Google, Apple, and Microsoft to check your download history for cryptocurrency related applications, according to a new report. If you're American and you've ever downloaded a wallet or a bitcoin price tracker, the government wants to know. Many people use Bitcoin specifically to protect their financial privacy and avoid government overreach, so you may ask how you can protect yourself now that cryptocurrencies are under increasing scrutiny? The answer is a bitcoin mixer. To obfuscate any connection between your real identity and your cryptocurrency holdings, a bitcoin mixing service is an important part of your privacy routine. Remember, Bitcoin is not anonymous, and it's important to take extra steps to protect your identity whenever you make a transaction. We have updated this post to reflect relevant information for 2023.
Why Bitcoin is Taxable
In the US, the IRS taxes all kinds of things besides income from working. Money received from winning the lottery, gambling, certain kinds of gifts, and even finding something valuable can be a tax liability. The particular issue with cryptocurrencies like Bitcoin is that they can fluctuate greatly in value, sometimes creating a significant increase in value for the asset holder. This increase is subject to capital gains tax when you sell for a profit.
It's important for Bitcoin users to understand how Bitcoin and other cryptocurrencies are taxed. According to the IRS's official guide to cryptocurrency taxation, Bitcoin is taxed as "property", putting it in the same category as stocks and other investment assets. If you buy bitcoin and hold it for more than a year you are subject to long-term capital gains tax, less than a year is subject to the higher rate short-term capital gains tax. However, if you receive bitcoin as compensation, then it is subject to the same rules as income tax. So is Bitcoin currency/ income, or an investment property? For our American readers, here's how it breaks down, though other countries may have other legal guidelines and we strongly advise you to learn what laws and regulations may apply to you.
- Mining- If you acquired any amount of bitcoin from mining, that amount is taxable for the year it was acquired, not when it is sold.
- Selling BTC- If you sold bitcoins or used bitcoin to pay for a service, you will owe bitcoins if the value of bitcoins at the transaction time is higher than the value when you acquired it. This is capital gains tax, and can be either short or long term depending on how long you had the coins. Make sure you keep records of the market price value of your BTC when you acquired it and when you sold it. Remember that this tax liability is realized at the moment you sell or make a transaction. You are not taxed on bitcoin that you merely hold, unless you mined it (see above).
- Losses- If your bitcoin loses value, you can write off the loss up to $3000.
Conclusion
It's easier than ever to run afoul of crypto regulations. We advise strong record keeping for all your transactions and the judicious use of a mixer to make sure that you can show compliance with tax agencies looking for new ways to monitor cryptocurrency holdings.