At Tax Time, Don’t Forget Your Bitcoin Gains

It’s important to mention that because bitcoin is considered to be property, every bitcoin transaction is potentially a taxable event. Of course, if you buy a bitcoin for $3,000 and sell it for $4,000 a few weeks later, the tax implications are pretty clear. On the other hand, if you regularly use bitcoin to purchase goods and services, it can be much more complicated. For example, if you buy a $10 lunch with bitcoin, and that bitcoin originally cost you $9, the dollar in profit is technically a capital gain. Therefore, to ensure that you’re fully tax-compliant, it’s important to keep accurate records. Whenever you acquire bitcoins, record how much bitcoin you purchased and the exchange rate you paid (in U.S. dollars). Then, when you dispose of bitcoin, either through a sale or by making a purchase, be sure to record how much bitcoin you spend, as well as the exchange rate at the time the disposition took place. A record-keeping system like this can make your life much easier at tax time. And, since not every bitcoin transaction is likely to be profitable, good records can make it easy to calculate your net, or overall, bitcoin profit for a particular time period.