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Important things to know about Bitcoin profit tax

Bitcoins are taxable as the IRS has categorized it as the property instead of digital currency. So the trading profits you are having from the Bitcoin Profit login are applicable to taxes. If you are wondering how the tax system works for Bitcoin Profits; check out the below points for a brief idea.

  1. Tax on holding Bitcoins

If you buy and hold Bitcoins less than a period of 1 year without using it in any kind of transaction, you are subjected to short term capital gain taxes. But, if you hold the same coins for over a period of 1 year, you are subjected to the laws applied on long term capital gains based on your income and the amount you are holding. Also, if you fall in the top three income bracket range for investment, then an additional 3.8% tax you will have to pay based on your net income.

  1. Tax on Mining Bitcoins

If you are making profits through Bitcoin mining, it falls in the category of ordinary income. The tax is calculated based on the price rate of the Bitcoin on the day you mined them. However, if you are mining the coins for yourself instead of employees and making profits from them, it is considered self-employment. In that case, an additional 15.3% of self-employment tax you have to pay if your income falls within $127,200 and 2.9% more if net income exceeds $128,400.

  1. Tax on Bitcoin Fork

Cryptocurrencies often get forked to introduce new crypto coins. If you hold an amount of Bitcoin currency at present and say it gets forked into BTC and BCH, then automatically your are subjected to hold the same amount for BTC and  BCH as they are forked from Bitcoin. In that case, it will fall in the category of ‘Ordinary Income’ and tax will be calculated as per the laws accordingly. Also, if you use the Bitcoin amount for making payments, the tax will the same as applied to Ordinary Income.

  1. Tax for Abroad account

If you have your Bitcoin account abroad, in that case, the income needs to be reported to US treasury using FinCEN form 114 and to IRS using Form 8938. However, if your asset balance is less than $10,000, then no need to report. Whatever income you are having in Bitcoin through sales, needs to be reported to Schedule D- Form 1040.

How to Save from Bitcoin Taxes

You can get saved from Bitcoin taxes under two scenarios:-

  1. a) If you donate it to non-profit organizations or charity
  2. b) If you transfer the Bitcoins between wallets

Many Bitcoin trading exchanges issues form-1099-K, to sum-up your transaction total for income tax submission. If you don’t receive this form from your trading exchange consider reporting manually to know your applied taxes.

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Kshitij Chitransh