DISCLAIMER: I am not a tax professional or CPA. All the following information is only research and my interpretation of the IRS document. I highly recommend people to pay the extra money talk with a tax professional since a lot of the information provided by the IRS can be confusing to some. I will link all the sources below for anyone that is interested.
With tax season coming up after the new year, United States residents who own Bitcoin and cryptocurrencies are confused about how they should declare taxes on Bitcoin transactions. The IRS has released a document stating how cryptocurrencies will be handled for federal taxes, making Bitcoin taxed as a property.
Essentially, the taxpayer is responsible for reporting realized gains/losses when converting any cryptocurrency to the US dollar via any exchange. Meaning, that they are responsible to report when they bought, how much they bought it for and when they sold and how much they sold it for. The document also explains that when someone sells any good or service with cryptocurrencies, that transaction should be reported. The way people are meant to report these sale transactions is by converting the price from BTC to USD when the transaction took place.
Example: If I buy LTC @ $250 and I sold it at $300 I am responsible for reporting that transaction. This can be very tricky and annoying to a lot of users because a lot of them, especially the crypto traders, have multiple accounts and probably have more than 100 transactions.
One way to track transactions and tax information on cryptocurrencies is by using programs like cointracker, here is my referral link: https://cointracking.info?ref=B997439
Another taxed activity is mining and mining contracts. According to the document, any taxpayer is responsible for reporting the income generated from mining. This can be really problematic to a lot of people because a lot of mining contracts pay daily. And depending on the wallet, some of them will not tell you the price in USD. The question here is how will you report this if the wallet does not provide you with the dollar price of the coin?
I suggest reading more into the tax document since I just talked about the most common types of crypto users: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
Unfortunately, that's not all,
Starting in January 2018, there are plans to tax crypto/crypto conversion. meaning, that not only will we be taxed on Bitcoin to Dollars, but we will also be taxed on the conversion of Bitcoin to other cryptos such as Litecoin or Ethereum. This will make it so that every little transaction is taxed.
For example: Let's say I own Bitcoin and want to send my friend some Steem. I will be taxed for converting my bitcoin into Steem, be taxed for sending my friend the Steem then If I want to return some of my Steem into Bitcoin, I will get taxed again. A lot of people have shown their dissatisfaction with this tax plan, and many say that they do not want to pay taxes at all.
Read more about it here: http://fortune.com/2017/12/21/bitcoin-tax/
While I'm not fond of the IRS, the taxation of crypto to USD is something I can understand because the United States owns the dollar. However, I strongly disagree with the IRS on the Crypto to Crypto fiasco. There should be no reason to tax something that the United States does not own.
I'd love to hear what your opinions on this topic are!