Cryptocurrency technology shook up the economic world when BitCoin burst into the scene a couple of months ago. If you aren’t in the loop, you might want to consider checking it all out – starting here! Recently our CEO, Vinnie Fisher, had the privilege to be apart of The Future of Money Summit presented by Totally Crypto, where he talked about cryptocurrency and how is it impacting individual and businesses with respect to taxes. We encourage you to check out the whole presentation below, but we’ve highlighted a few key points for you below as well.
Cryptocurrency has many advantages and solves a lot of the problems which are in relation to the centralized nature of assets/currencies:
- No fraud
- No identity theft
- Immediate settlement
- Access to everyone
- Lower fees
What’s Taxable vs. What Isn’t
Remember: as a US citizen you are required to pay taxes, and cryptocurrency is no exception. Currently, the IRS is treating this as property (like stocks or bonds) and because of this, it is being treated like the taxation of property. So, what’s taxable and what isn’t?
- Trading cryptocurrency to a fiat currency.
- Trading cryptocurrency to cryptocurrency.
- Using cryptocurrency for goods and services.
- Selling, trading, or using forked coins or coins you mined.
- Buying cryptocurrency with USD.
- A wallet-to-wallet transfer (Ex: Bitcoin is sent from one Bitcoin wallet to another).
- Giving cryptocurrency as a small gift.
Treat Cryptocurrency as a Business
Do your business as an entity. Under the new law, pass-through entities – such as partnerships, S corporations, LLCs, and sole proprietors – can claim a 20% deduction on earnings, subject to special rules restrictions.
Here’s where it gets exciting, there is a way to NOT pay taxes on cryptocurrency. If an owner wants income but does not want to pay capital gains taxes, he can set up the installment contract to pay interest-only payments from the reinvested sales proceeds. According to IRC section 453, this strategy can defer the capital gains tax indefinitely.
Want to learn how to make a comprehensive tax plan? Let one of our tax experts help you out with that!