IRS Eyeing Up Bitcoin Gains. With the massive rises in bitcoin this year, a lot of people are much better off this 2017. Some people will have converted their holdings into cash and taken their profits, whereas others might keep their position in the markets to see if further gains can be made from bitcoin and other crypto holdings that they may have.
While this is, of course, a great cause for celebration amongst these people, there are also tax obligations that they need to consider.
This is an especially important point when it comes to this sector because a lot of the people who have been investing their money into bitcoin and the likes do not come from a background in investing or trading for the most part. This means that they may not be aware of the relevant fees and penalties associated with the taxes you need to pay on your capital gains etc.
This is why the United States Internal Revenue Service (IRS) has been gearing up when it comes to getting their fair dues from the bitcoin price surges. They received a favourable ruling by the judge when it comes to their lawsuit against the cryptocurrency exchange Coinbase.
Bitcoin prices have increased more than 11-fold since the start of the year and it would not be surprising that this massive increase in price caught the attention of the IRS, especially when so many people are vocal about their bitcoin earnings and profits.
The IRS is claiming that a lot of people involved with bitcoin have not been declaring their gains that they have made from their crypto trading. IRS has seen that only a small fraction of those hundreds of thousands of users on Coinbase are reporting their gains/losses. This is why the IRS took the step to order the handing over of user data.
The judge ruled in favour of the IRS, which means that Coinbase needs to hand over this information, including tax IDs, addresses, birth dates etc.
Coinbase did their best to fight this suit, claiming that it violated the privacy rights of their users. They did manage to make some headway, managing to get the number of users that have to have their data handed over down to 14,000, but it is still a loss nonetheless.
At the end of the day, the onus still falls on taxpayers, even if the exchange did not report any transactions. Usually when it comes to the world of finance, traditional securities and the reporting role is on the brokerage firms and the asset managers, as opposed to those exchanges on which these securities were traded.
However, as Coinbase is also a brokerage firm, they are not covered by this.
When it comes to gains on cryptocurrencies, the usual US tax laws apply and if you received bitcoin, it needs to be reported as income and utilising the fair market value on the day that these payments were made.
If bitcoins have been sold again or loss realised, it will be seen as a capital gain/loss if it has been held for greater than one year. If they are short-term gains, these will be taxable as ordinary income.