Bitcoin Tax Guide: Trading Gains And Losses - Alt-Currencies
AAA
  1. Bitcoin Tax Guide: An Introduction
  2. Bitcoin Tax Guide: Trading Gains And Losses - Fair Market Value
  3. Bitcoin Tax Guide: Trading Gains And Losses - Alt-Currencies
  4. Bitcoin Tax Guide: Trading Gains And Losses - LIFO, FIFO, Offsetting Lots
  5. Bitcoin Tax Guide: Trading Gains And Losses - Wash Sales: Impossible To Track?
  6. Bitcoin Tax Guide: E-commerce Taxation
  7. Bitcoin Tax Guide: Donations
  8. Bitcoin Tax Guide: Gifts And Tips
  9. Bitcoin Tax Guide: Lost Or Stolen Bitcoins

Bitcoin Tax Guide: Trading Gains And Losses - Alt-Currencies

The IRS's vague definition of taxable virtual currencies may have helped miners and early investors in various new "alt-currencies" avoid tax-reporting requirements for currencies of negligible current value. In its rulings, the agency borrowed a distinction from the Financial Crimes Enforcement Network's (FinCEN) early guidance by separating widely traded "convertible" virtual currencies such as Bitcoin from other virtual currencies, noting that only convertible virtual currencies that have an "equivalent value in real currency, or that acts as a substitute for real currency" will be considered taxable.

There seem to be two tests for whether a virtual currency is considered convertible. The first asks whether a given currency is "listed on an exchange and the exchange rate is established by market supply and demand," which would make it convertible to another "real currency" like the U.S. dollar. This begs the question of whether virtual currencies that are thinly traded on offshore exchanges, and may only trade with respect to other convertible virtual currencies like Bitcoin and Litecoin, are taxable at all this year. Because the IRS has made it clear it plans to tax gains on successful convertible virtual currencies retroactively, Joe may find himself in a situation where he feels he can skirt tax reporting for lower-value alt-currencies like Dogecoin for now, and simply report them in the future if and when those currencies appreciate in value and trade over well-regulated U.S. exchanges.

The second test asks whether investors can buy anything tangible with that currency, or if its value is instead driven entirely by speculation. As the IRS outlined, "The sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability." If a new currency isn't demonstrably valuable in commerce, is it truly "convertible"?

Bitcoin Tax Guide: Trading Gains And Losses - LIFO, FIFO, Offsetting Lots

  1. Bitcoin Tax Guide: An Introduction
  2. Bitcoin Tax Guide: Trading Gains And Losses - Fair Market Value
  3. Bitcoin Tax Guide: Trading Gains And Losses - Alt-Currencies
  4. Bitcoin Tax Guide: Trading Gains And Losses - LIFO, FIFO, Offsetting Lots
  5. Bitcoin Tax Guide: Trading Gains And Losses - Wash Sales: Impossible To Track?
  6. Bitcoin Tax Guide: E-commerce Taxation
  7. Bitcoin Tax Guide: Donations
  8. Bitcoin Tax Guide: Gifts And Tips
  9. Bitcoin Tax Guide: Lost Or Stolen Bitcoins
RELATED TERMS
  1. Bitcoin

    A digital or virtual currency that uses peer-to-peer technology ...
  2. Section 7702

    The section of the United States Internal Revenue Code that defines ...
  3. Paper Wallet

    A paper wallet is an offline mechanism for storing Bitcoins. ...
  4. Litecoin

    Launched in the year 2011, Litecoin is an alternative cryptocurrency ...
  5. Altcoin

    Altcoins are alternative cryptocurrencies launched after the ...
  6. Dogecoin

    Dogecoin is a peer-to-peer open source cryptocurrency and falls ...
  1. Can you calculate the marginal tax rate in Excel?

    Learn how to approximate taxes owed and if Excel and marginal tax rate data provide an accurate number for personal tax calculation.
  2. Who enforces GAAP?

    Take a deeper look at the private enforcement mechanisms behind the generally accepted accounting principles for American ...
  3. What are the most common deferred tax assets used by individuals?

    Use these deferred tax assets to reduce your tax liability and grow your assets simultaneously. Discover the most common ...
  4. Should I use a deferred tax asset for all of my retirement funds?

    Look outside tax-deferred accounts for retirement savings that are worthwhile now and later. Invest a portion in after-tax ...

You May Also Like

Related Tutorials
  1. No results found.
Trading Center