What You Need to Know About Cryptocurrency and Taxes
Cryptocurrency is liberating, but there are still rules regarding cryptocurrency and taxes. This cashless system has more benefits then using fiat currency, but there is no escape from Uncle Sam.
There is no escape from paying up for your creation of wealth. Although there is a lot of red tape in the world of taxes, those who invest in cryptocurrency have not figured out another way around it.
These are some tips that I found that spell out the way to avoid problems. There a few things I never thought of before.
Understanding the Game of Cryptocurrency and Taxes
One of the most misunderstood facts about cryptocurrency, is sharing with others what this is exactly. This cashless system is amazing, but it comes with a few warning signs.
What do you need to know before tax season comes?
1. Cryptocurrency is property. Although cryptocurrency isn’t real estate, it is still your property. Any property means that you’ll pay taxes on it. Why? You are actively trading your money and each time you do so, you could make a gain. This is one of the most important reasons that you need to approach cryptocurrency and taxes carefully and be prepared.
2. Are you taking part in a 1031 exchange? Did you know that taxes affect both sides when it comes to most sales? Sales and transfers of property of any kind will mean taxes. Exchanging something for cryptocurrency won’t always mean it is viewed as a swap. It is important that you review the tax regulations with your experienced tax advisor before you do this.
3. Payment for services means wages. Although this cashless system is unique and operates much differently than our fiat currency system, it can still be used to pay for some goods and services. If you are receiving payment for any services that you offer, be advised that this is still considered wages. Your wages are still going to be taxed, so be mindful of this before you believe you have escaped paying up.
4. Don’t forget the FinCEN. Okay, so you may not be a criminal, but just keep this in mind. FinCEN is the Financial Crimes Enforcement Network, and they work to enforce the listing of Bitcoin exchanges as Money Services Businesses. Any business that is conducted worldwide on tax returns must be reported. It matters not how much or what it was. This is a fair statement because cryptocurrency allows for transfers to be completed within seconds.
5. Borrower and lender take a deep breath. Loans are a unique animal, and they are by far one of the biggest concerns regarding interest when tax time rolls around. What can you do about it? Loans are not non-taxable, but what about loans given to an individual that are only Bitcoin? Ouch! This could be the loophole, but you’ll want to consult with your tax professional.
There are many unique challenges presented in the marketplace with cryptocurrency. What you do is your business, so make sure that you are focused on taking care of business.
Cryptocurrency and taxes continue to become a big conversation, especially because after the holidays that is the big letdown!