- Is the purchase of bitcoin taxable?
- Do you pay taxes on the sale of bitcoin?
- What transactions require me to report my Bitcoin?
These are questions nearly every Bitcoiner has asked themselves at some point in their Bitcoin journey. The topic of taxes and bitcoin can seem daunting at first but, once you have a solid understanding of the tax implications you may have around your bitcoin, you can make better decisions to lessen the burden of the good ol’ government. I have been working under one of the top Bitcoin tax experts in the country over the past year and have learned everything there is to know about Bitcoin and taxes. I can attest, knowing the regulations and laws around taxes on your Bitcoin can help make a big difference in how you utilize it.
Is There A Bitcoin Tax?
There is not actually anything called a “bitcoin tax” per se. When people refer to taxes and bitcoin they are referring to the capital gains taxes one must pay on profits made from selling or trading bitcoin. This is because, under the current view of the IRS (seen in IRS notice 2014-21), bitcoin is considered property. Per notice 2014-21 the IRS states “for federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.” This really means the capital gains tax on Bitcoin is no different than the one referred to from profiting off a stock.
Capital gains have different rates you pay based on your income level as well as the holding period for the bitcoin.
Capital Gains Taxes: Short Term vs. Long Term
Capital gains taxes are split up into two groups, short term and long term, depending on how long you’ve held the asset.
- Short-term capital gains tax is applied to profits from selling an asset you’ve held for less than a year. Short-term capital gains taxes are pegged to where your income places you in federal tax brackets, so you’ll pay them at the same rate you’d pay your…