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When do you need to claim your bitcoin on your taxes?

On Behalf of | Apr 6, 2021 | Tax Law

Bitcoin has been around for more than a decade, but it recently rose to prominence a few years ago when the price started to surge. All of a sudden, it went from a niche concept backed by some people online to a potentially mainstream investment. Although the market corrected, bitcoin has continued to gain steam, with single coins now worth tens of thousands of dollars. Other cryptocurrency options have seen similar gains.

Whether you bought bitcoin in 2015 or 2020, you may hope to profit off of the recent surge in the price per coin. You may also find yourself worrying about whether there will be tax implications for your digital cryptocurrency holdings. Does the IRS expect you to pay taxes on them?

Those who invest in bitcoin have to pay tax on their profit

The IRS has had a policy to tax cryptocurrency holdings as personal property for several years. They have begun actively enforcing this policy and could come after people for unpaid taxes in some cases.

If you simply purchase or mine bitcoin or other cryptocurrencies and then hold on to them as a long-term investment, you will not have tax applications yet. However, once you sell them, you will have to pay taxes on your earnings, just like you would with stocks. Those who fail to report and pay tax on their bitcoin earnings could find themselves facing a tax controversy or even fraud allegations.

Whether you want to learn more about the law around Bitcoin and taxation or have already received a letter letting you know about an oversight when you filed your taxes, an experienced attorney can help.