Whether you are new to cryptocurrency or are an advanced crypto trader, there’s one aspect of it that most people find confusing—crypto taxes! There might be times you find yourself looking for answers to questions like: is Bitcoin taxable or what crypto activities are taxed. It is normal to find yourself confused. This is all very confusing!
The bipartisan infrastructure bill passed by the U.S. Senate in early August included provisions designed to raise $28 billion in tax revenue over the next ten years.
There are certain reporting requirements that will be hammered out in the final version of the bipartisan infrastructure bill, we will address those points once the bill is law.
The simple answer to the question is Bitcoin taxable, is YES! Also, everything covered in this article is in place right now and applies to 2021!
The Internal Revenue Service issued Notice 2014-21 in 2021 that stated the IRS considers cryptocurrency as property and not a U.S. legal tender. In simpler terms, it means that cryptocurrency transactions are taxed as stock sales would be.
Apart from the Notice 2014-21, the IRS has also released a detailed FAQ on their website, Virtual Currency Transactions, that answers most questions related to Bitcoin taxes.
This can all get very confusing. To try to help sort all of this out, we’ve compiled a list of examples of, not only, is Bitcoin taxable, but also, when Bitcoin transactions are taxable.
If you sell the Bitcoin that you mined, the profits incurred will be considered taxable as capital gains tax.
If you buy goods and services using Bitcoin, your taxable amount will depend on the value of Bitcoin when you purchased it and the price of the goods/services when received:
Suppose you bought Bitcoin worth $800 and either sold for $1,000 or bought goods worth the equivalent of $1,000. The $200 profit from the sale is subject to capital gains tax. The gain on the “sale” of the Bitcoin isn’t what you would be focused on, it is the value in U.S. dollars when you purchased the Bitcoin and the value in U.S. dollars when you received the goods or services you would be focused on.
Is Bitcoin taxable? Yes!
If you buy Ethereum, for example, with Bitcoin, it is viewed as a sale of Bitcoin and purchase of Ethereum. Same rules apply as in the previous example.
Is Bitcoin taxable? Yes!
The following crypto activities are not taxable:
It is important to pay close attention to the type of transactions, but don’t make the mistake of avoiding Bitcoin taxes because the IRS will take legal action.
We can’t stress enough…Is Bitcoin Taxable? Yes!
Disclaimer: This material has been prepared for informational purposes only and is not intended to provide, tax, legal or financial advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction .