Americans who held Bitcoins became millionaires recently. This occurred after the cryptocurrency went up by a massive 1,000 percent in value during the end period of 2017 and at the beginning of 2018. However, with increasing valuation comes another and much less attractive aspect: the payment of taxes. If you are an American or a resident of the US, you must pay taxes on your Bitcoin profits. You have to file all the needed documentation for the payment of taxes.
Capital gains are to be applied to every transaction made as the US Government regards cryptocurrencies as its property. Any purchase or sale of Bitcoin involves two transactions- the first is the sale of Bitcoin or property and the second is utilizing the Bitcoin sales proceeds to purchase another product. It follows that if a person buys a home worth one million dollars utilizing cryptocurrency, then that person must pay the capital gains tax on that transaction and also real estate tax.
The amount of taxes to be paid, however, remains a thorny issue. The IRS has mentioned taxes only once- and that too in 2014. The world has changed considerably from that time. This is the reason why a letter has been sent to the IRS by American Institute of Certified Public Accountants. However, it is assumed that the government will not comment on this issue. It may, only near the end of the tax-filing deadline. This is why people with bigger Bitcoin holdings or who have done multiple transactions must wait before they file. There is more than an even chance that the rules will change.
Things to note
For people who prefer to file their own taxes, they should remember that the sale of bitcoin is same as the sale of property or other kinds of capital assets. They must report every transaction regardless of whether it was a gain or a loss. This could be hard to report due to the inherently volatile nature of the cryptocurrencies.
Whatever happens, taxpayers must always report every transaction to the IRS. This must be done until the opacity of taxes and cryptocurrencies get lifted. If the process looks confusing, take the assistance of any CPA. Any dearth of information will lead the IRS to ask more questions. The IRS can be extremely helpful to the taxpayer if the person provides all information. It is also a good idea to explain every transaction done with the cryptocurrency.