I own Bitcoins or other crypto coins, how does the IRS deal with them?
IRS views crypto coins as property, not assets or foreign currency!
This is an important nuance because many countries view crypto coins as a currency form. You can pay with them, invest in them and trade the coins.
The IRS sees this differently: “Virtual currency transactions are taxable by law just like transactions in any other property. Taxpayers transacting in virtual currency may have to report those transactions on their tax returns.”
This means, in short, that one must view crypto currency as property. If you sell property for a profit, you may have to report it on your U.S. tax return, which may result in a capital gains tax.
With the thought of always being able to pay online with crypto currencies, these transactions become tax challenges for the person selling and buying them. The IRS requires the individual to report these transactions and associated rates.
Does Cryptocurrency exchange platform report my data to the IRS?
Crypto currencies were initially set up as anonymous, untraceable money. However, many countries are trying to get a handle on this to uncover/prevent, for example, money laundering and tax evasion. The IRS is also working on this at the moment.
Various studies indicate that many Americans are “hiding” their money in crypto coins, at least that is how the IRS indicates this. To combat this tax evasion, the IRS is currently working on new rules that will also require cryptocurrency exchange platforms to report annually. Lifting the ”banking secrecy.”
Transaction-related data requested by IRS?
One of the world’s largest cryptocurrency exchanges, Coinbase, was ordered by the IRS in late 2016 to turn over transaction-related data on more than 14,000 of its customers between 2013 and 2015. Coinbase notified its customers in response, and it is not clear if the data was actually reported.
Experts expect it to be a matter of time before the various platforms start transmitting data to the IRS. The IRS can then match this data with the individual tax returns and FBARs received.
There is a bill that was introduced in the early weeks of 2020 in America: Cryptocurrency Tax Fairness Act. Among other things, this bill provides that there is a $200 profit exemption for a private transaction. At the time of writing, the bill has not yet been promulgated into law.
Being Americans living abroad ourselves, we learned the hard way about US tax obligation and taxes in USA, so we are now here to help you.
If you have any questions about taxes in USA can contact Americans Overseas. Two dual nationals living abroad founded Americans Overseas. In the costly and exhausting process of finding the right experts, they realised they had not only accumulated a mountain of knowledge, but also built up a solid network of tax and legal experts. Do not hesitate to contact us if you have any questions.