No doubt, many are making insane profits in cryptocurrencies and will continue to do so in the months and years ahead.
Today, Bitcoin is trading at $14,084.00! Exactly 24 hours ago, it was trading at $11,931,00! Up $2,153.00 in 24 hours! Wow! I am smiling more today. 🙂
But, I know that Bitcoin will drop and then go back up (even stronger). So should you. Remember, volatility in cryptocurrency is high. Lesson: Hold on to your Bitcoin for the long-term and DO NOT sell if the price drops.
Many Bitcoin investors a few weeks ago when Bitcoin was trading at $10,000 had begun cashing out their Bitcoin. Not a good idea. Why?
Bitcoin windfall is taxable. The IRS – our best friend – considers cryptocurrency profits as capital gains. For most middle-class Americans it is 15%. This does not include what your particular state will assess in local and state taxes. (Texas, Nevada, South Dakota, Florida, Tennessee, New Hampshire, Wyoming, and Washington have no state tax)
Depending on the amount of Bitcoin (or other cryptocurrencies you own), you could find yourself in a higher tax bracket. So, if you have really large gains, you do not want to sell ALL of your Bitcoin in the same tax year. Why?
Because selling – cashing out – almost always mean transferring your Bitcoin to your bank account. By law, banks are required to report deposits larger than $10,000 to the IRS. (This is crazy, incredible, untenable, or any other adjective you can think of! Yes, banks are not our friends. They are snitches and agents of the “Big Brother” Federal Government. That is precisely why Bitcoin was created, to stop this nonsense).
I personally believe that banks will report to the IRS amounts less than $10,000. You will never know because the banking system is a closed system. There is nothing transparent about them. They control YOUR money. In reality, YOU should be in control of your money.
The Safest Course of Action
Report and pay taxes on your Bitcoin gains. If you have to sell (cash-out) your Bitcoin, set aside 15% – 30% to pay the IRS. (DO NOT TRY TO CHEAT THE IRS)
If your Bitcoin gains are significant, I recommend hiring an Accountant to manage your gains and file your taxes.