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Bitcoin taxation: Things you need to know

Amidst the widespread discussions on the fall of Bitcoin and its possibility of a rebound, something that gets buried is the tax implications on the purchase or sale of cryptocurrencies. Will it come under the foreign currency head or property head? This has been a major dilemma for many digital currency investors.

Bitcoin has undoubtedly revolutionized the  payment system. Some retailers have started accepting Bitcoin as payment; elsewhere, it is being paid to employees while a major lot holds them as capital asset. As per a clarification, convertible cryptocurrencies are subject to tax by the Internal Revenue Service.

According to the clarification, employers who are paying their employees in Bitcoin need to convert its value into US dollars as of the date of each payment made. Employees are also required to convert Bitcoin value to US dollars when filing tax returns.

When Bitcoin is used to pay for goods or services, the transaction is taxed as income. It is taxed as property when Bitcoins are held as capital assets, in turn leading to capital gain or loss. Bitcoin miners will be taxed under the income head.

Bitcoin futures contracts began trading on the Chicago Board of Exchange on December 10, 2017 and on the Chicago Mercantile Exchange on December 18, 2017. Brokerage firms like TD Ameritrade and JP Morgan have also expressed their interest in allowing access to these markets.

Investors who are on lookout for exciting opportunities associated with the trading of Bitcoin futures should consider the complexities surrounding tax treatment before doing so.

When Bitcoin is used to pay for goods or services, the transaction is taxed as income. It is taxed as property when Bitcoins are held as capital assets, in turn leading to capital gain or loss. Bitcoin miners will be taxed under the income head.

On February 6, 2018 Bitcoin approached three-month lows on concerns over various governments’ and banks’ intent to crack down cryptocurrencies. This follows warnings by regulators in the US, South Korea, China, Russia and India. France is willing to accept cryptocurrencies, but under strict rules and Germany’s Bundesbank has called for its global regulation.

Earlier, cryptocurrencies had tumbled after Facebook banned their advertisements.

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