Many cryptocurrency investors have never considered the tax implications associated with the digital currency. That is until now. The Internal Revenue Service (IRS) has just started sending out tax bills to bitcoin and other cryptocurrency traders, with one investor finding they owe $50,000. With the IRS hot on the heels of unpaid tax, and the popularity of cryptocurrency continuing to soar, this is what you need to know about dealing with a sudden tax bill.
Work out what you owe
Whether you’ve been dealing in cryptocurrency for years or have only recently got into the revolution, sit down and determine whether you owe anything to the government and, if so, how much. The IRS takes the stance that any items, products or services purchased using a digital currency are liable to be taxed as a capital gain. Not declaring these gains may be seen as tax evasion, so it’s essential you act now to prevent problems from arising in the future. Should you be unsure whether you owe the IRS anything or want to determine how much you owe, contact them directly to discuss your situation with them.
Make a plan
Once you have a figure in front of you, you need to make a plan as to how you’re going to pay it. If you’ve got savings, now is a great time to delve into them and put them to good use. However, if you haven’t got a nest egg to fall back on there’s no need to worry. Consider asking close friends or family if you can borrow some cash from them. Alternatively, use a credit card, such as a cash back credit card to pay off your debt.
Learn from your mistake
There’s no point dwelling on the mistake you’ve made. It’s understandable to assume that dealing in cryptocurrency is a non-taxable currency. But, the US tax authorities view cryptocurrency as property rather than currency, which is why so many owe thousands. For those who enjoy trading and investing in cryptocurrencies, this shouldn’t put you off continuing to do so. Though, it is advisable to put money aside regularly to cover the cost of any future years’ tax bills so you don’t find yourself in the same predicament again.
Even if you’ve only dabbled in cryptocurrency, there’s a chance that a bill from the tax man could be coming your way. So, be sure you have the means to pay it and remember to plan for anything you’ll owe over the coming years.