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Archive for Virtual Currency

Virtual Currency And The IRS

Venar Ayar- Virtual Currency

Virtual currency refers to any digital currency which is only available in an electronic form and not as a physical form of money. Virtual currencies, like Bitcoin, are created by a process known as “mining,” where an individual, using powerful computers, authenticates transactions in what is known as a “blockchain,” or a ledger of digital transactions.

Virtual currencies may be traded on digital trading platforms, such as the third-party Coinbase, and can be used as a form of online payment, held as an investment, or used in loans to other individuals.

The IRS And Virtual Currencies

According to IRS Notice 2014-21, “the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.”  This means, per IRS determination, virtual currencies, such as Bitcoin, are treated as property, and subject to tax regulations.

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What Does Trading Cryptocurrency Daily Mean For My Taxes?

Cryptocurrency and Taxes

From a technical perspective cryptocurrency is very easy to trade. Sign up to an exchange, deposit some fiat currency, and with just a couple of clicks one can become the new owner of some Bitcoin, Ethereum, or another coin that has taken the world of digital investments by storm. But while cryptocurrency may be easy to acquire, did you know it’s a terrible headache to deal with tax-wise?

It’s true! And this applies especially to cryptocurrency transactions you make frequently. Whether buying, selling, or exchange (trading one crypto for another), when investing in crypto beyond there are a number of factors you really need to keep in mind, especially with the IRS’s new interest in it.

Understand Cryptocurrency

Cryptocurrency is treated as property. This means any profits you make are treated as a capital gain. While your currency may be innovative and digital, the IRS approach to it is historic and old school. You made money from the growth of value in a financial asset, and upon such time as the value of the asset is realized, the government will expect a cut of the profit.

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Virtual Currency Business Act Proposed Drives Droves Of Investors To Bermuda

TaxConnections, Virtual Currency Legislation

Virtual Currency Business Act Proposed In Bermuda – Regulation Of Virtual Currency Business Driving Many Investors To Bermuda

With interest in virtual currency at an all-time high, virtual currency is here to stay. Kevin Anderson of the Bermuda Monetary Authority, the financial services regulator states the Virtual Currency Business Act (VCBA) has been proposed as a “shining example” for what Bermuda can accomplish.

The Bermuda VCBA defines “virtual currency business” as the provision of the following activities: issuing, selling or redeeming virtual coins, tokens or any other form of virtual currency. This would include an ICO business on behalf of customers. The Act would also cover payment service providers, defined as: “a person whose business includes the provision of services for the transfer of funds.”

It would also cover virtual currency exchanges, virtual currency wallets and virtual currency services vendors, defined as any business providing specific virtual currency-related services to the public. The legislation also addresses the intersection of cryptocurrency and fiat, preventing fraud and market manipulation, the integrity of cryptocurrency owners, clear descriptions of the risks for prospective investors, and the Bermuda Monetary Authority BMA enforcement powers. Review the Consultation Paper at this link.

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Virtual Currency Transactions Must Be Properly Reported For Tax Purposes

Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.

In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000. Read more

Virtual Currency And Taxes – The View Of The United States Internal Revenue Service

Internal Revenue Service Notice 2014-21

Section   1. Purpose

This notice describes how existing general tax principles apply to transactions using virtual currency. The notice provides this guidance in the form of answers to frequently asked questions.

Section   2. Background

The Internal Revenue Service (IRS) is aware that “virtual currency” may be used to pay for goods or services, or held for investment. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction. Read more

Are Virtual Currencies Taxable?

With virtual currencies like Bitcoin becoming more mainstream in recent years, we often get asked if revenue from the sale or exchange of these digital dollars is taxable. The simple answer is, YES – income (or profit) from virtual currency transactions is reportable on your income tax return. However, because this is still a relatively new phenomenon, there are a few things you should be aware of to make sure you don’t get caught with a huge tax bill!

Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency. Bitcoin is one example of a convertible virtual currency which can be digitally traded between users and purchased for, or exchanged into, U.S. dollars, Euros and other real or virtual currencies. There are currently more than 1,500 known virtual currencies. Because transactions in virtual currencies can be difficult to trace and have an inherently anonymous aspect, some taxpayers could be tempted to hide taxable income from the IRS. Read more

IRS Reminds Taxpayers To Report Virtual Currency Transactions

WASHINGTON — The Internal Revenue Service today reminded taxpayers that income from virtual currency transactions is reportable on their income tax returns.

Virtual currency transactions are taxable by law just like transactions in any other property. The IRS has issued guidance in IRS Notice 2014-21 for use by taxpayers and their return preparers that addresses transactions in virtual currency, also known as digital currency. Read more

Virtual Currency – Recent Tax Matters And Concerns

Annette Nellen

First – On 11/8/21, the Treasury Inspector General for Tax Administration (TIGTA) released a report (dated 9/21/16) – Rising Use of Virtual Currencies Requires IRS to Take Additional Actions to Ensure Taxpayer Compliance. Per the release:

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Bipartisan Blockchain Caucus Launched In Congress

Annette Nellen

The Blockchain which is best known for the “guts” of how bitcoin transactions are verified, recorded and transacted, has uses beyond bitcoin. This decentralized system can be used to verify and process many types of transactions where two or more parties want verification of authenticity and to get information or transfer information or value. IBM and others have been exploring this. The Federal Reserve and others held a conference on the topic in June.

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Digital Economy, Tax Issues And Due Diligence

We’ve been in the “digital economy” for some time, yet it continues to evolve with new business activities and ways of living. And, we see “old economy” businesses, like Ford Motor, move more into the new economy.

I define the digital economy from the perspective of how people and businesses engage in it:

• Transacting business with virtual currencies, such as Bitcoin;

• Providing digital goods and services; and

• Transacting business enhanced by the Internet, such as finding customers, including Read more

Bitcoin Transaction Reporting

A growing number of individuals and businesses own bitcoin or use it for transactions (perhaps with a third party actually handling the bitcoin to cash exchange). So, more people, including tax practitioners, need to know the federal guidance at Notice 2014-21.

I was interviewed recently for an article in Business Insider by Jonathan Marino on the topic. The article is titled: “Bitcoin will be a big mess for both Bitcoin holders and the IRS.” That may be true for some, but it doesn’t necessarily have to be.

Certainly, if an individual has been using bitcoin regularly and not doing anything to track the basis and value for each transaction, they have some catching up to do. If someone gets on a system of tracking, they should have the data all ready when it comes time to Read more

Help! Someone Just Contributed Bitcoin To My Church

Bitcoin is a virtual currency also known as a cryptocurrency. It got that name because it uses cryptography to secure transactions. The good news is you don’t have to understand everything about it in order to use it. The bad news is you need to know how to receive and spend any bitcoin that you receive as a church, other organization, or individually. For purposes of this article, we will not go into the details of Bitcoin. The primary feature of it is that it is a decentralized “currency,” not controlled by any one central authority. It can’t tinker with monetary policy and cause a meltdown, nor can it be appropriated by a central authority – it is independent of any government.

In order to use Bitcoin, you must set up an account. There are miniscule fees involved and it is instant. If you want to spend it, you can spend it in Bitcoins or it can be redeemed. Read more