How are Bitcoins Taxed?
Bitcoins are a popular form of digital currency which have been around for around a decade now. This form of currency is not operated or regulated by a central bank, but uses encryption techniques to help with regulating each of the currency units and verifying all the transfer of funds to and from accounts.
Bitcoins became extremely popular as the release of PayPal and similar companies offer a worldwide bitcoin to help with purchasing and selling goods across the globe without currency restrictions. What made it even better was the fact that Bitcoins couldn’t be controlled by current currency rules, making them tax-free. This led to the value of a single bitcoin to rise to $1,194 in late 2013.
The Internal Revenue Services (IRS) and other national revenue services sought to close this tax-loop, forcing new laws into effect that made bitcoins an asset rather than a currency. Therefore, anyone who purchases bitcoins needs to claim these on their taxes, after excluding fees associated with getting the assets. This includes electricity and internet usage during the time the bitcoin was acquired.
The IRS now finds it mandatory that all people file taxes on their bitcoins in either of these cases:
- Using bitcoins that are purchased from someone else to buy goods or services;
- Using any mined bitcoins to buy their services or goods;
- Selling personally-mined bitcoins to a third party service; or
- Selling bitcoins to a third party which were originally purchased from someone else.
Each of these will be subject to their own mandatory taxes. Hiring a company to help you with your bitcoin taxes is advised to avoid any errors with filing.
Image credit: CafeCredit.com
