characteristics of Bitcoin
Bitcoin has several unique features interpreted every which way. Ultimately, it comes down to your goals and priorities.
All Bitcoin transactions are irreversible — Bitcoin’s functions based on a peer-to-peer network that devoid of any intermediaries. Unlike in centralized systems, all transactions are final. It is essential to make sure that you’re sending your money to the right recipient.
There is no paperwork involved. You only need a Bitcoin wallet and address to get started. You can have an unlimited number of Bitcoin addresses where you will be able to make sales and purchases.
The use of Bitcoins constitutes a cost-effective method of conducting transactions since they operate within a peer-to-peer (P2P) network.
Information can be sent and received without an intermediary system. Traditional banking systems use intermediaries and have transaction charges. Also, the use of an intermediary implies that the whole process takes time. This is not the case with Bitcoins.
The IRS’ stance of Bitcoin Tax
The IRS stated that it has started mailing letters to over 10,000 cryptocurrency traders, giving them a warning. They maintain that harsh penalties would be given should they fail to report and pay the tax on their crypto transactions.
The list of names came from a database consisting of 13,000 account holders. These are holders who have purchased, sold, sent, or received digital currencies worth $20,000 or from 2013 to 2015.
The popular digital currency exchange – Coinbase, handed the database over to the Internal Revenue Service in March 2018, following a federal court order.
Tax lawyers have explicitly been telling their clients to pay their bitcoin tax and that the warnings and threats by the IRS are to be taken seriously.
Bitcoin tax calculators you can use
It provides one of the simplest ways to pay your capital gains and income taxes. Currently, TokenTax is the only crypto tax platform that supports every major exchange.
CryptoTrader.tax helps Bitcoin traders calculate their capital gains or losses in minutes. It has a user-friendly interface that makes it easy to import your trades so as not to overpay your taxes. Their platform currently supports many known currencies.
CoinTracker is a popular crypto-asset tracker and Bitcoin tax reporting software. Its platform automatically synchronizes your asset balances and transaction history and data from your exchange accounts. The Cointracker interface displays all the digital assets you own and detailed trading history.
CoinTracker also possesses a performance tracker, which is bound to give you a clearer picture of your crypto investment performance for a specific period.
The original and one of the most popular tax calculators for cryptocurrency investors, Bitcoin Taxes’ online platform, allows users to import Bitcoin and detailed transaction data throughout the year from many major crypto exchanges.