If you owned any Bitcoin (or any other popular cryptocurrency) in 2017 you probably made a bunch of money. Now, with tax season on the horizon, you may be wondering how all that digital currency will affect your taxes.
The Verge has a detailed guide on how to handle your 2017 taxes when it comes to Bitcoin. Here are a few key takeaways from the article to help you through the process.
Who Needs to Pay Taxes on Cryptocurrencies?
If you bought a bunch of Bitcoin when it was cheap and you’re still holding onto it, then you’re in luck. The Internal Revenue Service doesn’t tax cryptocurrency holdings that have increased in value. You only have to worry about taxes if you sold your digital currency or used it to buy something else.
Any cryptocurrency you mined can also be taxed. The same thing applies to any coins you got from the Bitcoin fork in August 2017, though the IRS still hasn’t cleared up exactly how that will work.
How to Pay Your Cryptocurrency Taxes
The first thing you’ll need to do is create a record of all your cryptocurrency transactions. Some digital currency exchanges, like CoinBase, will actually send you a 1099 form, but only if you sold at least $20,000 in currency in at least 200 seperate transactions.
You’ll also need to calculate exactly how much each transaction was worth in U.S. dollars at the time of sale, which isn’t easy considering how volatile cryptocurrencies can be. Thankfully, there are plenty of sites that can show you the value of Bitcoin and other coins on any day in the past. CoinDesk is a good place to start, with charts for Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and Ripple.
If this is all starting to give you a headache, you may also want to use a free tax program that can do the work for you. All you have to do is upload your CSV files (and other relevant information) and these websites will figure out how much you owe. Two popular options are Bitcoin.Tax (free for up to 100 cryptocurrency transactions) and CoinTracking.Info (free for up to 200 transactions).
Finally, you can fill out your tax forms. Assuming that you bought at a lower price than you sold (which should cover most people in 2017) you’ll report the earnings on Schedule D, which is attached to Form 1040. If you keep your money in an exchange that’s not based in the U.S., you’ll have to report to both the U.S. Treasury and the IRS—but only if you made $10,000 or more in transactions.
How to Pay Less
One of the easiest ways to pay less in cryptocurrency taxes is the same strategy used for regular taxes: charitable donations. The only catch is that you’ll have to find a charity that takes cryptocurrency, since turning it into cash first will mean paying taxes on that transaction. There are still some great options, though, and The Verge suggests donating to The Water Project, Wikileaks, and the Internet Archive.
Your other option is to simply not sell your cryptocurrency. Ignore the recent drops in value and have faith that the price of Bitcoin will keep going up over time. As long as you don’t spend it, you won’t be taxed on it (unless they change the laws, of course).
We Still Don’t Really Know What to Do About Cryptocurrency and Taxes
There’s a lot of information out there, but the truth is that it’s still unclear exactly how people should be handling their taxes when it comes to cryptocurrency.
The last time the IRS offered any official guidance was back in 2014. A lot has changed since then, and until the agency updates its rules we’re all in the dark. In the meantime, just do the best you can.
Read more at:
https://lifehacker.com/what-you-need-to-know-about-cryptocurrencies-and-taxes-1822519832
