Bitcoin and your tax bill
Bitcoin and your tax bill
Ripple. Ethereum. Litecoin. Dash. Monero. And the oh so famous Bitcoin. All of these are different cryptocurrencies which recently have been all the rage among investors, and with their extreme volatility, their future is constantly in question.
What is Cryptocurrency
Now for those who don’t know, cryptocurrency is a form of digital money designed to be secure and anonymous and allows users to make payments without having to go through banks. It uses cryptography, a process used to convert legible information into almost uncrackable code, to track its purchases and transfers.
While different forms of digital currency have been around since the 1990s, most of them failed. Cryptocurrency has only been around since 2009, when Bitcoin was invented. Since then the cryptocurrency market has ballooned and there are more than 900 currencies that are currently active.
Thus far, cryptocurrencies are not regulated by any major governing body, making their value fluctuate based off of supply and demand economics. This has also led to their being banned in several countries, including South Korea and China.
Now if you’re worried about how section 1031 issues will affect you and your cryptocurrency, they probably don’t apply to you, and we will be covering them in a future article.
How are Cryptocurrencies taxed
Many individuals are treating cryptocurrencies as they would general stocks, through adding and removing legal currency from the exchanges. There are really two scenarios that can occur; your income will either be taxed as standard income or it’ll be taxed as capital gains income.
Let’s say that you purchased 1,000 Bitcoins in December of 2010 for $0.25 each. You forgot about the purchase until December of 2017 when Bitcoin was value at $19,000 and you chose to sell it making about a cool $19,000,000. Because you have held Bitcoin for over a year your gain is taxed at a Capital Gain tax rate of 20%, meaning that your tax bill sits at around $3.8 million prior to counting in the taxes on your ordinary income.
Now if you weren’t one of the few who purchased it in 2010, and instead you purchased 1,000 Bitcoin in January of 2017 for $775 each. Instead of hanging on to it you also choose to sell it in December of 2017 when the value was at $19,000 so you are grossing $18,225,000. However, because you haven’t held the investment for at least one year, it will be taxed at the same rate of ordinary income, meaning that it will be hit at the top tax bracket of 39.6% before factoring in state income tax as well.
From a tax perspective if you are dealing with high value investments it is always better to hang on to them for over a year so that you are paying Capital gains tax rather than federal and state income tax. If you have any other questions about how cryptocurrency will affect your tax bill contact us at GROCO today.
We hope you found this article about “Bitcoin and your tax bill” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
To receive our free newsletter, contact us here.
Subscribe to our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
Introduction (one innovative approach to treat congenital heart disease ) In this interview, Alan Olsen, CPA, MBA discusses how regenerative medicine can fight congenital heart disease with featured guest Dr. Timothy Nelson, MD, PhD. Dr. Nelson is a general internal medicine practitioner, with a specialty interest in regenerative medicine and the director of the Todd…
Learn how to build and preserve legacy wealth for generations, the American Dreams Impact Legacy Conference! Tuesday, September 19th at 10 AM PST, Don’t miss this online event! Click this link to register for the webinar. 50% discount with the code “DREAM50“ Learn the importance of crafting your family’s legacy with intent, rather than leaving…
In an age where technological innovation permeates every facet of our lives, the intersection of art and artificial intelligence presents a legal and ethical quagmire. The recent ruling by US District Court Judge Beryl A. Howell declaring AI-generated artwork ineligible for copyright has ignited heated debates among artists, tech enthusiasts, and legal experts. Artificial Intelligence…