Bitcoins and altcoins have become a focal point of public eyes in recent years. Now, cryptocurrencies are not only the investment opportunity but the medium of routine life transactions. We see many retailers and businesses accepting bitcoin and many employers paying their employees in digital currencies. Virtual currencies have become a capital asset in 2017. Because of this high paced adoption, Revenue Services has acknowledged E-currencies equivalent to fiat currencies and declared tax implications on these 21st century currencies.
Below are some of the important Tax system tips you need to know if you are part of this industry. Tax implications vary depending upon how any cryptocurrency is used and held.
When used in payment systems:
When ecommerce websites, retailers or businesses accept any payment via virtual currency, they have to pay tax accordingly. As virtual currencies are directly convertible to dollars, sales transactions are subject to tax. Organizations have to quote the converted currency figures in their annual tax returns.
Salaries and Wages:
Couple of organizations are paying their employees in terms of bitcoins or altcoins. Revenue Services decided that taxes are applicable on all salaries and wages, even earned in digital currencies. Virtual currency wages are credited same as withholdings in dollar wages.
If anyone is self-employed and earns in bitcoins or altcoins, he has to undergo some tax implications.
Capital asset tax status:
If you are not transacting cryptocurrencies on regular basis but holding it as a reserve, it will be considered a capital asset. Revenue Services has announced it equivalent to property. You are required to quote it in your tax returns and need to pay tax.
In case you are keeping the virtual currency for capital gain, just like shares and bonds, you are required to pay general tax applicable to such type of property.
Bitcoins and Altcoins Miners:
If you are a miner and income from cryptocurrency mining is your source of income, you must include it in your gross income. Many individuals are mining bitcoins and altcoins using their computer systems. They need to validate transactions and keep record of public ledgers. Self-employment Tax regulations are applicable on miners. They quote the dollar value of coins or any other element earned in mining.
The sale, purchase and earning of any convertible cryptocurrency has tax implications. Whether you are an organization or an individual, you have to mention the dollar value of your virtual withholdings as a gross income in your annual tax returns. The amount of tax value depends upon the type of returns entry; capital asset, self-employment or sales transaction. The tax treatment of Revenue services is transparent and widely applicable.
If you have any queries regarding the tax system, or your point of view differs from the facts stated above, feel free to write us via the comments section given below. We encourage healthy inputs and difference of opinion. Do not hesitate to share your views and give us a chance to learn something new from you.