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this is ggmania.com subsite RS Answers Critical Question on Bitcoin and Crypto Tax Reporting - TechAmok

RS Answers Critical Question on Bitcoin and Crypto Tax Reporting - [briefly]
04:06 AM EST - Mar,06 2021 - post a comment

The Internal Revenue Service (IRS) is addressing critical questions related to the taxation of virtual currencies such as Bitcoin (BTC) in the US. In a new FAQ resource, the agency clarifies that in its view, American taxpayers did not acquire a financial interest in crypto if they only bought - but did not sell - digital assets with fiat currency. This means that they do not have to answer "yes" to the crypto-related question on the 1040 form. The IRS also says virtual currencies are treated as property, so transactions involving crypto assets will use the applicable tax principles.

US citizens who receive Bitcoin as compensation should treat it as ordinary income regardless if they performed the service as an employee or not. Meanwhile, virtual currency given as a bona fide gift is not treated as the recipient's income unless sold, exchanged, or disposed of.

The IRS notes that a gain or loss should also be recognized in the sale of cryptocurrencies. To calculate the gain or loss, taxpayers should track the difference between the adjusted basis in the virtual currency and the amount of fiat money received in exchange for that digital asset.

"Your basis (also known as your "cost basis") is the amount you spent to acquire the virtual currency, including fees, commissions and other acquisition costs in U.S. dollars. Your adjusted basis is your basis increased by certain expenditures and decreased by certain deductions or credits in U.S. dollars."

Gains held for less than one year are considered short-term gains and taxed as ordinary income. The sale of virtual currencies held for more than a year and that earned profits, on the other hand, is taxable as a long-term gain.

"The period during which you held the virtual currency (known as the 'holding period') begins on the day after you acquired the virtual currency and ends on the day you sell or exchange the virtual currency."

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