Crypto Taxation and Its Legal Aspects

Capital gains are tricky, and when it comes to crypto taxation in the US, many tax-related strategies can be worked out by consulting experts. It will help you to reduce the tax load. Often, it is seen that capital gains attract lower tax rates in comparison to income. This is somewhat the same as how stocks attract taxes.

With altcoins like Litecoin, Ethereum, Bitcoin, and several other blockchain coins enjoying huge popularity, the Internal Revenue Service is keeping a close tab on the traders, investors, and cryptocurrency harvesters. But it is being observed that such individuals in more number are facing problems. It happens when it comes to reporting their mining or holdings. This is due to norms related to securities for this kind of trading and investments and divulging income from the digital tokens.

Cryptocurrency is considered property in California

Cryptocurrency attracts property holdings tax since it is not cash. Though it must abide by many financial regulations, ultimately, stocks are considered property. So, it can be safely said crypto taxation gains are referred to as “capital gains taxes.”

Does Crypto taxation make it completely legal in California?

There are many regulations of government around cryptocurrencies that treat them like securities such as stocks. ICOs (initial coin offerings) must be pre-approved and disclosed by the government in advance. The SEC or the Securities and Exchange Commission keeps a tab on such issues. If you do not abide by the rules of ICOs, the government can file a lawsuit against you.

Securities and Exchange Commission’s position is that while digital currencies offer a new avenue for financial trading and investing, the rules governing them remain the same. As such, the SEC urges people to invest judiciously. However, trading or selling cryptocurrencies might require a valid license.

Paying tax on income from Bitcoin

Regarding crypto taxation, the Internal Revenue Service describes income as one from any source. If you get Bitcoin or altcoin as payment for the services availed or items disposed of, it becomes as per IRS norms income for you. Regardless of whether you receive your services, coins, or cash payments, it is your income.

Even if you have financial accounts in other countries, the government must be informed about the same. There are two types of reporting that you might require and the ones that the IRS and the other agencies must be aware of.

The first type of crypto taxation reporting is FBAR or Report of Foreign Bank and Financial Accounts. Bitcoin may not be included in a foreign account. But you must find out from the attorney whether the IRS will consider it an investment. This is mandatory if you have signature authority or financial interest over financial accounts.

The second type of crypto taxation is FATCA, or Foreign Account Tax Compliance Act. This requires the details of the US account holders having their accounts in foreign banks or other institutions to report the same to the government.