Do I Have to Pay Taxes on my Bitcoin?
This is a question that every Bitcoin owner in the US should be asking themselves at one point or another. The short answer to this question is “yes”, you will have to pay taxes once you sell your Bitcoin for fiat money (e.g. real-world currency such as USD). However, there are some special exceptions and deductions that the IRS (Internal Revenue Service) has created over time and it can be complicated to figure out when you’ll need to pay taxes on your Bitcoin.
For example, if you acquire Bitcoin by mining then you don’t have to worry about paying taxes until the moment that you convert your mined coins into fiat money (e.g. USD) or use them to buy something. However, if you are using your coins speculatively in order to make a profit then you will need to pay taxes on any profits that you make. This article will go over the basics of paying taxes with Bitcoin and how this is different from other types of income sources.
What Do I Need To Know Before I Start Earning Bitcoins?
The first thing that you should know is how to keep track of your Bitcoin transactions. If you want to pay taxes on your Bitcoin then you will need to know what the cost basis was for each transaction that you make with your coins. This means that if you buy 1 BTC from a friend for $500, then you will need to know what the purchase price was for this coin in order to calculate your capital gain. The same goes for selling coins as well because if you sell 1 BTC for $800 then the cost basis that you’ll report is $500.
The other thing that you should do before even starting to earn or pay taxes with Bitcoin is to make sure that you have a basic understanding of how the IRS taxes people. The IRS has special rules and deductions for crypto-currency and these things can change at any given moment so it’s important that you stay up to date with the latest developments in the Bitcoin world.
What happens if I don’t pay my taxes?
The last thing that you’ll want to do is figure out what will happen if you don’t pay your taxes and how the IRS will find out about this. There are some very serious penalties for not paying your taxes on time including jail time for more serious cases of tax evasion. That being said, most people who are caught evading their taxes are never actually put in jail because it’s too expensive for the government to do so.
If you want to avoid stiff penalties when dealing with Bitcoin and taxes then you will need to make sure that you learn all of the material before you start earning or spending money. This way, if you ever get audited by the IRS then you will be prepared to answer any questions that the government may have about your Bitcoin transactions.
To conclude, you can use our very own cryptocurrency accounting tool to calculate your capital gains and track the transactions for free.