Many people became millionaires last year when the cryptocurrency market spiked. The price of bitcoin increased more than 1,500 percent before it took a dive. Ted Bauman recently published a Banyan Hill article about a big concern for cryptocurrency users. He has been a contributor for Banyan Hill since 2013. Bauman is an experienced low-risk investment adviser and an asset protection specialist. He also edits three other investment newsletters. As someone with expertise in security and asset protection, Ted Bauman offers valuable advice on cryptocurrency topics.
Why Some Cryptocurrency Investors Are Panicking
At a recent meeting in New York, Ted Bauman said that many cryptocurrency users appeared worried after they realized the tax implications of cryptocurrency sales and transactions. Some of the people with large cryptocurrency balances sold bitcoin value in December for major profits. Many of those individuals reinvested their profits by purchasing other types of cryptocurrencies. Unfortunately, those new cryptocurrencies have been suffering since early 2018. According to Coindesk, buyer fatigue and negative news caused the slump. Also, the news of China’s potential restrictions on overseas products for domestic buyers contributed to the decline. The cryptocurrency market has already dropped by more than 50 percent from 2018’s highest point. When bitcoin holders sold large portions of their balances, they had capital gains. In some instances, those gains were six-figure amounts. However, the IRS will not give any slack for suffering cryptocurrency investors.
Ted Bauman interviewed Ian King in January. Ian is also a Banyan Hill contributor who is knowledgeable about cryptocurrencies. The two men discussed what they called crypto assets and why it made more sense to call them assets instead of currencies. The IRS treats cryptocurrencies as assets, which means that investors must also acknowledge that they are assets. When a person sells or trades a digital currency for goods, other currencies or services, that individual creates a taxable loss or gain.
Ted provided an example of a person who acquired $100,000 in bitcoin value. The individual acquired it in January 2017, and the value climbed to $1.5 million by December 2017. At that point, the person sold $1 million in bitcoin value for U.S. dollars and reinvested the money in a different cryptocurrency. The capital gain from the bitcoin sale put the person in the top tax bracket, and the individual owed the IRS $370,000 for the event. Ted pointed out that the person in the example still owed the IRS the same amount whether he invested the $1 million in real estate, gold, a cryptocurrency or any other investment option. Although that example provides a simple calculation, many bitcoin investors will have more difficulty calculating their transactions. Some of them made hundreds of smaller transactions with odd amounts. Each transaction must be recorded as an individual short-term capital gain or loss.
We may see a functional, widely accepted cryptocurrency someday, but it won’t be bitcoin.#Crypto #cryptocurrency #cryptocurrencies #bitcoin #Ethereum #investing #stocks #StockMarket #BanyanHillhttps://t.co/re4MOkoAPo
— Ted Bauman Guru (@Ted_B_Guru) January 23, 2018
When Real Laws Affect Virtual Money
In his article, Ted Bauman said that many bitcoin investors admitted that they had never paid taxes on their cryptocurrency transactions. Many said that they did not plan to pay taxes in the future. Bitcoin was invented by Satoshi Nakamoto as a form of government-free currency. By using blockchain technology, he strengthened it with anonymity. However, hiding from the IRS is not as easy as using blockchain technology. In 2013, the agency developed a team to study cryptocurrency use in relation to tax avoidance. The IRS made a federal case and asked for the identities of 14,000 Coinbase customers who traded $20,000 or more. Also, the agency noted that only about 1,000 people out of the 6 million who purchased cryptocurrencies through Coinbase reported capital gains on their taxes. In 2017, a federal court ordered Coinbase to release the names and personal information of the requested customers. Those individuals will likely face audits, penalties and interest charges.
“The IRS agrees with us: Current tax rules treat cryptocurrency as an asset rather than a currency.”https://t.co/ktZIokKvm7#AssetProtection #Retirement #Commodity #Money #ProfitableInvesting #WealthProtection #Commodities #NaturalResources #OptionPlays #Opportunity
— Ted Bauman Guru (@Ted_B_Guru) March 27, 2018
Ted Bauman’s Cryptocurrency Tax Checklist
Ted has always enjoyed helping people. Although he was born in the United States, he went to college in South Africa and earned two postgraduate degrees. He spent 25 years working in the nonprofit sector there as well. Ted managed low-cost housing projects and helped launch an international organization for housing improvement. Today, he enjoys helping people by giving them valuable advice. To help cryptocurrency investors this tax season, he provided the following list of reminders:
- Losses or gains are calculated against the cryptocurrency’s market value at the time of purchase, and the capital gains rate is applied to all gains.
- All purchases that are made with cryptocurrencies are considered taxable events.
- Self-employed individuals who are paid with cryptocurrencies must report that income as regular income on tax forms.
- People who pay contractors more than $600 in cryptocurrency value must report the payment to the IRS and must file a Form 1099.
- Cryptocurrency holders are responsible for recording each of their transactions, and they must report them on Form 8949 and must include Schedule D for losses or gains.
- If the money from a cryptocurrency sale is used to buy a different cryptocurrency, the transaction is not considered a 1031 exchange.
As he concluded the article, Ted Bauman warned cryptocurrency investors to follow tax rules. The IRS will likely practice stricter enforcement of reporting, and those who do not follow the rules will face penalties and audits. While some investors assume that this news is just an intimidation tactic from the IRS, others who know that Ted is right take it seriously. In a recent article from the New York Times, a cryptocurrency investor said that he lost sleep over his 2017 tax bill. He invested the proceeds from a bitcoin sale in another cryptocurrency that took a plunge. He said that he planned to report his gains despite the inevitable financial hit. The man told the journalist that he did not want to be punished by the IRS to make an example to other cryptocurrency sellers.
Most cryptocurrencies were developed by anti-government groups. In the past, the IRS was not as interested in going after cryptocurrency users because they represented a fraction of the population. However, the IRS proved that it can reach beyond blockchain to track people with the help of court orders. The recent cryptocurrency boom created a mass of taxable events, and the number of cryptocurrency users skyrocketed. Since those combined aspects open plenty of new potential income for the IRS, taxpayers can rest assured that the agency will pursue taxation of crypto assets.