Bitcoin is a form of digital currency that was developed in January 2009. This follows the ideas of the enigmatic and pseudonymous creator Satoshi Nakamoto, whose real identity is yet to be confirmed, set out in a whitepaper Bitcoin provides lower transaction costs than conventional electronic payment systems, and is decentralized, unlike currencies issued by the government. In the course taxes on bitcoins were imposed and bitcoin tax evasion surged, hence a lot of steps were taken to prevent bitcoin tax evasion from spiking up again.
What Does The Term Bitcoin Refer To?
It is a decentralized virtual currency that can be transferred from user to user on the peer-to-peer Bitcoin network even without intermediaries. In other words, Bitcoin is a virtual currency (also called the cryptocurrency) that has not been funded by the central bank or government of any nation. Bitcoins can be sold to vendors who accept Bitcoins as payment for products or services.
What Are The Characteristics Of Bitcoin?
There are certain characteristics that set bitcoin and other cryptocurrencies apart from other means of financial transactions such the fiat currency. Listed here are some of those unique features.
The Bitcoin network accepts payments almost immediately, it usually takes only a few minutes to obtain the money from someone on the other side of the planet, whereas regular bank transfers can take numerous days.
Bitcoin’s anonymity is just contextual because every single bitcoin transaction ever occurring is stored in the Blockchain. In principle, if your wallet address was used publicly, by careful analysis of the blockchain ledger, anybody can tell how much money is in it. Tracing a particular Bitcoin address to an individual is, however, still almost impossible.
Those who want to remain anonymous with their transactions should take measures to keep themselves below the radar. There are some forms of wallets that emphasize anonymity and stability, but using multiple addresses and not moving large amounts of money into a single wallet would be the simplest method.
Banks know almost all about their customers these days: addresses, credit history, spending patterns, phone numbers, and so on. For Bitcoin, it’s all really different, as the wallet does not have to be connected to any personal identity details.
One of the key objectives when developing Bitcoin was the freedom of the network from every regulatory authority. It is built so that every person, business and every machine engaged in the verification of mining and transactions becomes part of a massive network. Moreover, even if a section of the network falls, the money will continue to pass.
If you give your Bitcoins to someone, there’s no way to get them back, unless the receiver decides to return them to you. It guarantees payment is done so that someone with whom you sell can’t cheat you by saying they’ve never got the money.
Taxes On Bitcoins
As of today, any transaction that includes the purchase and sale of bitcoins will tax you. It is due to the Internal Revenue Service (IRS) claiming that bitcoins will be handled as property and not as cash.
In Notice 2014-21 the IRS also notes that “For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency”. Virtual currency transactions must be subject to gross profit measurement and the value of the digital currency in US dollars on the day of the transaction must be applied.
When the bitcoin is held for less than a year until the exchange, short-term gains will be applied to it and if the bitcoin is held for more than a year, long-term gains will be applied. Any time that a bitcoin holder is part of a bitcoin transaction, he/she is expected to measure the gains and losses thereon. This led to a sudden increase in bitcoin tax evasions, which became a hindrance to the authorities.
Evasion of Bitcoin Tax
Bitcoin tax evasions started rising after the IRS stated that bitcoins and other cryptocurrencies must be viewed as property and not currency, meaning that they are taxable.
In July 2019, the federal government issued warning letters to more than 10,000 taxpayers accused of possessing cryptocurrency, the letter stated that if cryptocurrency holders failed to disclose income and pay tax, they would be highly penalized in those cases and could even face criminal charges. Bitcoin holders are expected to disclose each transaction without fail.
Citizens simply didn’t care much about exposing their crypto profits and would disregard the prevailing law to minimize the chance of an audit and there was a spike in bitcoin tax evasions as a consequence.
Because the laws and regulations in people’s minds were still very vague, a lot of them pled ignorance. If they have issued, sold, bought, traded or gained a financial interest in the form of digital currency, Form 1040, requires them to pay crypto taxes. This is an attempt by the IRS to stop bitcoin tax evasions.
Since the new law has been set up, more work needs to be done, such as estimating the crypto taxes and measuring profits and losses on each bitcoin transaction. To achieve it is a very exhaustive mission. That’s why online tools called crypto- apps are available that help you calculate your bitcoin transaction fee. This bitcoin tax software has aided in reducing the number of bitcoin tax evasions.
Accointing lets you track your crypto portfolio while maintaining a history of any of your transactions so you can print a tax report at any time. It exports your companies in the correct tax format in the USA, UK, Austria, Germany, and Switzerland.
One of Bitcoin’s most popular tax apps, it’s renowned for its user-friendly interface. ZenLedger will help you gather data from virtually all crypto exchanges. It then measures and files the records, including capital gains and losses, profit and loss statements, etc., after collecting the necessary data.
This is the only crypto-tax software that Tax Attorneys, CPAs, and developers created. This offers a full audit record for all their measurement and CPAs or Tax Attorneys can easily verify it in the case of an audit. It quantifies your profits and losses in the most accurate manner. Paying taxes correctly and on time is critical as failure to comply would be seen as bitcoin tax evasion and you will face criminal prosecution.