If you have ever actually owned or used Bitcoin, you might be interested in knowing just how cryptocurrency may affect tax payments — or your tax picture. Regardless of how you acquired your bitcoin, understanding its outlook on your tax situation can help inform you on the proper methods and trading moves you make with the cryptocurrency. Here are the key facts to know about how Bitcoin and cryptocurrency will ultimately affect your tax payments and overall tax situation.
Cryptocurrencies Including Bitcoin Are Considered Property
The IRS has issued that any cryptocurrencies — like bitcoin- must be considered and classified as property for tax purposes. More often than not, Bitcoin will be declared property and hinge on how it was acquired. The reality is that cryptocurrency is typically acquired from a “mining” process. Then the value will become taxable immediately. However, if you’ve disposed of or ended up using your bitcoin during the year, you will definitely owe taxes on the actual realized value. Ultimately, that might end up meaning you will have a capital gain that ends up being taxable come tax season.
Keep A Record Of Your Bitcoin
Having a record of your Bitcoin transactions becomes increasingly important for your tax situation. You will always want to have records of the fair market value of Bitcoin and other cryptocurrencies you own. The reality is, after understanding how bitcoin can impact your tax situation, you might have more information on the best practices to use as you utilize bitcoin to benefit you most effectively and efficiently. Ultimately, the IRS will definitely be paying special attention to people who own bitcoin and other cryptocurrencies as they begin to gain popularity as of late.
At the end of the day, owning Bitcoin and other cryptocurrencies can be an excellent investment. In fact, there are many tax benefits people associate with bitcoin and cryptocurrency. However, knowing how they may impact your tax situation, in the long run, can prove worthwhile to ensure the IRS doesn’t end up conducting an audit on your assets and avoid making some common tax mistakes as well.
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