Cryptocurrency and U.S Taxes: What’s at Stake for Your Bitcoin Profits

If you own bitcoin, ethereum, litecoin, altcoins or any other cryptocurrency, don’t go into this tax season without knowing exactly how to navigate your way to the biggest return on your realized gains.

Here are the facts you need to know before you pay taxes this year on your cryptocurrency profits:

 

Fact: You have to pay taxes on any short term capital gains gleaned from crypto currencies like bitcoin. (Ref)

Let’s start with the basics. All of your realized gains from any cryptocurrency are taxed. Also, starting in 2018, you can no longer include cryptocurrency-related fees in your itemized deductions on your personal tax return (though businesses still can.) This can leave you with a considerable tax burden from cryptocurrency gains, especially if you don’t have any Tax Incentivized Assets (more on TIAs later.)

The 2018 tax reform also kicked off a change in the capital gains tax rates, which is a big deal for cryptocurrency investors, whether you cashed out of crypto or not.

 

Fact: The federal tax rate is 37% (for high earners) on realized gains from cryptocurrency, whether your bought, sold, or traded. (Ref)

The new tax code has big news for active cryptocurrency investors. Short-term capital gains are still considered ordinary income, and when it comes to the highest tax bracket, this income is taxed at a rate of 37%. That means that bitcoin profits aren’t just taxed, they’re taxed quite heavily. High earners who do not take advantage of Tax Incentivized Assets are unable to benefit from the profit potential generated by these investments, and are not afforded any of the tax benefits.

Investors should always look to diversify their portfolio with tax equity investments, to create new potential income streams and take advantage of the tax benefits expressly incentivized by the Internal Revenue Code.

 

Fact: The IRS treats Bitcoin and other cryptocurrencies as capital assets because they are convertible into cash. (Ref)

When it comes to cryptocurrencies, all the capital gains rules apply. This isn’t just the case if you bought and sold bitcoin (or others) for investment purposes, but also if you used any cryptocurrencies on goods or services throughout the year. Pretty much any disposition of cryptocurrency is a taxable event. This is where things deviate from the cut-and-dry stock trades you’re used to.

Cashing out of crypto isn’t the only time you can be taxed for your cryptocurrency investment.

  • If you made any online purchases using cryptocurrency, those transactions can be taxed, too. For example…
  • If you used Bitcoin on Microsoft.com… that transaction is subject to capital gains tax.
  • If you used Ethereum at Subway… that transaction is subject to capital gains tax.

The same is true if you used Ethereum at Expedia.com… or Litecoin at Overstock.com… and even if you used Altcoins to buy a pizza. You get the idea. Every time you exchanged a cryptocurrency for goods or services, you created a taxable transaction.

This is also the case if you traded one cryptocurrency for another, which is a pretty common practice of experienced crypto investors.

The reasoning behind this tax can be cleared up by thinking about it this way: Cryptocurrency isn’t actually currency… it’s property. Because of this, when you buy something with bitcoin, it’s not just one transaction--It’s two. First, you sell your cryptocurrency for a monetary value, and then you use that money to buy whatever good or service you choose. These transactions are subject to taxation…and not everyone knows this.

 

Fact: It’s your responsibility to report your cryptocurrency gains. (Ref)

You won’t get a Form 1099 from your crypto exchange. It’s up to you to report your gains and losses. Even though some investors move their crypto investments around frequently, whether to exchange one currency for another, buy goods or services, or straight up cash out, it’s up to you to report all of these transactions on your taxes in order to be held monetarily accountable.

The IRS is aware that not everyone is doing this. In fact, between 2013 and 2015, under 1000 people a year reported their bitcoin gains as income, which was just a fraction of the millions of active users on Coinbase, Gemini, Kraken and the other exchanges. That’s why there is a failure to pay penalty each month after the month the taxes were originally due… and then, there’s interest.

Recently, the IRS has taken steps to identify the tax-payers who are profiting from cryptocurrency, but not reporting profits.

 

Fact: US cryptocurrency exchanges have been required to send their information to the IRS. (Ref)

Recently, over 13,000 customers received an email from Coinbase that their information was going to be shared with the IRS. This came after a long legal battle focused on revealing the name, birthday, address, and taxpayer ID of users who had benefited the most from crypto trading over the last few years.

There is a good chance your cryptocurrency gains will be known by the IRS. The new court orders have been set in place to make sure all dividends from bitcoin, ethereum, litecoin, altcoins, and other major cryptocurrencies are counted as taxable income.

There’s no way to avoid being heavily taxed on the exchange of bitcoin, or other cryptocurrencies, during the upcoming tax year.

But there’s hope: top investors don’t have to take such a direct hit to the wallet. Tax incentivized assets offer a way to diversify their portfolio with tax equity investments which provide opportunity to earn income and profit, as well as take advantage of tax benefits including Federal Tax Credits or bonus depreciation schedules, expressly created by Congress to incentivize investment.  TIA’s also provide opportunities to earn income and profit and provide diversification, not to mention significant tax savings.

But there’s hope...

 

Fact: If you realized a significant short-term gain on cryptocurrency during this tax year, there is a way to decrease your tax liability.

Don’t forget to ask your CPA about Federal Tax Credits and bonus depreciation through Federally Tax Incentivized Assets (TIAs). TIAs are easily acquired assets that afford an investor an ability to own an asset with reasonable expectation of profit, lower risk profile, and significant tax benefits in the form of tax credits and bonus depreciation.

Our investment portfolio offers ready-made TIAs in the following industries:

  • Film and Television Productions - Up to $15M bonus depreciation per film investment each year, with no limit to the amount of films you invest in each year.

  • Renewable Energy Tech - 30% Federal Tax Credit on total value of renewable energy asset, in addition to 100% bonus depreciation on total asset value taken year 1.

  • Housing Developments - Investment in low-income housing can earn you a 40% credit, with an additional 50% credit available for rehabilitation projects.

Streamline Global’s customized strategy follows the rules and regulations established by the IRS and Congress and has been battle-tested by the Silicon Valley elite. The goal of TIAs is to get the private sector to make investments that provide a public benefit, but most people are not taking advantage of the opportunity to diversify their portfolio in the process. 

For cryptocurrency investors, TIAs offer a way to diversify your portfolio into profitable investments, while providing significant tax savings.

Streamline Global exclusively focuses on tax equity assets. For more information, call today at 702-706-3083 or click below to schedule a call: