Tax season is once again upon us, and like last year, we have no excuse to ignore Bitcoin.
It was nearly one year ago that the U.S. Internal Revenue Service (IRS) came out with its rules for treatment of digital currencies like bitcoin. Virtual currencies are to be treated as property, not currency, much to the dismay of many Bitcoin fans. In addition to the ideological blow, those who scored big on bitcoin’s monumental rise in 2013 were on the hook for capital gains.
Last year, it was a different story. Most investors lost money on bitcoin, the silver lining being that they can claim capital losses for a lower tax bill. In the U.S., you can claim up to $3,000 in capital losses each year. The amount can be counted against other income, lowering the overall tax obligation. This assumes you disposed of the loss-bearing assets in question at some point during the fiscal year.
Trading Places: Finding The Best Jurisdiction for Your BrokerageGo to article >>
The benefit is more advantageous than in other countries such as Canada, where capital losses can only be credited against capital gains.
Some (or most) bitcoin holders may have more complicated scenarios. Those who bought 3 bitcoins at $150 and then spent some at a coffee shop when they were $600, sold others at $445 and then spent more at $220 may find LibraTax’s dedicated bitcoin tax solution useful. It was launched last year, geared toward individuals and small businesses looking to simplify the process.
The software connects to your specified transactions on the blockchain, or allows you to upload a spreadsheet, from where tax calculations are automatically calculated. The user just needs to know how to classify transactions between purchases, gifts, income or transfers, and choose how the cost basis of inventory is determined: FIFO (first in, first out), LIFO (last in, first out), average price or “Libra-Optimized”.
The above is among several pointers LibraTax has offered as we get deeper into tax season. The company says to have also set up integrations with several exchanges/wallets to import transactions automatically. These include Coinbase Blockchain.info, BTC-e, Bitstamp and BitGo.