Bakersfield Bitcoin and Virtual Currency Tax Attorney & CPA
In the last decade, the world of Bitcoin and other virtual currencies has been expanding rapidly. Cryptocurrencies have become popular alternative forms of payment on the internet and in certain internet-savvy corners of the financial sector. Along with their popularity has come a great deal of confusion about whether these currencies are treated the same way as real-world currency for taxation purposes.
4900 California Ave 2nd Floor
Bakersfield, CA 93309
Call (800) 681-1295.
At the Tax Law Offices of David W. Klasing, our Bakersfield Bitcoin and virtual currency tax attorneys have years of experience helping our clients who buy and sell cryptocurrency classify it properly for tax purposes. We also have helped clients whose past failure to properly pay taxes on exchanges of cryptocurrency bring their IRS audit and inquiry notices to a successful civil resolution. For a consultation regarding cryptocurrency matters, call us today at (800) 681-1295.
What is Cryptocurrency?
According to the U.S. Department of the Treasury, cryptocurrency is defined as a decentralized, virtual currency. Unlike traditional currency, it exists independently of any government or financial institution, and it can be sent between users without passing through a central authority, such as a bank or payment gateway. Transactions are made directly between the sender and receiver, eliminating transfer fees and other charges typically rendered by banks.
An actual “bitcoin,” for example, is simply computer code that has been encrypted so that it can only be read by the sender and the receiver. Once received, it functions like a computer file that can be stored in a digital wallet application on your phone or computer. These transactions are powered by an open-source code called a blockchain. A blockchain is essentially a digital ledger of all transactions involving the bitcoin that is public and transparent. Each transaction is a “block” that is “chained” to the code. Individuals known as bitcoin “miners” then use high-speed computers to digitally confirm the transaction, creating a permanent record of all transactions that occur and making fraud extremely difficult.
While Bitcoin is the most common type of digital currency using blockchain technology, there are many others that have followed in its wake. These types of digital currency can be acquired in multiple ways, including through online cryptocurrency exchanges. The availability of these forms or digital currency is often limited because, unlike with paper currency, they are not printed in unlimited amounts as scarcity is purposefully built into the equation to attempt to keep values up.
How can Cryptocurrency be Used in Bakersfield
Cryptocurrency can be used for a variety of different purposes. First and foremost, it can be used to pay for things electronically, so long as the person or company you are purchasing from accepts digital currency. Some larger companies such as Microsoft, AT&T, and Overstock.com now accept digital currency payments. It can also be traded for actual currency through online exchanges. Much like with a stock, the value of a Crypto rises and falls depending on current demand. Some companies have even begun using Crypto for payroll purposes.
The Tax Consequences of Buying and Selling Crypto in Bakersfield
While using Bitcoin or other digital currencies may save you money on banking fees and other payments, it does not get you out of paying taxes. The IRS has special rules for virtual currency. According to the IRS, "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.” It does not have legal tender status in any jurisdiction.
As such, the IRS treats units of cryptocurrency as property, rather than a currency equivalent. In general, this means that for transactions involving virtual currency, the tax principles of property transactions apply. Thus, while your Crypto assets are not taxable in and of themselves, any time you sold digital currency or used it to buy something, you were accruing taxable income for the purposes of the capital gains tax.
Therefore, detailed record-keeping is required. For tax purposes, you must report all gains and losses, which means you must make note of the fair market value of the Crypto in U.S. dollars on the day that you acquired it. When you later sell the digital currency or use it to acquire goods, the fair market value on the day you acquired it will be compared to the amount of cash you receive or the value in cash of the items you purchase. This difference in value will be generate capital gains or losses. Failure to pay capital gains tax could expose you to serious penalties including potential criminal consequences for tax evasion.
If you held digital currency for less than a year, you would report short-term capital gains that will be taxed at the rate of your ordinary income tax graduated tax bracket. If you owned the bitcoin for a year or more, the long-term capital gains will be taxed at a lower rate of 0-23.8 percent, depending on your adjusted gross income. However, you can also deduct capital losses involving Crypto, just as you would on stocks and bonds, and this can often help offset your annual capital gains tax. You can offset your capital gains by up to an equal amount of capital losses and you can additionally offset ordinary income in the amount of $3,000 annually. An experienced Bakersfield Bitcoin and virtual currency dual licensed Tax Attorney and CPA like those at the Tax Law Offices of David W. Klasing can help reconstruct your records, calculate what taxes you owe, and ensure that the proper paperwork is filed.
If You Have Tax Issues Related to Virtual Currency, Call Our Bakersfield Dual Licensed Tax Attorneys & CPAs Today
Bitcoin and other forms of digital currency represent a brave new world of financial transactions that are without ties to a bank or financial institution. This has given users greater privacy and anonymity as well as saved them money on bank and transfer fees. However, those who use digital currencies are not exempt from paying taxes on these earnings. If you fail to pay taxes on bitcoin and other digital currencies, the IRS will come after you and you may be charged with criminal tax evasion. Therefore, it is vital that you have an experienced Bakersfield Bitcoin and virtual currency attorney such as those at the Tax Law Offices of David W. Klasing help you keep detailed records related to your virtual currency transactions and file the correct information in your tax returns. To schedule a consultation, call our office today at (800) 681-1295.
More Questions and Answers About Bitcoin
- What to Do When IRS Wants My Bitcoin Trade History
- Bitcoin Tax Record Keeping
- Can I Appeal a Bitcoin Tax Determination by the IRS?
- Why does BitCoin and other types of Virtual Currency draw so much attention from the Taxing Authorities and the Federal Government?
- Where is the most current IRS guidance on Virtual Currency found?
- Should You Report Bitcoin on Your Taxes?
- What Is Bitcoin?
- How does the IRS treat Bitcoin?
- Can I Face Tax Penalties for Mistakes Made with Bitcoin?
- How Does a Business Determine Its Taxes When Paid in Bitcoin?
- Who Pays the Taxes in a Bitcoin “Mining Pool?”
- Are Bitcoin Miners Required to Pay Self-Employment Tax?
- Can Bitcoin Trading Create an Obligation to Pay Capital Gains Taxes?
- What Is Bitcoin Digital Currency and Why Does it Matter for Tax Purposes?
- What Happens if the IRS Thinks I’m Using Bitcoin to Commit Tax Evasion?