Betting on bitcoin and other cryptocurrencies has brought big profits for speculators. But if you’ve dipped your toe in, you’ll want to consult tax professionals like Fort Lauderdale accountants Sterling Accounting.
That’s because the wildly fluctuating market for bitcoin has led to enough wealth generation to draw the eye of tax authorities.
The Washington Post reports:
“It’s going to be a nightmare for people who are worried about doing the right thing,” said Andrew Schaefer, a federally licensed tax expert in Florida who represents taxpayers before the Internal Revenue Service. At stake this year could be tens of billions in profit and perhaps more, Schaefer said, judging by the surge of interest in bitcoin. Some of that could be subject to federal and state taxes based on how many people sold their assets.
“2016 saw some questions come up,” said Lisa Greene-Lewis, a lead certified public accountant at TurboTax. “As people are doing their taxes [this year], we may see more because more people have been trading and selling.”
Forbes reports that the IRS is concerned about the bitcoin boom:
The IRS is concerned that many U.S. taxpayers may not be accurately reporting the gains or income they have generated from their cryptocurrency transactions. Since the majority of cryptocurrency transactions have likely resulted in significant gains due to the surge in value in most cryptocurrencies, coupled with the fact that the gains are likely short-term capital gains (subject to ordinary income tax rates) since the cryptocurrencies were likely held less than 12 months, the IRS has good reason to be concerned…
As long as one holds cryptocurrencies for personal or investment purposes, any gain/loss from the sale of the cryptocurrency would be subject to the capital gains tax regime. If the cryptocurrency was held for less than twelve months (short-term capital gains), then ordinary income tax rates would apply. Whereas, if the cryptocurrency were held for twelve months or more, the favorable long-term capital gains rate would apply. The determination of a taxpayer’s overall net capital gain or loss is based on a netting formula involving all capital (cryptocurrency) transactions during the year, with the short-term gains netted against the short-term losses and the long-term gains netted against long-term capital losses. However, if one was considered in the business of trading cryptocurrencies or mining cryptocurrencies, they could be subject to the ordinary income tax rate.
Sterling Accounting’s Fort Lauderdale accountants can help with any tax issues you might have, whether from an exotic investment such as bitcoin or the normal operations of your business.