Tax Expert Daniel Winters Talks About How Bitcoin Impacts Taxpayers
Bitcoin and other types of digital currency continue to rise in popularity. Now, there are questions being raised about tax enforcement, especially in regards to how tax treatment guidelines will impact digital currencies. Some analysts believe that tax monitoring systems are causing problems. People who are compensated through cryptocurrency and those who invest in it are seeking answers.
Recently, tax expert Daniel Winters gave his thoughts on the issue. Winters’ firm Global Tax Accountants is unique because it looks at the long term consequences of blockchain transactions. Winters is a such a big believer in bitcoin that he changed his practice around to fit into the blockchain market. Winters has a long list of clients, and has made presentations about cryptocurrency all over The United States.
Winters says that bitcoin is a form of virtual currency. The Internal Revenue Service treats cryptocurrency as property that is similar to stocks and bonds. If you purchase cryptocurrency, you can receive a gain or loss if you attempt to sell it. The market determines the value of cryptocurrency. Winters notes that because cryptocurrency is not recognized by different governments, it only serves as currency in the electronic world.
Commodity Futures Trading Commission & The IRS
The IRS does not recognize cryptocurrency as global currency. Global currencies are classified differently. The IRS consulted with FinCen to create an official definition of virtual currency and its impact on taxpayers.
Winters says that a lot of misinformation has spread as a result of The Commodity Futures Trading Commission regulating derivatives. The CFTC recognizes blockchain as a commodity. The CFTC regulates financial products. Winters explains that a derivative is a contract that is tied to the value of something else. The CFTC recognizes blockchain as either a derivative or a futures contract.
A Futures contract allows people to complete a transaction for a set price in the future. The contracts were designed to assist farmers. People can purchase derivatives for assets such as cryptocurrency. Winters says that The CFTC is now regulating blockchain contracts.
Winters says that when looking at the section for cryptocurrency on a tax return, income and any capital gains as a result of the transaction must be noted for tax enforcement. Any sales are treated like stock sales, which are subject to tax rates. The exact tax rate depends on if the transaction was a long term sale or a short term sale. To figure out the capital gain, subtract the purchase price of the cryptocurrency from the sale price. The purpose is to find the fair market value.
Crypto Tax Enforcement
Taxpayers should keep in mind that revenue impacts the dollar value of the cryptocurrency that the business receives each day. Businesses can cut their revenues if they are in mining. It does not matter how the expenses are paid. Winters notes that the IRS mandates that contractors who receive cryptocurrency are subject to the 1099 reporting rule. If you are a W-2 employee and you are compensated with cryptocurrency, the IRS states that the dollar value of the wages must be added to tax documents. Winters says that the IRS is aware that many people fail to properly report their virtual transactions. To help with this issue, the IRS has created a team to figure out if cryptocurrency is used for tax evasion. Winters says that it is important for people to keep good records.