All You Need To Know About Bitcoin Tax Evasion

All You Need To Know About Bitcoin Tax Evasion

By Adam Smith | Finance Contributor on November 13, 2019
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bitcoin blockchain technology

Given its unique nature and intricate working based on Blockchain technology, Bitcoin has managed to amass significant attention worldwide.

There is an ever-growing interest in Bitcoin and cryptocurrencies in general. With a new, ground-breaking payment network such as this, it is of no surprise that most people are apprehensive about investing in cryptocurrencies, as they do not understand the way they function.

It is the mind-numbing discomfort of having to report and file taxes on Cryptocurrencies that seems to make people averse to cryptocurrencies in general.

To make things worse, there is a massive amount of confusion around crypto taxes and how to go about paying the same. Countries like India, for instance, have no set rules and regulations for cryptocurrencies and has resulted in people being unclear about everything crypto-related. This includes a variety of aspects like using the right tax calculator, what qualifies for a taxable event, long and short-term capital gains, and Bitcoin tax evasion.

How are Bitcoins Taxed?

Most crypto-traders have undoubtedly pondered the idea of a Bitcoin tax evasion and its consequences. Irrespective of whether you want to play by the rules or not, knowing how Bitcoins are taxed is paramount.

The first thing to note is that cryptocurrencies are treated as assets, i.e property. Therefore, they would be taxed the same way property is taxed. Property is subject to capital gains tax. The same applies to Bitcoin and cryptocurrencies in general.

Cryptocurrencies are generally prone to two types of taxes – long-term capital gains tax and short-term capital gains tax.

If you happen to have held your Bitcoin for over a year, you would have to pay long-term capital gains tax. This is lesser than the short-term capital gains tax.

However, if you sell or trade your Bitcoin within a year since the date of purchase, you would be subject to short-term capital gains tax.

If the value of your Bitcoin depreciates, you would be prone to capital losses. A vital thing to keep in mind is that capital losses can be deducted from your capital gains on any asset, not necessarily only from cryptocurrencies.

An effective way to reduce your Bitcoin tax rates is to have your capital losses deducted from the capital gains on a property you may have sold.

Scenarios where Bitcoins are taxable –

  • If you sell your Bitcoin to a third party.

  • If you sell the Bitcoins that you’ve purchased from someone to a third party.

  • If you use your Bitcoins to purchase goods or services.

  • If you use your Bitcoins that you’ve bought from someone, for the purchase of goods and services.

Scenarios where Bitcoins are not taxable –

  • Transferring a Bitcoin as a gift to someone does not render the event taxable.

  • A transfer of Bitcoins among your wallets does not qualify as taxable.

  • The purchase of a Bitcoin using FIAT currencies like the US dollar does not make it taxable.

  • Donating a Bitcoin to an organization or charity that is exempt from tax is not a taxable event.

 The IRS on Bitcoin Tax Evasion –

Bitcoin and other major cryptocurrencies have all taken a beating. This is following the news of the collaboration between the IRS and tax agencies in other nations like the UK, Canada, Netherlands, and Australia to block Bitcoin tax evasion.

This collaboration is known as the Joint Chiefs of Global Tax Enforcement. This task force plans to share information regarding cryptocurrency traders who are evading Bitcoin taxes from each of the previously mentioned countries. These nations have declared cryptocurrencies as assets, rendering them subject to capital gain taxes.

The IRS also plans to scrutinize those who are channeling payments into cryptocurrencies to avoid having to pay taxes.

Ryan Korner, a senior agent in the LA office of the Criminal Investigations office of the IRS, recently informed reporters that they now have the tools and ability to track such channeling payments.

 The senior also mentioned that the agency is now in a position to identify and track such Bitcoin tax evasion attempts.

What can you do? – Play by the rules

Given the tightening of Bitcoin tax evasion rules, it would be wise to report and file your taxes on time. An inexpensive way of doing that is through the use of Bitcoin tax calculators. Here are a few –

ZenLedger

ZenLedger is a very well known Bitcoin tax calculator. It is well designed and has a user -friendly interface that significantly simplifies Bitcoin Tax transactions. ZenLedger also has an informative blog with an ocean of tax-related information that you could benefit from.

ClearTax

ClearTax is another popular Bitcoin tax calculator that you can use to calculate taxes. This platform requires your basic details. These details include how and when you acquired your Bitcoins, the price of your Bitcoins, the sale price of your Bitcoins, and how long you held your Bitcoin before the sale.

CoinTracker

CoinTracker is an intuitive platform that facilitates Bitcoin tax reporting and filing. You need to submit your email address to open your account on Cointracker to make use of its services.

Token Tax:

TokenTax is known for providing one of the simplest ways to report, and your Bitcoin capital gains taxes.Keep in mind that TokenTax is the only crypto tax platform that supports every leading currency exchange.

CryptoTrader.tax:

CryptoTrader.tax is a quality tax calculator that allows cryptocurrency traders to calculate their capital gains or losses in minutes. CryptoTrader.tax’s platform currently supports a few cryptocurrencies like Coinbase, Bittrex, Gemini, Binance, and Poloniex.

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