Taxation Without Representation

16 Sep 2019 by svet

I've just realized that one of the few topics, which has not yet been covered in this group is the cryptocurrencies taxation. Yes, I know, this is not a "tax season" and it's not a pleasant subject at all. Moreover, I'm not a tax advisor and for any counseling, please, get yourself a properly certified professional.

However, as world's authorities, specially in US, improve their re-identification techniques and increase regulatory pressure on our community it becomes more and more important to take this factor into consideration. Consequently, I decided to briefly review the so-called "Notice 2014-21", published on the IRS site, which still serves as a guidance for an US tax man.

Warning: that, probably, will not enhance your moral, so, please, stop reading it now if you do not have a nerve for that :)

Of course, what most of us already know is that (citing): "For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency." Which means that "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."

However, what "convertible virtual currency" actually means? (citing): "This notice addresses only the U.S. federal tax consequences of transactions in, or transactions that use, convertible virtual currency", which is the "Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real (means issued by a state) currency ... ". Well, it, basically, means all of virtual currencies.

Everyone also knows (more or less) that (citing): "A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency measured in U.S. dollars, as of the date that the virtual currency was received".

Nonetheless, that this is not nearly enough for IRS. They also require (citing): "a person who in the course of a trade or business makes a payment of fixed and determinable income using virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a taxable year is required to report the payment to the IRS and to the payee."

This is not all. If you happen to run a so-called "third party settlement organization (TPSO)" then you are (citing): " ... required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000."

Additionally, for those of us who are involved in mining or delivering goods / services as a business and are compensated for that in "convertible virtual currencies" the following is applied (citing): "gross income derived from carrying on a trade or business ... resulting from those activities constitute self-employment income and are subject to the self-employment tax."

There are also some more details in this piece, which you, probably, are better to inspect and to ponder about by yourself.