In January 2014, Nevada-based attorney Tyson Cross wrote a Reddit post that attempted to make sense of cryptocurrency taxes. Bitcoin had experienced a small boom that year, and the IRS had yet to weigh in on how it should be taxed.
Many people were lost when it came to paying the government for their gains. The IRS has since clarified that virtual currency is to be “treated as property for US federal tax purposes,” meaning any gains between the time bitcoins were bought and when they were sold (due to price deflation) must be treated as capital gains.
Yet four years since Cross’s Reddit post, paying cryptocurrency taxes hasn’t gotten much easier. After Bitcoin’s biggest year yet—with a high of $19,000 USD for one bitcoin in December—most clients are getting hit with way more taxes than they anticipated.
In fact, due to unexpectedly high taxes and currently low cryptocurrency prices to pay them with (one bitcoin is now worth $8,000), accountants told me that some investors are avoiding paying taxes on their virtual fortunes until good times return to the markets. “I would say that most clients underestimate their capital gains,” Cross told me in a phone call.
“They think that they made, let’s say $1 million, but when we run the numbers it can come back with $1.5 million. If that’s short term, that’s an extra $3,000 in taxes they weren’t expecting to pay.” In some cases this season, clients ended up owing as much as $1 million more in taxes than expected, Cross said. Read more from motherboard.vice.com…
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