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
Related Articles
  1. Taxes

    What Are Gift Taxes?

    If you're not sure what gift taxes are, read on and we'll explain.
  2. Insights

    Gift-Giving Etiquette

    Here's a look at how much you should spend and what you should give this holiday season.
  3. Retirement

    4 Thoughtful Retirement Gift Ideas for Men

    This"best gifts list" of the most thoughtful retirement gifts for men includes items appropriate as gifts from co-workers, friends or family members.
  4. Personal Finance

    6 Tips For Getting The Most Out Of Gift Cards

    Gift cards are big business, amounting to an estimated $91 billion in annual retail spending. Get the most bang for your gift card buck.
  5. Insights

    Why Retailers Love Gift Cards

    Gift cards have many benefits for retailers compared to cash sales. We'll look at a few of them.
  6. Personal Finance

    Top Websites For Discounted Gift Cards

    Gift cards can cost less when you buy them through a discount website. Just do the math before you cough up the cash.
  7. Insights

    Gifts For People You Aren't That Close To

    Finding a gift for a new boyfriend or girlfriend, your boss, or the postman can sometimes be a challenge.
  8. Investing

    How Safe Are Discounted Gift Card Websites?

    Could you buy a gift card online and find out it's worthless? Here's how to protect yourself (and whether you need to).
  9. Insights

    Avoid Overspending With These 10 Holiday Gift Ideas

    Give these 10 memorable gifts this holiday season without breaking the bank.
Trading Center