so you made a bunch of money off Bitcoin this year and you haven't really thought
about your taxes well the IRS sent out these guidelines to explain what we need
to do when it comes to paying taxes on cryptocurrency stay tuned I talked about
it in this video
what's going on guys so there's a lot of confusion about Bitcoin about virtual
currencies crypto currencies and paying taxes obviously Uncle Sam wants that
money they want to get paid taxes on any type of income so if you're making money
selling crypto kiddies if you're making money selling Bitcoin whatever you're
doing they want a little bit of that action
so kind of breaking down these guidelines here the IRS empties out - it
was on coin base open this up you can see kind of some of the frequently asked
questions kind of going over this and explaining what the IRS wants us to do
when it comes to cryptocurrency gains and Bitcoin litecoin all that virtual
money so first off right here talks about the IRS is aware that the virtual
currency may be used to pay for goods services or held for an investment
virtual currency is a digital value that functions as a medium of exchange a unit
account and sometimes operates like a real currency the coin a paper money of
the United States so basically right there the IRS is acknowledging that
Bitcoin virtual currency is pretty similar to a real currency that they
want to quote-unquote call being the US dollar or other country's dollars so
right there that's interesting because they're now acknowledging but I think
this is actually back from 2014 this notice you can see they actually made
these guidelines back in 2013 and kind of going over some of the questions
people asked you know how is a virtual currency treated for federal tax
purposes virtual currency is treated as property so it's the same idea that if
you buy a house and you sell a house it's that property or if you buy
something it goes up in value and you sell it and that's that's basically what
its classified as it's virtual currency treated as a currency for purposes of
determining whether a transaction right now it says virtual currency is not
treated as a currency that could generate foreign currency gain or loss
for federal purposes must a taxpayer who receives
virtual currency as payment for goods or services include in computing gross
income the fair market value of the virtual currency yes a taxpayer who
receives the virtual currency as a payment for goods or services must
include that in their gross income including the fair market value of the
virtual currency so here's here's one of the issues that I have with this so
let's say Bobby pays me a hundred thousand dollars in Bitcoin right and
when he paid me Bitcoin it was worth twenty thousand dollars apiece so he
gave me a hundred thousand dollars worth and gave me let's say gave me four coins
when it was worth twenty five thousand dollars a piece and now bitcoins only
worth ten thousand dollars a piece how does that gonna work does that mean you
know he's paying me for income I'm taking the Bitcoin do I have to pay
taxes on what that fair value was when I received it or do I have to pay taxes on
when I sell the bitcoins so let's say I never sell the Bitcoin let's say I just
keep holding Bitcoin forever how does that work that's one confusing part at
this point what is the basis of virtual currency received as payment for goods
or services the basis of virtual currency that a taxpayer receives as
payment for goods right their virtual currency in u.s. dollars as a date of
receipt so I guess it does mean that if Billy pays me in Bitcoin on the 21st of
October and then it drops to zero the next day I still owe taxes on the twenty
thousand dollars or the hundred thousand dollars that he paid me the day before
now that bitcoin is only worth twenty dollars or you can see so I that's
confusing that's very confusing because if I have a million dollars with a
Bitcoin today and tomorrow the whole thing crashes the bubble pops now I own
- I owe taxes on the million dollars or how I this is I got to talk to somebody
but how is the fair market value of virtual currency determined for US tax
purposes transactions using virtual currency must be reported in u.s.
dollars therefore taxpayers will be required to determine the fair market
value as the date of payment or receipt and virtual currency is listed on
exchange an exchange rate is established by market supply and demand the fair
market value of the virtual currency is determined by converting virtual
currency into u.s. dollars that makes sense it's easy does
a taxpayer have gain or loss upon exchange of virtual currency for other
property yes if the fair market value of the property received in exchange for
virtual currency exceeds the taxpayers adjust the basis of the virtual currency
the taxpayer has taxable gain the taxpayer has a loss if the fair market
value of the property received is less than adjusted value does that mean since
Billy gave me a million dollars with a Bitcoin and now it something worth a
hundred thousand dollars I can report that as a loss hmm what type of gain or
lost as a taxpayer realize on the sale or exchange of virtual currency the
character of the gain or loss generally depends on whether that virtual currency
is a capital asset in the hands of the taxpayer a taxpayer generally realizes
capital gain or loss on the sale or exchange a virtual currency that is a
capital asset in the hands of the taxpayer similar to stocks bonds other
investment a taxpayer generally realizes ordinary gain or loss on the sale or
exchange a virtual currency that is not a capital asset in the hands of the
taxpayer does a taxpayer who minds virtual currency realize gross income
upon receipt of the virtual currency resulting from those activities yes when
a taxpayer successfully mines virtual currency the fair market value of the
virtual currency as of the date of the receipt is included in the gross income
so once again now I'm mining Bitcoin so let's say I'm mining Bitcoin I mined a
bunch of Bitcoin bitcoins worth a lot of money at a time and I mine it well then
a couple days later it's worth nothing do I have to pay tax it doesn't make any
sense so I got to pay taxes on a thing that was worth a hundred thousand
dollars yesterday but now today it's worth nothing so am I gonna go broke
just happen to pay taxes on all this currency subject to information
reporting a payment made using virtual currency is subject to information
reporting to the same extent as any other payment made and property for
example a person who in the course of a trade or business makes a payment of
fixed in determinable income using virtual currency with a value of $600 or
more to a u.s. recipient in a taxable year is required to report the payment
to the IRS or and to the payee examples in payments from income
rent salary wages compensation okay so that's that's pretty similar to if
you're getting paid underneath that $600 floor that you'd
normally want to report it but if you get paid over that you have to pay it
well a taxpayer would be subject to penalties for having treated a virtual
currency transaction in a manner that is inconsistent with this notice prior to
March 25th 2014 taxpayers may be subject to penalties for failure to comply with
tax laws for example under payments arbitrary 'el to virtual currency
transactions may be subject to penalties such as inaccuracy such as accuracy
related penalties under 666 to in addition failure to timely or correctly
report virtual currency transactions when required to to do so may be subject
to information reporting penalties under Section six seven two one six seven two
to claim your Bitcoin last year that you might feel to get away with it but if
not they might be coming out to you but it really comes down to how much Bitcoin
you have like I said I'm no I'm definitely no tax expert definitely not
a tax accountant and I suggest anybody who's making a ton of money with Bitcoin
anybody who's making a ton of money with crypto currencies you should definitely
be using a qualified accountant talk to your accountant make sure he knows what
he's talking about but definitely you need to look into this the IRS is
definitely gonna be cracking now now that everyone's made a bunch of money
off of Bitcoin everyone's been bubbly everyone's been
very public about how much money they've made so so make sure you pay your taxes
if you made a bunch of money on Bitcoin litecoin all that stuff it's time to pay
those taxes in the IRS well once some of that action they know people are out
there making money on crypto currencies and they're ready to make some money off
of all that action so there's a little bit more information from the IRS now
like definitely not answering every question that I have like I said the
question that if I buy a million dollars with a bitcoins a day and it's worth
zero tomorrow I guess that's a loss but now I say if somebody pays me a million
dollars with a Bitcoin today and I hold that Bitcoin for next couple days and
then it drops in value do I have to pay taxes on the million dollars that I
received today or got to pay taxes on the Bitcoin that I sell in the future
for US dollars so that's a question maybe you can answer
for me maybe you can answer in the comments below
there it is IRS coming after us for that cryptocurrency