When it comes to taxes, there is a lot of confusion surrounding Bitcoin. Many people are unsure of how to properly report their Bitcoin-related activity come tax season.
Can the IRS track Bitcoin? Well, the short answer is yes. The IRS is aware of the existence of Bitcoin and other cryptocurrencies, and has taken steps to ensure that taxpayers who profit from their use are properly paying their taxes.
The IRS first issued guidance on the taxation of Bitcoin in 2014, stating that it should be treated as property for tax purposes. This means that any gains or losses from the sale or exchange of Bitcoin are subject to capital gains taxes.
In addition, the IRS has also stated that Bitcoin miners need to pay self-employment taxes on their earnings.
Since then, the IRS has continued to crack down on those who fail to report their Bitcoin-related activity come tax time. In 2017, the agency issued a John Doe summons to Coinbase, one of the largest cryptocurrency exchanges, in an effort to obtain information on users who had made transactions worth $20,000 or more over a period of time.
While the IRS has been fairly successful in tracking down those who fail to report their cryptocurrency activity, there are still many people who are unaware of their tax obligations. With the increasing popularity of Bitcoin and other cryptocurrencies, it is important that taxpayers educate themselves on how to properly report their income and activity come tax time.