Tax and Bitcoin (and other Cryptocurrencies)
Did you sell any bitcoin (or other cryptocurrencies) in 2017? If you did, do you know how to pay taxes on the transaction(s)?
I’m going to guess that a lot of people in the US that fit in the category of having sold some bitcoin in 2017 haven’t spent a millisecond thinking about what tax they might owe. There are probably others who feel like they shouldn’t have to pay any tax because they believe bitcoin is outside the reach of the government. And then there are others who believe the theoretically anonymous elements of the cryptocurrency they are trading should prevent anyone – especially the government – from finding out about what they are up to.
Two interesting articles came out in the past week. The first, When Trading in Bitcoin, Keep the Tax Man in Mind, is an excellent overview that addresses the following questions.
- I sold some Bitcoin last year. What do I need to do?
- I bought a computer (or another product or service) using Bitcoin. Are there tax implications?
- I’ve successfully ‘mined’ Bitcoins. Now what?
- I was paid in Bitcoin. Are there any special tax consequences?
- What if I paid someone else in Bitcoin for their services?
- Can I reduce my tax bill by donating my cryptocoins?
- Will I receive any tax forms from my exchange? Do I have to track my own transactions?
The second article, Why the I.R.S. Fears Bitcoin, is an Op-ed in the NYT that I have mixed feelings about. While there are a number of scenarios about how to evade taxes, it ultimately leads to a proposal:
“A smarter response would be for the government to switch from taxing income when it is received to taxing income when it is spent. Many economists support moving to this kind of consumption tax, but it would require a major overhaul of the tax code.”
The “shift from a consumption tax” from an “income tax” is an endless debate that I’ve been hearing since I first started reading Forbes Magazine in college over 30 years ago. So, while logical, it feels like you could potentially compress the article into an argument for a consumption tax.
But, I loved the final paragraph.
“More generally, cracking down on tax evasion will require that the community learn to trust government. Since this goes against the very ethos of the cryptocurrency movement, it poses the most difficult — but no less necessary — challenge.”
The rabbit hole goes deep.