The IRS wants Uncle Sam's cut of the multi-billion appreciation in bitcoin and other cryptocurrencies, and it has gone to court to get it, requesting records from CoinBase--the largest exchange for bitcoin. And the courts have granted the IRS' request. We are recommending to our clients that if they hold cryptocurrencies that they report gains and losses on Schedule D of their Form 1040 to avoid eventual sizable back penalties and interest.
There is little question that part of the floor under bitcoin's rapid rise is its ability to avoid tax reporting--a side effect of the anonymous nature of cryptocurrencies. But the bubble in the rise of value of non-fiat electronic currencies is drawing the attention of governments worldwide, and along with it their tax collectors. Protect yourself with proper reporting and enjoy those big returns without worry. And remember than any downside is only deductible against other profits or at a limit of $3000 per year without any offsetting profits.
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