Keeping Your Bitcoin and other Cryptocurrency Taxes Current

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Taxes, everything Cryptocurrencies like Bitcoin and Ethereum stand against. A centralized tax on a deregulated currency sounds oxymoronic to the ears. Despite this, I get asked about the new taxes the United States Internal Revenue Service recently announced and can understand the confusion. The truth is that tax and cryptocurrency are nothing new and the IRS has had a Frequently Asked Questions about cryptocurrency since 2014. Since these are relatively new laws, it is much less complicated than to backtrack and find what rules are current.

The Federal government recognizes virtual currency as property and is treated as such. As far your own Bitcoin spending and crypto-based taxable responsibilities are concerned, the IRS expects you to treat it as any other domestic property exchanged for goods or services, and or, sold for loss or profit. Before you get ready to file your tax returns as normal, there are some critical distinctions that the IRS has made about reporting investment income activity the selling of virtual currency in regards to this 2014 IRS Notice.

In general, 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. This notice addresses only the U.S. federal tax consequences of transactions in, or transactions that use, convertible virtual currency, and the term “virtual currency” as used in Section 4 refers only to convertible virtual currency. No inference should be drawn with respect to virtual currencies not described in this notice.

The IRS expects you to keep accurate investing records. So if you are one of the thousands of people who joined the cryptocurrency community within the past three years, Uncle Sam expects you to amend your previous year’s return for the last three years, or from two years to the date of final payment on that year’s tax liability.  To do this, just file Form 1040X, Amended Tax Return, along with the corrected or additional documents you did not originally file with your return. If you think that this may be a big bother over nothing, maybe I should remind you of this.

Most people are finally asking questions about virtual currency tax liabilities because of the profits made from the recent swelling of Bitcoin and Ethereuem market caps. The Federal Government knows that these markets are stabilizing at these historic highs, giving early investors ample opportunity to convert those extremely high returns to U.S. Dollars. As Fortune reported, Through an Investigation and federal summons and ugly lawsuits with the exchange Coinbase, the IRS found out that less 1,000 people were actually following through on their crypto-tax responsibilities.

IRS agent David Utzke reveals additional information about how the agency is conducting the investigation. Specifically, Utzke explains he ran a computer analysis against the IRS’s repository of hundreds of millions of tax records, and found fewer than a thousand people filed a Form 8949 to account for a “property description likely related to bitcoin.

Fortune.com – Jeff John Roberts -” Only 802 People Told the IRS About Bitcoin”

Mar 19, 2017
Regardless of the outcome of the IRS’s probe into Coinbase or other cryptocurrency exchanges, the intent of government seems to point at more transparency in cryptocurrency transactions as well as building cases against tax evaders and money launderers. In one sense, these actions may lead to a more trusted outlook on bitcoin from tradition investors as the eventual death of the historic bull market looms, but that remains to be seen. While we wait for the outcome of the battle for centralized control over deregulated markets, the best we can do is keep accurate records and stayed informed. Coinbase offers its users a tool to help comply with IRS reporting regulations by exporting all transactions. The exhange also goes so far to give taxpayers the link to to the above-sourced notice from 2014, in this article. So one can logicly assume that these laws are current.
It breaks down to this. If you pay someone in virtual currency or receive income based on a convertible virtual currency, meaning trades like a currency on an exchange like, Coinbase, Kraken, etc. you should report the item accordingly as a capital gain or loss on a form Schedule D, or in the case of income from non-employee compensation, Forms and Associated Taxes for Independent Contractors.  Many Independent and Third-Party Contractors are adapting virtual currencies to either pay for labor or allow customers to tip for services or to pay for in-app purchases. I feel these, tax laws will be necessary to know for both small business owners and freelance contract labor as I am of the personal opinion that tradition brick and mortar retailers will have to adopt these virtual currencies to curve the overall decline in physical sales lost to online transactions.
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2016 Filing Status And Income

As with most investment income, profits from selling or converting virtual currency or stock held less than a year are considered short-term and typically taxed at the taxpayer’s Ordinary Tax Rate *see above.  In the Case of Long-Term holdings, or more than one-year, The levy on the sell-for-profit of cryptocurrency is  10% to 15%, unless the filer is classified a High-Income Taxpayer, then the tax becomes 25% to 28%

Please remember that this is not investment or tax advice. You should check with your own tax professional in regards to converting between other virtual currencies or the Treasury Department and IRS, who understand that taxpayers may have questions. The appropriate contact information for an IRS opinion on this topic is, Notice.Comments@irscounsel.treas.gov. Taxpayers should include “Notice 2014-21” in the subject line. OR alternatively:

Internal Revenue Service Attn: CC:PA:LPD:PR (Notice 2014-21)

Room 5203 P.O. Box 7604

Ben Franklin Station Washington, D.C. 20044

Thank you for reading, I plan to follow this up with another installment soon, soon please follow this blog and leave your questions in the comments section below. If you feel like this has helped you and you would like to support this blog.

Bitcoin: 1Q5v1vUT9YXMB9aWz85HfYrpBeGywH3bxk.

Ethereum: 0x13cF24A3636568Bd0f15CFDdDEaE3D8d6261aeb2

Follow me on Twitter.  @a_m_faulkner

and check our cryptocurrency discussion group on facebook.

Happy Mining, Good Luck Trading Everyone.  

-AMF 

 

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Ether Euphoria fades as I am Cutoff by Coinbase! Drats!

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coinbaseWhat could be worse than your current speculative cryptocurrency investment suddenly seeing the micro-bubble pop out from underneath it? How about your wallet and exchange suddenly changing policies and forcing you to update your bank and identification information through a live webcam. That is apparently what has just happened to be as  Ethereum has fallen from the massive rally on Thursday that saw the price soar as high as $50 early Friday morning. When the price suddenly fell later into the pre-dawn hours, the exchange stopped allowing me to do my regular traded between Bitcoin and Ether and promoted me with the now

When the price suddenly fell later into the pre-dawn hours, the exchange stopped allowing me to do my regular traded between Bitcoin and Ether and promoted me with the now notorious update screen!

I will keep you updated on the events to come but remember that this is an example of why we not to give your personal information to centralized exchange!

 

Is It The Right Time To Invest In Bitcoin?

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Q:  Is it the right time to invest in Bitcoin?

Close up 3D illustration of paneled golden Bitcoins

 A: 1.4 billion invested in 2016. Thinks investment will slow down this year. Will be worth millions each or nothing. But thinks it is here to stay.

Commentary: Is buying anything at its peak ever the right time to buy? This is the test of the truly disciplined investor. A key reason Bitcoin saw so much interest in 2016 is global economic uncertainty throughout the past decade and the global proliferation of the blockchain through the efforts of individual activist investors and entrepreneurs.

If by attempting to chase the ensuing record-breaking market-cap rally in 2017 you believe that by “now” being “the right time” is due to a break out in mainstream acceptance in bitcoin then the question is a fair one. The answer attempts to give confidence in the current sentiment that bitcoin investments will continue to grow more lucrative despite the “slow down” the author is probably inferring to sourced here by CB Insights.

Now is Definitely A Historic Moment That Requires Examing

The author of this bullish thesis chooses to interrupt the data optimistically as Blockchain backed technologies and Bitcoin startups have thus been able to penetrate the moat surrounding the financial technology industry.This is in fact, true, in 2016 investing among those startups did increase %5 from $524 million to $550 million, with Blockchain backing new ventures on the Australian Stock Exchange, and a breakthrough innovation in providing the transaction ledger for the NYSE traded company Overstock.

But despite these innovations, nobody is exactly sure why the rate of startup investing has slowed from the previous boom felt in 2013. Before 2013 there was virtually no interest backing these ventures alone from the first entrepreneurs like Roger Ver. With the public aware of gaining attention through the U.S. government’s seizure of millions of dollars in Bitcoin from the dark web marketplace “The Silk Road,” global investing in Blockchain and Bitcoin boomed to $93M that year and exponentially swelled nearly four times in 2014 to $357M. It was then when Bitcoin saw its historical high that we have only recently begun to recover from the pursuing sell-offs. This is why 2013 in my opinion, is a key factor in understanding the dynamics of investing in today’s cryptocurrency market.

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Blockchain and Bitcoin Investing Startup Plateau  and Inflection Point

Despite 2013 and 2017 seeing the market capital and price of Bitcoin expand exponentially due to comparable interest and organic growth, it seems that 2017 will now break the trend as the price of Bitcoin battles to maintain its recent returns this year.  Although Bitcoin and cryptocurrency have found wider usage because of this decade’s global economic turmoil, we are venturing into uncharted waters.

What I mean is that while the price of Bitcoin continues to soar in a post-Trump presidency as it did in late 2013, global investing increased in 2014 to help the cryptocurrency gain acceptance. Unfortunately, it wasn’t enough to maintain the historical high, and the price dramatically fell off. But even in 2015, at a time that Bitcoin’s price went virtually sideways for the year, global startup investing managed to increase around one-third.

The positive trend in growth has already shown signs of reversing when you consider that last year Individual investment opportunities were down from 161 in 2015 to 132 in 2016.Keeping this in mind, it is hard to be optimistic about 2017’s projected startup investing when you consider that most of last year’s $550M was funded during the first two-quarters of 2016. Last years %5 bump only indicates that a recession of venture capital within the niche market while global investors seek to shelter from economic strife.

This could be seen as a reliable indicator of a broader market slowing down because of more competition among the industry. The more options that have become available in the fin-tech marketplace may stabilize the price of services rendered. Another possible explanation for the slowdown could be that people are investing in bitcoin itself rather than the start-ups or even that consolidation has begun to occur within the industry. No matter the reason for the lack of startup funding, the bitcoin community has reaped the benefits of an alternative investment in an uncertain global environment.histoicbit

Key macroeconomic events have driven interest in bitcoin past the concept and novelty stage and attempt to place it in the mainstream. From European economic isolationist to the Asian Subcontinent and Greater Eastern economies faltering on debt and inflation, Bitcoin has continued to draw investors to the table despite the current lack of venture capital heat. It will take a comprehensive look at local bitcoin economies in places with a dense population, like India where there are millions of potential user that may supply the catalyst to push this inflection of technological funding into new rounds of financing. The growing acceptance of cryptocurrency still provides ground-zero growth opportunities like the increasing need for a cashless solution for the population of India or the citizens of state-controlled economies like China only further complicates the question of timing when it comes to investing in the crypto market-place.

Ultimately, it isn’t a question of is now a “make or break” moment for bitcoin and Investors are not in much risk of missing of continued growth and high returns, it is in my opinion still a “wait and see” opportunity. That may not sound like much fun for the moment, but it gives a chance to better understand all the moving pieces to questions you have asked. In my next update, we look at the differences between Blockchain and Bitcoin along with potential competitors and complimentary cryptocurrencies and digital ledger systems. I hope to illustrate the while we wait to see if the Bitcoin does become more valuable as the demand increases, we can profit from other cryptocurrencies. This will help lay the path to better understand the security features of blockchain and bitcoin. Eventually, my goal is to educate you to the point of understanding the various ways in investing in cryptocurrency, whether it is trading Bitcoin understanding the cost associated with mining.

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Google AI Can Create Its Own Crpyto

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Recently it was discovered that the artificial intelligence experts of The Google’s Brain project were able to create A.I. that is capable of developing its own secure secret language or cryptography.

The accomplishment is leaving some with more questions than answers currently available.

It seems that nobody at Google has any idea how this extra layer of encryption actually works, not even the A.I.

In an experiment, the A.I. networks were created, two were instructed to communicate securely with each other using a shared secret key, while the third was assigned the task of intercepting and decrypting those communications.

The result, the two communicating networks were able to develop their own crypto layer that the third network was unsuccessful at cracking.

Importantly, the AIs were not told how to encrypt stuff, or what crypto techniques to use: they were just given a loss function (a failure condition), and then they got on with it. In Eve’s case, the loss function was very simple: the distance, measured in correct and incorrect bits, between Alice’s original input plaintext and its guess. For Alice and Bob the loss function was a bit more complex: if Bob’s guess (again measured in bits) was too far from the original input plaintext, it was a loss; for Alice, if Eve’s guesses are better than random guessing, it’s a loss. And thus an adversarial generative network (GAN) was create

via Google AI invents its own cryptographic algorithm; no one knows how it works | Ars Technica UK

News orgs sue FBI for details on San Bernardino iPhone exploit — TechCrunch

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The Associated Press, Vice Media and Gannett, the parent company of USA Today, sued the FBI today in an attempt to uncover information about how the law enforcement agency was able to unlock an iPhone used by Syed Farook, one of the San Bernardino shooters. The Justice Department initially sought to force Apple to create custom…

via News orgs sue FBI for details on San Bernardino iPhone exploit — TechCrunch

Goldman Sachs Files Blockchain Patent for Foreign Exchange Trading – CCN: Financial Bitcoin & Cryptocurrency News

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Goldman Sachs has submitted a patent application focusing on how blockchain could cut out the middle man with transaction costs, claiming that the technology could change the current process.

The patent, “Systems and Methods for Updating a Distributed Ledger-Based on Partial Validations of Transactions”, which was published on September 8 by the U.S. Patent and Trademark Office (USPTO), was initially filed in March 2015, making it Goldman Sach’s first blockchain focused patent.

via Goldman Sachs Files Blockchain Patent for Foreign Exchange Trading – CCN: Financial Bitcoin & Cryptocurrency News