Bitcoin capital gains reporting
Some will argue that cryptocurrency splits such as Bitcoin Cash qualify as tax-free exchanges; however this view is unlikely to hold up to IRS scrutiny since none of the corporate reorganization non-recognition events under Section apply. Bitcoin Cash is economically different from Bitcoin and therefore should be viewed as a new category of financial instrument. Over the past several years many investors sold cryptocurrencies including Bitcoin but did not report any taxable income from the transactions while others used Section like-kind exchange laws to postpone taxation.
The IRS is none too pleased by all of this and is taking action. The IRS estimates that hundreds of thousands of U. Combined with the recent meteoric rise in prices the IRS is hungry for the potential to collect billions in interest penalties and back taxes. Recently for example the IRS summoned a large cryptocurrency exchange Coinbase to hand over its customer lists.
Cryptocurrency investors need to be aware of the evolving nature of taxation in this space in order to avoid IRS problems. This is an emerging issue and one on which you can bet the IRS is not going to stand down. As always consult a tax professional for details about your particular situation. Lindemeyer's advisors understand the challenges you face and can offer guidance on everything from complex accounting questions and payroll interpretation to mastering advanced features of QuickBooks.
Find out how our ProAdvisors can help. Skip to primary navigation Skip to content Skip to footer Client Gateway. Uncategorized IRS guidance on the tax treatment of cryptocurrencies already exists. Net capital losses cannot be offset against other income. Terry has been a long term investor in shares and has a range of holdings in various public companies in a balanced portfolio of high and low risk investments.
Some of his holdings are income producing and some not, and he adjusts his portfolio frequently at the advice of his adviser. Recently, Terry's adviser told him that he should invest in cryptocurrency. On that advice Terry purchased a range of cryptocurrency which he has added to his portfolio.
Terry doesn't know much about cryptocurrency but, as with all of his investments, he adjusts his portfolio from time to time in accordance with appropriate investment weightings. If Terry sells some of his cryptocurrency the proceeds would be subject to CGT. He has acquired and held his cryptocurrency as an investment.
Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded. Cryptocurrency may be a personal use asset if it is acquired and kept or used mainly to purchase items for personal use or consumption. However, all capital losses you make on personal use assets are disregarded. Michael wants to attend a concert. The concert provider offers discounted ticket prices for payments made in cryptocurrency. Having regard to the circumstances in which Michael acquired and used the cryptocurrency, the cryptocurrency is a personal use asset.
Peter has been regularly acquiring cryptocurrency for over six months with the intention of selling at a favourable exchange rate. He has decided to buy some goods and services directly with some of his cryptocurrency. Because Peter acquired the cryptocurrency as an investment, the cryptocurrency is not a personal use asset. In the context of carrying on a business, funds or property you receive through the acquisition and disposal of cryptocurrency are likely to be ordinary assessable income where you:.
If these gains or profits are ordinary income, you may be able to claim deductions, and any capital gains you make are reduced to the extent that they are also ordinary income.
Proceeds from the sale of cryptocurrency held as trading stock in a business are ordinary income. Examples of businesses that involve cryptocurrency include:. Not all people acquiring and disposing of cryptocurrency will be carrying on businesses. To carry on business, you need to:. Whether you are carrying on a business and when the business commences are important pieces of information. Money received or property received prior to a business being carried on is not generally assessable income.
Likewise, you cannot claim deductions incurred prior to the business being carried on. If you receive cryptocurrency for goods or services you provide as part of your business, you need to include the value of the cryptocurrency in Australian dollars as part of your ordinary income.
This is the same process as receiving any other non-cash consideration under a barter transaction. One way of determining the value in Australian dollars is the fair market value which can be obtained from a reputable cryptocurrency exchange. Where you exchange one cryptocurrency for another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset. Where you receive property instead of cash as part of a transaction, you are usually taken to have the market value in Australian dollars of the property received.
We are currently consulting with industry and other interested stakeholders to seek feedback on practical compliance issues arising from cryptocurrency to cryptocurrency transactions. You can contribute to the conversation on Let's Talk External Link. The consultation closing date through Let's Talk is 20 April Katrina exchanges one coin of Cryptocurrency A for five coins of a Cryptocurrency B.
Where an employee has a valid salary sacrifice arrangement with their employer to receive cryptocurrency as remuneration instead of Australian dollars, the payment of the cryptocurrency is a fringe benefit and the employer is subject to the provisions of the Fringe Benefits Tax Assessment Act In the absence of a valid salary sacrifice agreement for example, where the employee requests that salary or wages they have already earned be paid as cryptocurrency instead , the employee is considered to have derived their normal salary or wages and the employer will need to meet their pay as you go obligations on the Australian dollar value of the cryptocurrency it pays to the employee.
More information on tax treatment of bitcoin and cryptocurrencies like bitcoin can be found in the Taxation determinations below:. Show download pdf controls. Tax treatment of cryptocurrencies The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on the blockchain.
Transacting with cryptocurrency Cryptocurrency as an investment Personal use assets Record keeping Carrying on a business Using cryptocurrency for business transactions Exchanging a cryptocurrency for another cryptocurrency Paying salary or wages in cryptocurrency Further information See also: Cryptocurrency as an investment If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on disposal of the cryptocurrency.