Bitcoin or Any Virtual Currency and the IRS – Steph Wynne
Even though no government controls Bitcoins the IRS still wants their tax cut. I’m going to try to explain in summary how you will be taxed as an independent contractor, employee or investor.
So the bottom line is if you were paid in any virtual currency you will pay Federal income taxes, either as an employee or indy contractor just like you would with US dollars.
BITCOIN INDY CONTRACTORS
1. A person who makes a payment of fixed income using virtual currency with a value of $600 or more is required to report the payment to the IRS and to the payee. Payments of fixed income include rent, salaries, wages, premiums, annuities, and compensation.
Thus if you are paid in Bitcoins for your services, $600 or more, the tax payer (You)must include the fair market value of the Bitcoins in your income (as of the date that the virtual currency was received). So if you were paid in July 2019 Bitcoin you will need to keep track of the fair market value as of that date to determine the fair market value when you get your 1099 in January.
Actually this is a nightmare!
Given the lack of detailed guidance from government agencies, there is no ‘correct’ way to fair market value for crypto currency. You can use major indexers or local exchanges for your calculations, but you should be reasonable with regards to how you calculate wages and be prepared to answer IRS questions should they arise.
BITCOIN EMPLOYEES
2. If the taxpayer’s employer paid him or her with virtual currency (such as Bitcoin) as payment for his or her services, the taxpayer must include the fair market value of the currency in his or her income. Thus if you are paid in Bitcoins as an employee and employer you will pay:
a) Federal income tax
b) (FICA) tax (medicare and SS 7.45%)
c) Federal Unemployment Tax Act (FUTA) tax
d) State taxes very from state to state
In some environments, virtual currency (such as Bitcoin) operates like “real” currency but it does not have legal tender (green money) status in any jurisdiction. For Federal tax purposes, virtual currency is treated as property.
*A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.
3. If you bought Bitcoin as an investment you can pay capital gain taxes potentially at a lower rate then fair market value as an indy contractor or employee.
The IRS plans to scrutinized all of your crypto gains so if the current bitcoin price is higher than the price you originally paid, then you would have to pay extra tax on the gain from the bitcoin payment. However, if the current bitcoin price is lower than what you paid, then it amounts to realizing a loss on the bitcoin, which can be offset against your total tax bill and reduce it.
In summary you will pay taxes on Bitcoin income.
Just sayin’.
Published at Fri, 20 Dec 2019 23:47:25 +0000
{flickr|100|campaign}