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

As if the bitcoin tax situation weren’t complex enough, there’s at least one more interesting feature of digital currencies because of their status as property. This is the concept of “wash sales,” situations in which a taxpayer sells off an investment, realizing a tax loss, and then immediately buys it back at a bargain price. Wash sales typically apply to stocks and securities, o it’s unclear exactly how it will impact bitcoin and other digital currency traders in the years to come. Because bitcoin is not considered a stock or security, the IRS would likely only go after investors for “non-economic substance” transactions which cover broader property rules. The fact is, most traders make investment decisions in bitcoin and other digital currencies because of market-moving news and based on the wide swings in price levels of these currencies, not for tax purposes. Because of that, it is unlikely that bitcoin traders would be penalized by the U.S. government under these rules.

 

Should the IRS eventually close off the wash sales loophole, which would potentially have implications for a bitcoin investor. He or she would need to wait at least 30 days before buying more bitcoins in order to realize a loss on another sale of his holdings. Depending upon the exchange and the wallet that our sample investor makes use of, the IRS will probably be able to catch him if he tries to claim improper losses on wash sales.

 

More likely, though, and given the global, decentralized nature of digital currencies and their exchanges, it would be very difficult for the IRS to flag him for under-reporting on wash sales. This doesn’t even take into account “cold storage,” referring to safety deposit boxes or offshore accounts that are fully offline; these are essentially impossible to track given the way that the blockchain system is set up. Thus, if an investor could “be his own bank,” tax evasion might be an easier (although illegal) prospect.

 

The implications of bitcoin investments in taxation are difficult to process, but this is just the beginning. Next, we’ll consider how different types of purchases and sales can be considered “taxable events” under the IRS classification of digital currencies.


Bitcoin Tax Guide: E-commerce Taxation
Related Articles
  1. Tech

    Are There Taxes On Bitcoins?

    Here is a short guide to the tax implications when using or investing in bitcoins in the US.
  2. Tech

    Bitcoin Innovations And Obstacles

    Investopedia explains the development of the Bitcoin digital currency system and the risks associated with using and investing in it.
  3. Tech

    The Rise And Fall And Rise Of Bitcoin

    A look at the reasons behind the recent spectacular surge in bitcoin prices.
  4. Tech

    How Bitcoin Can Change The World

    Bitcoin has the potential to not only create savings for consumer, but also to transform global transactions.
  5. Tech

    Benefits & Risks of Trading Forex with Bitcoin

    Want to trade forex using bitcoins? Don’t jump on the bandwagon until you compare the risks to the benefits.
  6. Tech

    Countries Where Bitcoin Is Legal & Illegal (DISH, OTSK)

    Although bitcoin has been in existence for five years, most countries still do not have consistent laws regulating the cryptocurrency. However, a few countries have banned bitcoin altogether.
  7. Tech

    Why is the Price of Bitcoin Different Around the World?

    Clues to the inconsistent price of Bitcoin's exact value at any given time answer lie in bitcoin's decentralized status.
  8. Tech

    Bitcoin May Be The Currency Of The Future

    Forget the dollar or the euro. Bitcoin may be the next big currency to hit the world.
  9. Tech

    New Bitcoin Price Record: Over $2,000 Per Coin

    The price of Bitcoin has climbed to its highest point of all time, now trading at over $2000 per coin.
  10. Tech

    SEC Denies Winklevoss Bid to Launch Bitcoin ETFs in Surprise Upset

    The Bitcoin world was stunned by the SEC's decision not to approve the Winklevoss Bitcoin ETF.
Frequently Asked Questions
  1. Why Do a Reverse Merger Instead of an IPO?

    Reverse mergers are often the most cost-efficient way for private companies to trade publicly.
  2. Determining a Firm's Percentage of Credit Sales

    Find out where to look for information about determining a company's percentage of credit sales.
  3. What Does the Diluted Share Price Reveal?

    Learn how diluted share price affects earnings and the company's overall financial performance.
  4. How Can Institutional Holdings Be More Than 100%?

    No entity can own more than 100% of a company's outstanding shares, but it can be reported that way.
Trading Center