Taxes and Bitcoin - What You Need to Know
Today in the U.S. is Tax Day, not exactly a holiday we celebrate....but one that needs to be taken very seriously.
If you invested in bitcoin or other cryptocurrencies in the past year, chances are you did quite well. A deep dip in the price of cryptocurrencies only occurred after the conclusion of the 2017 tax year.
The problem facing investors now is the big dropoff in price and the inability to pay on capital gains.
CoinDesk.com has offered an excellent series related to bitcoin and taxes. Here's a bad case scenario (far from the worse) many are looking at:
You got paid in Xcoin on the date of its $32 historical high, then the floor dropped out of the market, the price slid to $9 and you continued to HODL. Then you sell all your Xcoin at $9 to cover the tax and end up back at zero.
These situations are not for the faint of heart.
Filing an extension is probably the best piece of advise that can be given. The problem is you still need to send a payment by today April 17. Emphasis is on "a payment". Chances are you won't have a clue how much you owe so sending something, even if it's a portion of what you might ultimately end up owing, goes a long way. You will end up paying penalties and interest, but extensions are only until October 15 so, in theory at least, we are not looking at a substantial amount of money paid towards said penalties and/or fees. More importantly, you likely won't get on the IRS' bad side. Failure to file results in more substantial penalties.
Generally speaking, if you made estimated tax payments for 2017 equal to or greater than your 2016 tax, then you're in the safe harbor for that big tax payment on your once-in-a-lifetime gains until the April deadline, CoinDesk.com also suggests.
What you cannot do is assume the IRS won't know about your bitcoin investments. They will. The licensed U.S. exchanges are required to report your gains to the IRS.
Ultimately, you will probably want to get on an installment plan. Individuals qualify for installment agreements for a tax liability of $50,000 or less, including penalties and interest, for up to 72 months, no questions asked. You can still get on an installment plan above that amount. Just keep in mind the IRS will more thoroughly mull over your financials. Hiring a reputable tax firm goes a long way. They typically can get you the lowest monthly installment plans and have a direct line to the IRS as opposed to you being on hold for up to two hours via the phone. Remember that the Internal Revenue Service is understaffed when it comes to handling direct customer issues. They are not understaffed when it comes to picking up on tax discrepencies via a whole array of technologies utilized.
- Aaron Goldstein, Gambling911.com
