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

Although it might be hard to believe, on top of all of these other considerations for bitcoin and taxation, there could even be tax consequences for giving bitcoin away for free. Because of this, bitcoin investors should keep in mind the differences between a “gift” and a “tip.”


Bitcoin or other digital currency “tips,” which have previously been popular on Reddit, in email promotions, and other similar situations, might be taxable as gifts rather than as tips. Taxpayers are usually exempt from paying taxes on their gifts, so long as those gifts don’t exceed $14,000 per year per person (there are no limitations on gifts to spouses, political organizations, charities, students for tuition costs, and medical expenses). The only exception to this case is in charitable giving situations, as covered in the previous chapter.


The recipient of a gift is usually exempt from taxes for that gift as well, although that may not always apply when it comes to digital currencies. The issue is that gifts of property which realize a capital gain or loss upon sale ARE taxable, and so the complexities of cost basis remain in play.


A gift recipient receives the same cost basis that is attached to the gifted property from the time the owner purchased it. So if a recipient is gifted a quantity of bitcoins which had been purchased for $10 each several years ago, then sells them for $5,000 each, that recipient would be on the hook for taxes for that $4,990 gain per coin.


Years ago, a man named Dorian Nakamoto was wrongfully outed as the inventor of bitcoin. In response, hundreds of donors made gifts to him, most often in bitcoin. Nakamoto would have had an incredibly difficult time keeping track of all the cost bases for the different gift donations. The result is that Nakamoto probably treated the entire donation as ordinary income, suffering the high tax rates as a result.


While this was a particularly large gift scenario, the same issue applies to most individuals who receive cryptocurrency holdings as tips from anonymous sources online. Any time a gift is converted into fiat currency or used to purchase something, it is a taxable event.


Last in our bitcoin taxation guide is the issue of lost or stolen bitcoins.

Bitcoin Tax Guide: Lost Or Stolen Bitcoins
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