Thursday, April 3, 2014

Tax Day Advice From A Bitcoin Expert

As we approach tax day, many bitcoin fans may be wondering how to handle all of their newfound wealth. Given the recent ruling that BTC are property, not currency, things can get kind of hairy when mining, buying, or trading your BTC. What to do?

Thankfully, folks like Tyson P. Cross are around to help. The owner of BitcoinTaxSolutions, Cross handles tax returns and offers tax planning with a focus on cryptocurrency. That’s right: he’s a bitcoin accountant.

I asked Cross to walk us through the recent ruling and what it means for Satoshi-ites.

TechCrunch: Tell us about yourself. How did you get involved in bitcoin?

Cross: I first learned about cryptocurrencies in early 2012 when I came across a law review article discussing their legal uncertainties. Unfortunately, I didn’t have the foresight to view them as a potential investment opportunity, although I admired their possible application in the banking and finance industries. It wasn’t until spring of 2013 that really took a professional interest in bitcoins from a tax perspective. I spent the next ten months exhaustively researching the proper tax treatment of bitcoins and ended up developing a real passion for this area of the tax law.

TechCrunch:  How will the IRS find out about our bitcoin? Can they?

Cross:  As a general rule, the IRS only knows what it is told. This means that it has no knowledge of your bitcoin unless someone tells them. Here are four ways that can happen (others may exist). First, your bitcoin exchange may report your transactions to the IRS. This would be done with a Form 1099, which you’ve probably encountered at one time or another in a different context. However, it does not appear that bitcoin exchanges are currently subject to the 1099 reporting requirements (although that will probably change in the future). Thus, unless the exchange voluntarily files a 1099 against you, it is unlikely that the IRS will receive a report of your bitcoin transactions. Note that they would need your Social Security number to file a 1099 in your name, so a request from your bitcoin exchange to provide your Social Security number may be indicative of a 1099 filing.

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