Bitcoin and other cryptocurrencies may have made great gains over the past few years, but just because they’re new technologies doesn’t mean that investors are exempt from paying taxes on their gains. However investors still lack certainty on many of the tax ramifications of various cryptocurrency transactions. Aside from a single document in 2014 stating that investors owed taxes on their gains, Bitcoin investors have largely been left in the dark. But that may change soon as the Internal Revenue Service (IRS) is set to issue new guidance on cryptocurrency taxation.
In a letter to Congressman Tom Emmer (R-MN), IRS Commissioner Charles Rettig stated that the agency is working on new guidance to clarify for Bitcoin and cryptocurrency investors what their tax liability may be. Among other things the agency is working on are the methods for calculating the cost basis for cryptocurrencies and the tax treatment of cryptocurrency forks. The latter is particularly important for Bitcoin investors, as Bitcoin has undergone numerous forks that have resulted in many investors holding cryptocurrencies such as Bitcoin Cash, Bitcoin Gold, and Bitcoin SV in addition to their Bitcoin.
As for a timeline, the IRS only was able to say that this guidance will be issued “soon.” That’s a little late for investors who may have already booked gains over the past five years and who have been left in the dark as to how to calculate the taxes they owe. We can certainly hope that IRS will be understanding towards many of those investors, given the fact that the agency has dragged its feet on this issue.
This is just one more advantage that Bitcoin IRAs have over other methods of cryptocurrency investment. Because IRAs are exempt from taxation until it comes time to take a distribution, Bitcoin IRA investors haven’t had to deal with these thorny taxation issues. They can continue making gains and won’t have to worry about taxes until well after the IRS issues its final guidance on cryptocurrency taxation. So if you want to profit from cryptocurrencies but are worried about falling afoul of the IRS, it’s worth looking into investing in a Bitcoin IRA.