THE BITCOIN BITE
If you’re interested in digital currencies just remember the IRS is, too. Experts offer advice on keeping your dealings legal
Cryptocurrencies like Bitcoin may not be regulated by the government, but they’re still subject to being taxed.
There have been various forms of digital currencies around for years, but several have taken off in popularity recently. And that may leave some newcomers to this marketplace unaware that they face taxation on their dealings.
The IRS says that cryptocurrency transactions are taxable by law. That means people who made money (or lost it) on bitcoin trades, “mined” ethereum or even bought a cup of coffee with digital currency face potential tax implications. Failure to report it could mean potential audits, fines and penalties.
There are also people who may be upset to find that cryptocurrencies, which are not linked to a government or central bank, aren’t as off-the-grid as they hoped. Part of their appeal is that it could be used as a new, more anonymous kind of currency that operates outside the traditional banking system and government oversight.
A recent report said Albuquerque has one of the nation’s highest volumes of cryptocurrency activity per investor. Albuquerque was third on the list compiled by financial technology company Status Money, with an average cryptocurrency investment of $12,479 per investor. Taking first place was Jacksonville, Fla., at $31,468, followed by Memphis, Tenn., at $15,748.
“There’s a very strong sentiment that taxing cryptocurrency is sort of sacrilegious,” said Tyson Cross, a tax attorney in Reno, Nev., who specializes in this niche. “But most people understand there is a difference between upholding a principle on an anonymous internet forum and going to jail over it.”
The IRS didn’t weigh in on how to tax digital currency until 2014 and that remains its only guidance to date. We spoke to a few experts to help break down the basics.