Crypto Tax Obligations
Are you wondering if you really need to pay Bitcoin taxes, especially if you only made a very small profit? We believe it’s better to be safe than sorry! Although the chances of an audit may be slim for extremely small amounts, the IRS has made it clear that it is serious about crypto tax.
Here are some scenarios to consider:
You sold Bitcoin
In the simplest terms, if you sold Bitcoin, it is now considered a capital gain or loss. If you sold the Bitcoin for a profit, it is a capital gain. In this case, you will likely owe the government money. If you sold the Bitcoin at a loss, it is a capital loss. In this case, you will be eligible for a deduction.
You bought Bitcoin
This may be the only scenario where you do not need to report your purchase with the IRS. If you purchased Bitcoin and then maintained that holding, you will not owe Bitcoin taxes on the transaction or the currency itself.
You paid for a service
The exact tax status of the payment will influence the forms you need to file. If you paid an established employee, this falls under the scope of a W-2. On the other hand, if your business employed a contractor and paid in cryptocurrency, you must issue a 1099.
You have been paid in cryptocurrency
Unsurprisingly, you must report this on your return. According to current crypto tax regulations, you are obligated to treat your crypto income exactly as you would with regular income. As with fiat currency, your federal tax rate will then vary based upon income bracket.