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Investors Face Hefty Taxes on Cryptocurrency Purchases 4 1280

Lately, it feels like there’s never any good news to come out of the crypto community. And the rollercoaster ride for so many US investors is about to take another dramatic drop. The latest monkey wrench in the works comes in the shape of the taxman, with the IRS enforcing taxes on cryptocurrency purchases.

The Internal Revenue Service announced that all goods bought using Bitcoin, or any other digital currency, would be taxed as capital gains. What does this mean for crypto owners? That if they bought or sold anything that might have capital gains using cryptocurrency, they will have to report them to the IRS.

But What About the Volatility?

Once again, the pesky little issue of price volatility raises its ugly head. How, for example, is it possible to calculate taxes owed on a past purchase, when Bitcoin value went from less than a dollar in 2010 to just shy of $20,000 at the end of last year, and back down to around $8,000, at latest check?

The taxman is not taking these fluctuations into account. And unwitting investors are exposed to tax bills that their digital stashes can no longer cover.

Taxes on Cryptocurrency Purchases

Earlier this week, a Reddit user posted an entry entitled “I just discovered that I owe the IRS $50k that I don’t have, because I traded in cryptos. Am I fu**ed?” Which sparked a flurry of nerves and backlash within the crypto community.

The contributor reported a tax liability of $50,000 on some trades he had carried out with $120,000 of Bitcoin — which now has a value hovering around $30,000. “I feel like I might have accidentally ruined my life because I didn’t know about the taxes,” he lamented.

Not Operating Outside the Tax Authorities

Many cryptocurrency investors believe that the system operates without government and financial institution oversight. This, up until now at least, may be true. However, US tax authorities still regard cryptocurrency as a property and not a currency. This means that many investors may face hefty taxes on cryptocurrency purchases and exchanges. And some other nasty surprises, as well.

To be fair, it’s currently a little confusing, seeing as crypto-brokers don’t legally have to issue 1099 disclosure forms on digital currencies. These are the forms used to report any income other than wages or bonuses.

But there’s a caveat. Individuals are still responsible for reporting any and all gains to the IRS. And in the cryptocurrency community, individuals are responsible for their own worth.

Court Intervention

Last November, Bitcoin trading platform Coinbase, was ordered to turn over information on all accounts worth $20,000 or more, during 2013 to 2015. The ruling was concluded by a US district court judge in California.

This case came about after the IRS found that only around 800 taxpayers had claimed gains made with Bitcoin during that time. The Coinbase agreement only affects some 10,000 accounts, though, and does not extend to the original 480,000 accounts first requested by the IRS.

The lesson? Not reporting gains to the IRS is tax evasion. And tax evasion isn’t good.

It Gets Worse

The ruling of capital gains is not the only complication when it comes to cryptocurrency investors and the IRS. It’s a lot more complicated than that. Say an investor sells some cryptocurrency after a year of holding it. The profits would be considered long-term capital gains. Moreover, losses are not deductible against any future tax years to come.

The problem is that many accountants don’t understand, or aren’t willing, to get to grips with taxes on cryptocurrency purchases.

Investors are unaware that there are so many ways in which the IRS can come back to bite them. A simple transaction, such as using Bitcoin to buy Ethereum or Litecoin, for example, is taxable.

Moreover, when you use your cryptocurrency to buy something, it’s not only sales tax that you’re liable for. You’re purchasing a property that is denominated in dollars and if you then exchange that, there is a tax liability. So, be sure to keep it in mind before you forget to declare your earnings.

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Christina is a technology and business communicator who has worked with high profile ICOs and blockchain influencers to break industry news.

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Why Is Everyone Talking About NFTs? Comments Off on Why Is Everyone Talking About NFTs? 667

In this writer’s opinion the NFT hype is warranted — but not for the reason most people are investing. 

For those who’ve been in the space since Bitcoin’s early surge, you’ll remember the Initial Coin Offering (ICO) boom of 2017. The crowdfunding vehicle, which mirrored an IPO on the public market, brought with it massive amounts of investment into the blockchain space that seemed to mirror Bitcoin’s rapidly increasing value. 

In retrospect, none of it made sense. 

With all the hype, the investment in the space didn’t match due diligence. As of August 2018, investors had lost nearly $100M in ICO exit scams, a major reason we no longer hear about ICOs. 

From there, crowdfunding through token sales was rebranded alongside SEC regulation as Security Token Offerings (STOs). Additional fundraising iterations to enter the scene are Initial DEX Offerings (IDOs) and Initial Exchange Offerings (IEOs).

NFTs are having a similar moment to the immature and potentially reckless ICO market of 2017. The danger can be credited to a mix of hype and a widely unregulated environment with various points of entry and gatekeepers that are not incentivized to shore up fraud. 

As a result, many purchasers of NFTs are falling victim to a spectrum that spans undeserving projects on the mild end and outright scams at the extreme. Meanwhile, hackers are exploiting the unregulated environment. 

Just yesterday, $3 million in NFTs were stolen via an Instagram phishing scam. 

This writer, however, is still bullish on NFTs — just not the ones that are getting all the attention.

NFTs represent a concrete entry-point into the blockchain with a tangible utility and infinite disruptive implications. 

Here are a few.

Digital Assets as Social Proof 

As a Millennial, I personally have a hard time understanding the notion of owning and assigning value to a digital asset, but my kids don’t. 

I’ve written about how Gen Z has already adopted the concept of social proof in digital environments by assigning socially relevant value to digital assets like video game skins. 

As Gen Z ages and becomes an increasingly powerful consumer population, this experience will matter. Whether or not their purchase behavior translates to adulthood remains to be seen, but our kids are already leveraging digital assets in the metaverse to exhibit their position in the social hierarchy in the same way that my generation assigned value to Jansport-brand backpacks. 

Their concept of digital assets will be fundamentally different from ours, and NFTs are likely to benefit. 

But Why Are NFTs Relevant to Me Now?

Social proof is far from the most interesting use case for NFTs. 

In the near-term, NFTs can be utilized to store sale information of physical goods on the blockchain in order to eliminate nefarious actors in fraud-riddled industries like fine wine and art. 

Moreover, NFTs can disrupt any industry with a substantial secondary market. By coding royalties into the smart contract of NFTs, original sellers of wine, art and other trade-susceptible brands and industries can ensure they’ll capture a fee anytime an item is transferred. 

This solves a major problem for creators like photographers, artists and musicians that are notoriously underpaid in comparison to the value they create for brokers. It also has the potential to cut out middlemen like auction houses, record labels, and galleries to democratize the creator economy. 

Other Innovators Have Introduced Creative Use Cases for NFTs

Gary Vaynerchuk utilizes NFTs as tickets for events and other value-adds to his community. Forbes introduced a series of NFT Billionaires that will update alongside the real-time NYSE to gamify their user’s NFT experience in a way that’s brand-relevant. Foxies.art is using a gamified version of NFTs to fundraise blockchain education for women. 

The utility of NFTs is confined only by the imagination of our innovators. Whether or not NFT headlines today will remain relevant is yet to be seen, but one thing is certain: the disruption is only beginning. 

Fidelity to Offer Bitcoin in 401(k) Retirement Plans Comments Off on Fidelity to Offer Bitcoin in 401(k) Retirement Plans 49755

The move is the first for a major retirement plan provider and may signal more widespread adoption of the cryptocurrency. 

On April 26, Fidelity announced its intention to add a Bitcoin investment option to its 401(k) retirement plans. Employees of businesses that pursue the option will be able to allocate as much as 20% of their contributions to Bitcoin, all from the company’s main investment dashboard. According to reporting by the Washington Post, Fidelity said that at least one employer has already signed up for the option which will launch later this year.

“Fidelity’s leadership, especially CEO Abby Johnson, has been at the forefront of institutional Bitcoin and crypto integration for years and is no stranger to the space, with Fidelity’s private equity and venture capital arm being a major source of capital for crypto miners, crypto SPACs, crypto hedge funds and more,” says Eric Lamison-White, Director at STS Capital Group LLC, a cross-border advisory and investment firm. “It is completely in character for Fidelity to steadily and cautiously extend access to their working class customers as the regulatory climate becomes more productive.”

Critics suggest that the volatility of Bitcoin poses an unnecessary risk to a retirement portfolio. It’s a reasonable argument. At the time of this writing, the cryptocurrency’s price has fallen by more than 6% just today. Meanwhile, at $37,978 it’s a far cry from Bitcoin’s high of $68,000, representing more than a 40% drop since November 10th of last year. 

However, advocates of cryptocurrency’s long-term utility disagree.

“Cryptocurrency is a reliable, long-term store of value because it cannot be corrupted by central authorities,” says Lisa Carmen Wang, founder of The Bad Bitch Empire, a platform for female investors in web3. “We’ve already seen hyperinflation, bank failures, and other egregious disasters happen in the last few years, so trust in governments is at an all-time low. Crypto is inevitably volatile now because it is an early stage high-risk/high-reward investment, but for those who believe in the values of a decentralized economy, crypto is an attractive long-term investment that people should consider having in their portfolio.”

Regardless of your appetite for risk, the notion that savers will be able to easily manage contributions to Bitcoin in a respected retirement plan is meaningful.

As of last year, 63% of US adults that did not hold crypto were curious about it. Many people in the crypto-curious category don’t invest because they simply don’t know how. There’s a technological barrier to entry that can feel daunting. 

When you have major retirement plan managers like Fidelity making it easy to add Bitcoin to a portfolio through a dashboard users are already familiar with, we may see this group start investing in the asset class, moving digital currencies further along toward mainstream adoption.

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