When Trading in Bitcoin, Keep the Tax Man in Mind

When Trading in Bitcoin, Keep the Tax Man in Mind

Bitcoin may grab headlines when it skyrockets in value, as it did much of last year, or when it plunges precipitously, as it has this week.

But the virtual currency has a reputation for providing a sense of anonymity to those who own it.

That anonymity doesn’t extend to the tax authorities, however.

Come April, people who have bought and sold Bitcoin — or any of the other digital currencies that have quickly sprouted across the web — will be expected to report any profits on their federal tax returns.

Considering Bitcoin’s jump of more than 1,500 percent last year, there are probably many people who logged gains or losses for the first time, as people rushed in with the irrational exuberance of the early dot-com days.
But how much tax you owe will depend on how and when you acquired the digital currency — which, in fact, isn’t treated as a currency at all. Instead, for tax purposes, the Internal Revenue Service views Bitcoin and its cryptocoin cousins as property.
For the most part, that means Bitcoin and other digital currencies will be treated similarly to an investment like stocks — but not always. Given the speed at which these currencies have caught on — Bitcoin was released only in 2009 — regulators haven’t quite kept pace. The I.R.S. issued basic guidelines in 2014 for digital currencies, but tax experts say some of the rules are subject to interpretation.
Other aspects, however, are quite clear. “Every time you transfer a cryptocurrency, you might trigger a gain and pay a tax,” said Selva Ozelli, a tax lawyer and accountant who has recently written about the tax implications of virtual currencies.
n late 2016, the I.R.S. made it clear that it was searching for cryptocurrency tax evaders: The agency sent a broad request to Coinbase, the largest Bitcoin exchange in the United States, requesting records for all customers who bought digital currency from the company from 2013 to 2015. Coinbase balked, but a court ruled that it must provide the records of roughly 14,000 customers, fewer than 1 percent of its patrons, who made transactions involving more than $20,000 of virtual currencies.

Note: Reference Site www.nytimes.com