Wednesday, January 22, 2014
3 Ways Your Bitcoins can be Taxed
The price of bitcoins has soared to staggering highs this year, enabling bitcoin holders to earn profits of as much as 90 fold. But as investors convert their virtual currency into US dollars, they have to pay taxes on their profits. But whether bitcoins will be taxed as a currency, a commodity, or an asset is not known to most of the investors.
Anonymity was one of the key features of bitcoins, and made up quite a bit of the cryptocurrency’s appeal. But when an investor files for taxes on bitcoin returns, he loses his anonymity. The Federal Reserve, in the senate hearing committee, did not outlaw bitcoins, but it also did not legitimize the virtual currency. The IRS has also not issued any guidance on how bitcoins would be taxed, but mandates that earnings from swapping or trading it still have to be reported.
Considering that bitcoins are being promoted as a virtual currency, they will likely be taxed as currencies. Capital gains from bitcoin trading would then be classified as either short-term capital gains or long-term capital gains. Short-term capital gains would be taxed anywhere between a rate of 0-39.6%, and long-term capital gains will be taxed between a range of 0% and 15%, depending on the investor’s income.
Read More : BTC - XBT