If you’ve ridden the bitcoin rollercoaster for over a year, you’re probably feeling pretty good about your choices right about now. Prices for the cryptocurrency are up seven times the price of what they were at this time last year, which makes for a seemingly massive windfall for anyone who rode the waves of uncertainty this long.
Even though you might be sitting on a tidy sum of cash, don’t forget about Uncle Sam’s share. You do owe taxes on your bitcoin profits, so keep reading to learn three tax tips that you need to know when it comes to you, your coin and your cash.
If bitcoin isn’t your cup of tea, click through here for high-risk, high-return alternatives to bitcoin.
Tip No. 1: Treat Cryptocurrency as Property
Bitcoin, as well as other cryptocurrencies, are classified by the IRS as “virtual currency,” which is a type of property. What does that mean? Even though many see cryptocurrencies as actual currencies, the IRS does not — meaning for purposes of paying taxes, it’s no different from a stock, bond, stamp collection or car.
Tip No. 2: You Don’t Owe Until You Sell
Until you liquidate it, your asset’s value increase doesn’t affect your wallet or your bottom line.
Much like a baseball card collection, just because it’s collecting value in your basement doesn’t mean you’ll be forced to pay up on it. But be warned: When you do decide to cash out and take your coin, you’ll be giving a tidy sum to the tax man.
Tip No. 3: Don’t Try to Stiff the IRS
Even though cryptocurrency mining is the latest trend, the IRS is totally in the know about the practice — and has defined and classified it as such.
The IRS defined cryptocurrency as capital assets, which makes it relatively easy for traders and miners alike to stay on top of what they might owe. Be sure to do just that so you’re not stuck with a whale of a tax bill.
Click through to keep reading about all the surprising things you can buy with your bitcoin.