Cryptocurrency and taxes – essential facts to know

The majority of investors think that cryptocurrency is not the future of the money, but a very lucrative form of investment. In the recent years, one of the most visible and one of the most popular cryptocurrencies has become a Bitcoin, and we can surely say the oldest one, considering it first emerged on the market in 2009. Considering that Bitcoin is still young, it has made a remarkable progress and managed to score a massive profit. As the price of Bitcoin has risen in the past years, many investors are thinking about opening retirement plans.

How to make a purchase?

The entire process of buying cryptocurrency is still unclear to a lot of people. This is not a traditional stock market and for most people living in the U.S., using the Coinbase would be a logical step when purchasing cryptocurrencies, such as Bitcoin, Litecoin, and Ethereum. One the investor verifies his account, he will be able to add different payment methods, including credit and debit cards, bank accounts and wire transfer. It is essential to keep in mind all cryptocurrencies are transparent, and they can be tracked to a real-world identity.


The process of mining

Having in mind that Bitcoin is a cryptocurrency, it is generated through the process of mining. In this case, the investor uses his computer and its processing power to solve the advanced algorithms, which are known as a block. If you are interested in this type of investment, you can buy Bitcoin like any other physical currency and later trade with it, converting it to U.S. dollar or other currencies. Basically, this is how money is made.


From the federal income tax opinion, Bitcoin and other mentioned cryptocurrencies aren’t considered as currencies. But, based on a Notice that IRS issued in 2014, virtual currencies are regarded as property for the U.S. federal tax purposes. In this case, if an investor sells or buys cryptocurrencies, the IRS considers it as a capital asset, regardless whether it’s short – term or long – term asset. Based on this, investors are required to pay 15% of 20% tax rates, based on income.