The IRS considers bitcoin and other “virtual currencies” as property. According to its website, general tax principles applicable to property transactions apply to transactions using virtual currency. To stay on the safe side of the law, it is important to know the right way to handle taxes on your bitcoin trading. What Is NOT Taxable? Generally, the following transactions are treated as taxable events: 1. Selling your crypto for cash. Selling a cryptocurrency or digital asset for fiat currency is a taxable event. You are liable for capital gains tax on the amount (if any) that your original holding appreciated in value since you bought it. Capital losses may entitle you to a reduction in your tax bill. 2. Buying goods and ... Bitcoin Taxable Events ... For these transactions, Lucas needs to use the equation from above to calculate his gain or loss for each trade. Lucas needs to know the USD cost basis of the asset he is disposing of as well as the USD fair market value at the time of the trade. Many bitcoin investors have been trading for months, sometimes years, and haven’t been keeping records of their trades ... The reason that buying and selling crypto is taxable is because the IRS identifies crypto as property, not currency. As a result, tax rules that apply to property (but not real estate tax rules) transactions, like selling collectible coins or vintage cars that can appreciate in value, also apply to bitcoin, ethereum, and other cryptocurrencies.. To no one’s surprise, the IRS isn’t kidding ... The cost basis of a coin refers to its original value. Here’s an example: ... the value that would paid if your normal currency was used, if known (e.g. $1000), otherwise you would use the price of Bitcoin at the time to establish your taxable income. It's important to keep records of when you received these payments, and the worth of the coins at the time for two tax-related reasons: In ... As such, the value of the property needs to be calculated for each Bitcoin transaction or trade. The IRS recommends that taxpayers file amended tax returns to proactively report their Bitcoin gains and losses before they get around to doing it for taxpayers (usually not to their advantage). More specific detail pertaining to the the
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