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A 2018 Tax guide for crypto-investors

Jan 08, 2018 Posted /  2840 Views

A 2018 Tax guide for crypto-investors

The cryptocurrencies are gaining more popularity with each passing days. However, the legislation and regulations by governments across the globe, especially pertaining to your income in digital currencies is still an area of concern. The US tax collection agency called the Internal Revenue Service, has issued Notice 2014-21 mentioning that Bitcoin and altcoins will be subjected to federal income and payroll taxes.

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In this article we will study what things Crypto-investors need to consider before paying their taxes pertaining to digital assets.

Keeping Documents

You have to substantiate your crypto investment record. The IRS also issues reminders to taxpayers from time to time regarding the significance of safeguarding your tax records. In cases of natural disasters when traditional record-keeping go haywire, the IRS suggests creating a backup set of records stored away from the originals.

Selling assets

If you are holding up on some big gains, you might want to sell or hedge some of your funds now, even if you think the market is still in some kind of head up. There is a lot more than taxes involved in such decisions. However it is intelligent to at least think about it.

Nevertheless if you have capital gains to counterbalance your capital losses to the extent of your tax benefit, you might consider selling some gain assets, to be able to absorb your losses. Search for some numbers and see how that might stand.

Knowing your sell off

You really need to know what you are selling. For instance, if you have been selling 10 Bitcoins and you need to know which 10 did you sell. Majority of the tax law contemplate about shares of stock, not cryptocurrency.  

Nonetheless, many advisers think that the equivalent laws should be applied for multiple crypto assets that you hold. Additionally, specific identification of what you are selling, when you bought it, and for what purchase price, likely bring more clarity.

Some people use an averaging convention, where you essentially average your cost across a number of purchases. Uniformity and record keeping are imperative. Investors may not want the IRS to assert that they are deprived of the government fair share of each sale.

Bear in mind, if you are claiming long-term capital gain treatment, being able to substantiate that you retained the digital currency for more than a year before selling will help a lot.

Hedges and loan interest

Loaning money shouldn’t be a taxable event to either the borrower or the lender, except for interest payments. The IRS says cryptocurrency is property for tax purposes. Nobody wants the loan and the repayment to be treated as taxable dispositions. Most of it may depend on your documents. Hedges can help to avoid some of the volatility that has characterized the various crypto markets. But be careful that you are doing your best to avoid a disposition, meaning a sale for tax purposes, that you don’t want.

Charity Contributions

A charitable contribution transfer would help a lot in your tax guides. If you give to a experienced charity, you should get an income tax deduction for the full fair market value of the crypto. Giving to private parties is not as impressive. And it requires you to file a gift tax return since the gift is worth more than $15,000. For 2018, $15,000 is the amount of so-called “annual exclusion” gifts you can give to any number of people each year with no reporting required.

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Tags: US tax crypto-investors crypto investment digital currency

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