People who held Bitcoin in 2017 made money. The IRS now wants a slice of that money pie. Tax collectors are now serious when it comes to the earnings from the cryptocurrency. It is thus essential to maintain that everything remains perfectly alright.
Documentation is vital
It is best to document every activity you have done with Bitcoin. It is vital to find out the quantum of income you have made from these cryptocurrency transactions in 2017. The IRS will see whether Bitcoin assets were converted to non-Bitcoin assets. These include services, cash or goods. The Bitcoin holdings by themselves cannot be taxed. However, when it is utilized to purchase something or any Bitcoin being sold, the IRS will latch on to the accruing taxable income. If these kinds of transactions were already made, then these records will be present either on the wallet provider or on the blockchain. However, the conversion into dollars could be a massive problem as the value of the Bitcoin must be contrasted with the Bitcoin price during transaction time.
To do this, all transaction data must be downloaded from the exchanges used. These are generally available in the form of CSV files. A few exchanges like Coinbase will send particular American users the form 1099-K in case they have received a minimum of $20,000 cash from cryptocurrency sales linked to a minimum of 200 transactions every calendar year. Software like Bitcoin.Tax and CoinTracking.Info help to do Bitcoin taxes. The CSV files can be uploaded directly to them from the exchanges.
For most people, making money from Bitcoin means buying the Bitcoin and selling the virtual currency at a higher price. If this is applicable, the sales must be reported on the Schedule D form. This is an attachment to the Form 1040. The reporting of the sales will depend on the date the Bitcoin was purchased and the length of time it was held. If the cryptocurrency was held less than one year, it will be taxed as a capital gain for the short term. It will be taxed at identical rates as any ordinary income. However, holding the Bitcoin holdings for more than one year will lead the holder to be taxed as a capital gain for the long term. The rates will be lower and range from zero percent to 20 percent. This will be dependent on the Bitcoin holder's income bracket. If the holder belongs to the premium three-income bracket, then the tax comes to 3.8 percent.