Even though cryptocurrencies are becoming more exposed, their legislation seems to be a gray area for most governments, especially when it it's about declaring your income in digital currency. The Internal Revenue Service, the US tax collection agency, issued Notice 2014-21 stating that bitcoins and altcoins are subject to federal income and expense taxes. social. So, what to do with your crypto money and how to declare your taxes?

Records

Let's start with the morose subject of records. Yes, this also applies to crypto investors. You'd better have some if you think about taxes. If you've ever tried telling the IRS "I've lost my receipt," you do not want to do it a second time.

The IRS heard all the excuses in the book. Although it is not without sympathy, you will find it much easier not to have to make the extra effort to prove something in another way. Periodically, the IRS issues reminders to taxpayers regarding the importance of safeguarding your tax records

This is especially true in cases of natural disasters that make traditional record keeping disorderly . But think about it all year round wherever you are. The IRS suggests creating a set of backup records stored away from the originals. This is a good tip for crypto investors

Sell Assets?

If you are sitting on big winnings, you might consider comparing your tax situation for the entire year. It's not too early to start thinking that way. In fact, try to do it a long time before the end of the year to be able to make adjustments. You may want to sell or cover some of them even if you think the market is always headed up.

There is much more than the taxes involved in such decisions. But it may be wise to think about it at least. For example, what happens if your tax year already has a large capital loss or you have suffered a significant loss of carry forward from previous years? In general, unused capital losses can be used to absorb up to $ 3,000 a year in ordinary income

But unless you have capital gains to offset your capital losses , this $ 3,000 would correspond to your tax benefit. Some people sit for years and years with unused capital losses that carry over each year. So if you also have unrealized capital gains, you might consider selling some gain assets in order to absorb your losses. Run some numbers and see what it looks like

And what are you selling exactly?

Another subject that is close to tax time is to ask yourself if you really know what you are selling. In other words, if you have 100 Bitcoins and you sell 10, which ones have you sold? There is no perfect answer to this question. Most of the tax law considers stock shares, not cryptocurrency.

However, many advisors believe that the same types of rules should be applied in the case of multiple cryptographic assets that you hold. If so, the specific identification of what you are selling, when you bought it, and for what purchase price, is likely to be the cleanest. But it may not be possible

Some people use an averaging convention, where you calculate the average of your costs for a certain number of purchases. Consistency and record keeping are important. You do not want the IRS to claim that you have denied the government its fair share of every sale. And remember, if you claim a long-term capital gain treatment, being able to prove that you held cryptocurrency for more than a year before selling it is key.

Loans with interest and hedges

The loan of money should not be a taxable event for the borrower or lender, except for interest payments . So, can you lend your cryptocurrency to people? You can, but the question is whether this loan will be treated as a money loan by the IRS.

The jury is still on this issue. The IRS says cryptocurrency is the property for tax purposes. You do not want the loan and repayment (of a different cryptocurrency?) To be treated as taxable provisions. Some of them may depend on your documents, and how much you make them look and feel like a real loan.

Cryptocurrency hedges are another hot topic to consider. Hedging can help avoid some of the volatility that characterizes different cryptographic markets. But be careful that you do your best to avoid a disposition, that is, a sale for tax purposes, which you do not want.

Gifts

The holidays may be over in your family would still like some bitcoin or other cryptographic issues. The awards have been so present in the news, that gifts and gifts are always very much in the news. But is it tax-smart?

A charitable contribution would be the best type of transfer. If you give to a qualified charity, you should get an income tax deduction for the full market value of the crypto. If you bought $ 500 and donate to a charity 501 (c) (3), which is worth $ 15,000, you should get a deduction of $ 15,000 for the charitable contribution. In addition, you will not have to pay the capital gains tax on the difference of $ 14,500

Giving to private parties is not as impressive. The same gift to your niece does not allow you to deduct tax. And it requires you to file a tax return since the donation is worth more than $ 15,000. For 2018, $ 15,000 is the amount of so-called "annual exclusion gifts" that you can give to an unlimited number of people each year without any report being required.

Any donation over $ 15,000 although you will probably not pay any gift tax. Normally, you only use a small portion of your lifetime exclusion from the tax on donations and estates. For 2018, this number has increased dramatically. The amount you can transfer tax-free during your lifetime or upon your death is $ 11.2 million per person. That's $ 22.4 million per married couple

Forms 1099

Finally, do not forget about the upcoming onslaught of IRS Forms 1099. Normally, these not so fun little tax forms arrive at the end of January, stating the income that was paid to you during the previous tax year. The IRS says that wages paid to employees using virtual currency are taxable, must be reported on a W-2 form, and are subject to federal income tax withholding and payroll taxes.

Similarly, payments in virtual currency independent contractors are taxable for them, and payers who carry on a business activity must issue Form 1099. A payment made in virtual currency is subject to Form 1099, as any other payment made in a property. This means that if a person in business pays a virtual currency of $ 600 or more to an independent contractor for services, Form 1099 is required.

If you are a recipient of Form 1099. Each is reported to the IRS and the applicable state tax authorities. If you do not report or report income reported on your tax return, you can expect the IRS to follow up.

This may seem confusing, but do not worry. The IRS is generally much more lenient to those who fulfill taxes, even with mistakes, rather than those who avoid doing it at all.