With a new tax year roughly two weeks away and a new tax bill expected to pass in the US Congress any day now, paying taxes on Bitcoin should be on the top of every American’s mind if they’re into cryptocoin. The tax bill under consideration in congress eliminates a potential loophole in paying taxes on Bitcoin which, while painful for some, does simplify the process. Savvy cryptocoin investors were counting on using a 1031 exchange loophole to avoid paying capital gains taxes on their cryptocoin profits. The new bill deftly closes that Bitcoin loophole.
If you’re a Bitcoin miner like me then paying taxes on Bitcoin is exactly the same as if you were paying taxes on the profit of any business. Simply speaking I total up what I generated in Bitcoin for the year in terms of dollars, depreciate my equipment costs, deduct my electricity and Internet expenses and voila – my net profit. Then I just look up my tax rate, take out my checkbook and shed a few tears and say goodbye to some of my money.
If you’re a Bitcoin investor or, indeed, an investor in cryptocurrency at all then you treat your cryptocoin investments as though they were any other investment. The friendly folks at TurboTax published a nifty article that breaks down the torturous topic of paying taxes on bitcoin in a pretty painless way.
There are some considering not claiming cryptocoin at all and take their chances by trying to evade paying taxes on bitcoin. This is a very foolish gamble. The IRS typically has three years AFTER you file your tax return to run an audit. And they have some impressive tools to find out if you have cryptocoin even if you don’t say a word about it. Chainalysis is frequently hired by various government agencies to uncover cryptocoin owned but not claimed by taxpayers. If you’re caught you’re facing not just the taxes you owe but interest on those unpaid taxes PLUS penalties.