What do you understand about bitcoin?
A bitcoin is a form of virtual or cryptocurrency that enables you to facilitate secure transfer and encryption.
It is also a decentralized digital currency that facilitates the secure transfer from user-to-user or peer-to-peer bitcoin networks without a central bank, administrators, and intermediaries.
Generation of bitcoins
- As bitcoins don’t connect with any bank, you don’t get them in a printed format. You can only generate them through mining, where advanced computers on a distributed network use open-source mathematical formula for producing bitcoins. To know more about Bitcoin visit bitcoincompass.io.
- Mining the bitcoins would require high-tech hardware and more hours or days. You can either mine bitcoins or purchase them from a bitcoin dealer using different payment modes like cash, credit card, or PayPal account.
- Selling your products and allowing people to make bitcoin payments.
- Purchasing bitcoins using real money.
How does bitcoin impact the global economy?
Unlike flat currency, bitcoins have more flexibility to transfer from one user to another. The purpose of designing a bitcoin is to bring changes to the existing financial system and eliminate finance intermediaries, which strongly affects the global economy. Sometimes, bitcoins also function as an asset or property. Sectors like banking, investment, government, and companies can use them as an alternative method for the global financial system.
Payment of taxes with bitcoins: How are bitcoins taxed?
Like stocks, shares, and bonds, you can consider bitcoins as capital assets for which you need to pay the tax as a property. Hence, more than currency, the IRS treat bitcoins as assets or intangible property.
Now, the regulations consider bitcoins as the most widely circulated digital or e-currency. Though bitcoin is a convertible virtual currency, you can evaluate it with real money. When you make a sale or exchange of bitcoins with its goods and services, it would have tax implications.
Taxation on bitcoins depends upon how you hold and use them. Are you a USA citizen, making transactions through bitcoins? If so, it would be mandatory for you to disclose the bitcoin transactions while filing your income tax returns.
According to reliable sources, every transaction you make through bitcoins would be liable for the tax. So, the bitcoin users and miners should calculate the profit earned or losses incurred each time they buy the products or services.
The difference between bitcoin and other property is that in the latter, you own the property and eventually exchange it for cash through sales. You pay the tax only when you get the returns.
Here are the following tips for using bitcoins to pay the tax.
- IRS levy taxes on bitcoin transactions made for goods & services: Are you an employer making payments through bitcoins? If yes, there you must report your income to IRS via W-2 forms in some of the following ways:
o Convert the bitcoins to US dollars for each payment date & maintain the records.
o Salaries & wages paid through virtual currency is as good as withholding the dollar wages to an extent.
o The employees should file their overall W-2 wages in dollars even if they get them in bitcoins.
o The self-employed or freelancers gaining profits through bitcoin from sales needs to convert them to dollars immediately on the day received and disclose the exact figures on their tax returns.
- Bitcoins held as investments, or capital assets equals an income from the property: Are you keeping bitcoins as a capital asset? Well, in that case, it would fall under the category of property tax. The general tax regulations would apply to property transactions. A gain or loss from stocks or bonds out of sale or exchange comes under capital gain or loss and is taxed accordingly.
- Bitcoin miners should provide the virtual currency report as an income: Some use computer resources for validating bitcoin transactions to maintain the ledger of bitcoin transactions. Are you generating revenue through bitcoin mining? In that case, you would have to determine the fair market dollar value of the virtual currency on the date of receipt and show it in your gross income. If you are self-employed as a bitcoin miner, the allowable tax deducted from your gross income would be your net income, which would fall under self-employment tax.
The rules and regulations for bitcoin vary from one country to another. Some nations take a liberal approach compared to others.
Some countries consider the bitcoin or cryptocurrency investment as personal investments, and they get an exemption from income tax and capital gains.
The United Kingdom (UK) has more stringent rules and regulations. According to the sources, you need to pay tax on the income acquired from capital gains on each cryptocurrency sale.