So you’re active in the digital currency space. You buy goods on overstock.com, airfare on expedia.com, and you’ve managed to convert bitcoin into litecoin. You love how fast and easy it is to transmit value and you’re a true believer. But are you forgetting something?
Taxes. With the IRS ruling earlier this year that bitcoin would be taxed as property along with the whole gamut of capital gains treatment, keeping a ledger of your bitcoin activity is crucial if you hope to stay compliant with Uncle Sam.
The first thing you should be doing is recording everything. Keep a record of your transactions in addition to the buy and sell prices for when you exchanged the digital currency for goods or other currencies. While your wallets should have records of your purchases and transfers keep your own personal ledger until you can confirm the integrity of the data.
Secondly, loop in your accountant. They probably know about as much about bitcoin as the average joe schmoe on the street, however, they might surprise you. We also recommend securing an accountant for tax help in general – seriously, let the professionals do it when it comes to the IRS. If your accountant doesn’t know how to handle bitcoin you can do a simple google search to find a service that does bitcoin taxes. Trust me, it’s worth paying a premium to do it right the first time rather than face an IRS audit…you do NOT want to be subject to their merciless ways.
Lastly, do not, and I repeat DO NOT, try to cheat the IRS. You will not win and they will find you out. If not sooner, later it will happen. Compliance with the IRS is not an option if you are seeking financial freedom and prosperity. While that last statement may seem counterintuitive, the fact is that the IRS is one of the most powerful institutions in the world and you do not want to mess with them when it comes to taxes. They will destroy all your best laid plans in a heartbeat.
In conclusion, don’t think that your bitcoin use is your passport to a tax free lifestyle. Some day it might be (if you leave the country), however, if you are a citizen and live within these shores its in your best interests to be compliant with the Taxman if you want to live to fight another day.