Taxes are a complicated matter with many rules for determining what kind of income is taxable, what is not, and which assets are subject to inventory. Meanwhile, the cryptocurrency and the government’s stance on it are equally complicated, leading many to question the relationship between Bitcoin and taxes.
In the US, for example, you are subject to tax on any money you receive in the form of payments for services and products. Applied to bitcoin, this principle does not change. Bitcoins exchanged with others are treated as your income, meaning you have to pay income tax. Bitcoin earned through trading or exchanging bitcoin is also seen as profit, capital gains, like gold, so it is taxable. Bitcoins mined will be deemed profitable from mining and are taxable with the accrual consumption that can be deducted (such as computer electricity). When miners sell their bitcoins, they pay tax if the bitcoins increase in value when they sell compared to when they mine.
The US Internal Revenue Service of 2014 outlined a note on “virtual currency”, which provides some information about bitcoin as an inherently taxable asset. However, users need to study the tax terms carefully and find out how their governments classify cryptocurrencies like bitcoin.
To prepare to pay taxes, bitcoin holders need to be extremely cautious about how much a bitcoins in local currency are worth. In addition, users should also keep detailed bitcoin spending reports and store the bitcoin price at the time it was used to prevent those spending being deleted.
Hiring an experienced accountant will help ensure your tax returns are correct. In addition, there are many services that help users pay Bitcoin tax, such as CoinReporting and Bitcoin Taxes.
While there is no fun in paying taxes, it is still important to pay attention to properly storing and reporting your Bitcoin earnings.
Dislaimer: This is information provided in the form of a personal blog, not general information or investment advice. We are not responsible for your investment decisions.