As Bitcoin and other cryptocurrencies continue to grow in popularity the number of questions about them grow, too. For example, how do cryptocurrencies work with taxes? There are all kinds of questions regarding taxes and digital currencies and the answers aren’t always plain and clear. But if you happen to own digital currency and you plan to use it, then you need to know the answers to some of these important questions. For example, can you transfer Bitcoin without triggering taxes?
Yes, there are ways to transfer Bitcoin without setting off taxes. But things are changing regularly so make sure you stay up to date. For example, crypto no longer falls under the 1031 tax-free change.
However, there are still some ways to transfer it tax free. Let’s look at a couple of them.
Giving Crypto As a Gift
What if you want to give someone the gift of crypto? Is that even a thing? In this new evolving crypto economy, gifting someone crypto is definitely a real thing. So, can you give crypto as gift and avoid triggering taxes? The answer is yes. In fact, neither the donor nor the recipient is charged any income tax. But, it has to really be a gift or the IRS will charge income tax.
It also must be below the $15,000 gift threshold or you have to file a gift tax form. You still might not have to pay tax on it, but you do need to fill out the form. Additionally,if the recipient decides to sell or transfer the gift then he or she would be subject to income taxes.
Giving Crypto to Charity
So what if you want to give cryptocurrency, like Bitcoin,to a charitable organization? That can be a very smart tax move that can lower your tax bill.Bitcoin is treated like appreciated property in this case, so it can be a great deduction. For example, if you donate you crypto to a qualifying charity you should expect to receive the full market value of an income tax deduction.
Your deduction amount would be the value of the donation when you made the donation. So, even if you paid $1,000 for theBitcoin when you bought it, if it’s worth $5,000 when you donate it, you get a $5,000 credit. Plus, you don’t have to pay tax on the increase in value, which is considered a capital gain.That’s why donating appreciated property is such a good deal. That’s also why many wealthy people use this method to donate to charities.
The IRS Is Watching Closely
With all the hype surrounding cryptocurrencies, the IRS has also taken notice. The agency is watching closely and keeping tabs on any improprieties. That means you can’t afford to take your crypto transactions lightly. The IRS certainly won’t. So make sure you know the laws and how to avoid triggering the IRS’s suspicion. If you need more help with your taxes in regards to crypto thencontact us at GROCO.