Bitcoin has been making quite a name for itself lately; the cryptocurrency has ridden a global tide of media coverage for the past few weeks, and its valuation has rapidly fluctuated following serious investor interest in its future. Bitcoin and other cryptocurrencies remain mired in controversy, however, and many of Bitcoin owners are starting to ask themselves if they should be worried about the IRS.
As a matter of fact, Bitcoin owners should be considered when it comes to dealing with the IRS and other governmental agencies, and for good reason. As a quick analysis shows, the cryptocurrency boom has invited serious governmental scrutiny into Bitcoin’s future, and the crypto-king may soon be dethroned if regulators go in for the kill.
Troubled waters for Bitcoin
It goes without saying that, regardless of all of the press coverage its enjoyed recently, Bitcoin’s found itself in some seriously troubled waters. After the currency’s valuation underwent a huge plunge, it’s been steadily climbing back towards its old heights, but many investors remain doubtful of its future. Increasing talks of a Bitcoin-ban have many traders worried, for instance, and others are unsure of how seriously the US government and other regulatory actors will crack down on it.
Rumors that the IRS fears bitcoin, for instance, have recently made international headlines, and many Bitcoin owners are entirely unsure of how much – if at all – they owe the IRS when it comes to counting up their digital fortunes. There are few things the federal government despises more than the loss of valuable tax revenue, and the same alluring, encrypted nature that drove so many towards Bitcoin could ultimately prove to be its downfall if regulators crack down hard on the fledging digital currency.
Even if the worst fears are grossly overblown, however, and no state or agency moves to ban Bitcoin in a move that could set international cryptocurrency markets scrambling, its likely we’ll see changes to how cryptocurrencies are their profits are governed in the immediate future. While the IRS has already issued “virtual currency guidance” to the public, it’s likely we’ll see a more serious tone be struck in the future, particularly after regulators realize just how much value rest in these digital tokens.
For instance, it’s not a particularly big deal that some wages are currently paid in Bitcoin; it’s not particularly common for workers or employers to use Bitcoin on a regular basis, for instance converting Bitcoin to Euro, and it’s certainly not a common practice to regularly get paid by receiving digital currencies. This may not be true forever, however, and wages paid via cryptocurrency are very much taxable, meaning those who seek to skirt the rules in the future and avoid their taxes via Bitcoin may soon have governmental inquisitors breathing down their neck.
Virtual currency in the future
Most Bitcoin owners should prepare themselves know by brushing up on common virtual currency tips so they’re not caught off guard in the future, when cryptocurrencies become much more commonly accepted and densely regulated. You should be keeping careful financial records if you’re regularly using Bitcoin to get paid, for instance, and understand that Bitcoin can and must be treated as legal property for tax purposes when it comes to holding it as a capital asset.
Perhaps the gravest danger facing Bitcoin owners presently is that so few of them report the receiving of digital currency as income. Even Bitcoin miners, who are responsible for much of the grinding that goes into making our crypto-dreams a reality, seldom compile comprehensive ledgers detailing their financial history. If accountants at the IRS get wind of this, and you’re a particularly big fish with lots of digital currency floating around, your head may end up on the legal chopping block.
While the IRS is presently only interested in those Bitcoin accounts with larger valuations, that will soon change. Currently, Bitcoin accounts with more than $20,000 are the only real target in the IRS’ sights, but that number is sure to dip as the owning and using of digital currencies becomes more commonplace. Tens of thousands of Bitcoin owners who are now under government scrutiny could rapidly become hundreds of thousands, or even millions, if the cryptocurrency gains as much mainstream traction as many of its leading proponents are claiming it will.
Don’t make a stupid mistake that comes back to haunt you for years; owning Bitcoin is a thrilling investment experience, but can and should be done safely. Take your encryption seriously, but also keep thorough financial ledgers detailing your transaction history, particularly if you’re a big owner who could find the IRS sniffing around your accounts in the forthcoming years. Bitcoin may be here to stay, but the regulators governing it are just arriving, and Bitcoin owners should keep them are the forefront of their conscience during future transactions.
Cost accountant with major focus in SAP/General Fund Enterprise Business System (GFEBS). Also, main functional inspector for accounting/finance audits for internal reviews as well as the Statement of Budgetary Resources audit initiative.