Sitting on a big gain after cashing out some bitcoin? Don’t forget the tax man!
That’s the advice from two of the largest U.S. tax-preparation services, which are taking action to help clients—and potential clients—understand the implications of owning bitcoins and other crypto assets.
Bitcoin surpassed $15,000 this month after beginning the year around $1,000, and the Internal Revenue Service has been digging into whether people are reporting their gains. In a recent blog post, Intuit Inc.’s TurboTax, which has more than 30 million users, offered advice to consumers who have made money on the rally.
“If the bitcoins are held as a capital asset, like stocks or bonds, any gain or loss from the sale or exchange of the asset is taxed as a capital gain or loss,” TurboTax wrote. Workers “must report their total W-2 wages in dollars, even if earned as bitcoin.” Lastly, a taxpayer who mined bitcoins “must include it in his gross income after determining the fair market dollar value of the virtual currency as of the day he received it,” TurboTax said, citing the IRS.
H&R Block Inc. has an online community forum where people can pose their crypto questions, including what to do after getting bitcoins as a gift. While taxes aren’t levied on the value of the gift at the time it’s given, the recipient will need to pay taxes on the gains, according to the forum.
For instance, “boo1207” asked what to do about the $2,500 of bitcoins they got as a gift and sold for $3,300. “The $800 gain is your income from this,” reads the answer from LouisH, who is described as a “Senior Tax Advisor” in Florida. “Because the investment was a gift you do not need to report it on any of your tax returns as gifts are not taxable to the recipient.”
That distinction could be important when you’re dealing with an asset that’s risen about 50 percent this month alone.