Cryptocurrencies evolved into what they are today when the pseudonym of Satoshi Nakamoto explained it in a white paper back then in 2008 and was eagerly launched on the first month the year after, 2009.
What is Cryptocurrency
Cryptocurrencies are representations of value in the digital form which is a type of virtual currency that is also a means of exchange for trading or for goods and services. The federal government do recognize cryptocurrency but instead uses virtual currency to cover all forms of digital money.
The Internal Revenue Service (IRS) has even extended the meaning of the phrase virtual currency where a type of it would be convertible virtual currency. This happens when such is converted to any physical, real money such as a US or Canadian Dollar or a Euro.
The name cryptocurrency is both discreet and revealing by its nature where some might get the impression that it is an irony, but it is not. It is discreet that it does not interfere anything or anyone at all. It is revealing because of the prefix of its name, crypto.
Since from the very start with Satoshi Nakamoto who set up the first modern cryptocurrency architecture, Bitcoin, they all have been and still are using cryptography to hide all data in a very secure manner. It is closely monitored for its future performance even at this very moment.
Cryptography has been around since man started to think of the world around him. It is there in the art and works of Leonardo da Vinci, the Sumerian texts, the Egyptian pyramids, and the nefarious Enigma Machine of then Nazi Germany.
Combined with intricate mathematical algorithms, complex engineering laws, and a deep but portable computer language, cryptocurrency is still a work in progress despite what it has achieved so far.
When Does Taxation Happen for Cryptocurrency?
The IRS, in a 2014 Notice, treats cryptocurrency as a property of an individual or a group of individuals. Hence, principles and guidelines for tax applications on property transactions also apply in exact manner to virtual currency transactions.
Virtual currency is no more different than stocks, real estate, bonds, and investments; it is a property. When your property (as in bonds, or stocks, or shares) grows, you have a taxable capital gains. When your property (the same bonds, stocks, or shares) diminish, you have a taxable capital loss, though deductible.
If you intend to sell your house and the lot it is on, then the proceeds of the sale, within the year that it occurred, will be a taxable capital gains. In the previous three situations, virtual currency, including cryptocurrency, is treated in the same fair manner of tax law.
With the relatively new IRS Cryptocurrency Notice of 2014, one does not discount the possibility that there might be just another revision around the corner. It is best to be updated as much as one can with regards to IRS on cryptocurrency subject.
H&R Block can provide you with detailed information with regards to your tax liabilities on your cryptocurrency trading or mining. A short call to their office or a visit to their website will be a great help to your tax complexities and unburden you of the load.