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Crypto News Updates

How Bitcoin Improves Financial Access And Inclusion

Bitcoin is, for many, the first opportunity to store wealth in a safe and secure manner, without outside manipulation.

El Salvador’s decision to use bitcoin as legal tender in their country was recently celebrated by bitcoin HODLers around the world. Yet the International Monetary Fund (IMF) quickly expressed concerns about the legality of doing so. Was this simply a matter of traditional financial institutions guarding their fiat turf from bitcoin, a digital asset they don’t understand? How can bitcoin and its blockchain technology facilitate financial inclusion and benefit 1.7 billion unbanked people throughout the world?

While the pandemic greatly accelerated the digitization of assets as stores of value, it also hampered the ability of traditional regulatory and legal bureaucracies to match the pace of bitcoin’s rapid evolution into the premier digital asset of choice. Understandably, those in control of the legacy banking system have cause for concern, since Bitcoin’s decentralized ledger exists outside the control of the traditional international financial system. Computer code runs to validate peer-to-peer trustless relationships that extinguish the need for a bank’s existence. Bitcoin is a digital asset that is more nimble and better designed to meet the needs of unbanked people than the old institutions that failed them. While many of us will use traditional banks in the foreseeable future, Bitcoin has undeniable societal benefits that increase financial inclusion.

First, bitcoin is useful for remittances and can act as a quasi bank for the unbanked. Reducing both transaction fees and times vastly improves cross-border payments. Instead of using a money transfer company, a worker in New York might use a service that transfers U.S. dollars into bitcoin and enables a family member in a receiving country to “withdraw” bitcoin, USD, or a local currency. Because anyone can use the blockchain there’s no need to send payments through a bank or money transfer service. In general, remittances are cheaper and faster with bitcoin than traditional options.

In countries with a weak banking infrastructure, a person can download and use a bitcoin digital wallet using their computer or cell phone. Each public key represents a safer way for users to send and receive bitcoin for day-to-day transaction of goods and services and to pay others. It can also serve as a store of value against local inflation and their country’s currency devaluation. In this way, Bitcoin can serve as an informal banking infrastructure of its own, beyond being used simply as a remittance system.

This is important in areas that have little or no access to formal financial systems because of traditional banks minimizing their exposure there due to illicit activities that have limited or forced out local law enforcement. Bitcoin fixes this by providing a secure, convenient way to access financial markets. To be sure, bad actors create a national security concern for the United States. They can and do prey on vulnerable populations to hide the financial transfers of criminal networks. However, the benefits of opening up access to global markets for over 1.7 billion unbanked individuals is worth managing the risks by increased vigilance and monitoring of the blockchain.

Delivering on the power of bitcoin goes beyond its store of value as a digital asset. The technology of the Bitcoin blockchain can assist sustainable development through a set of services such as smart contracts for crop insurance, the digitization of supply chains and micro-scale international commerce. As the use of the Lightning Network and Stacks 2.0 becomes more prevalent, people will find innovative ways to provide more inclusive access to economic opportunities in global markets.

While there are infrastructure issues such as internet access and electricity that must be addressed along the way, resistance to organizational change by entrenched, old power structures must be constructively handled with laser focus. Both traditional fiat institutions and widespread bitcoin digital asset usage can co-exist and succeed where outdated models of past economic policy failed. It’s time for international banking systems to adjust to a future where they can “walk their talk” of financial inclusion rather than serve financial privilege. We can harness the pure energy of Bitcoin in a culturally appropriate way to help others achieve a transformative future, while avoiding the mistakes of the past.

This is a guest post by S.J. Ware. Opinions expressed are entirely her own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Source: Bitcoin magazine

Categories
Crypto News Updates

Do I Have To Pay Taxes On Bitcoin?

What is the current outlook on bitcoin taxes, and what might the future hold as the network and asset grows?

While many joke about that unfortunate boating accident that magically makes all bitcoin disappear, the vast majority of us know that as the popular meme goes, “One does not simply not pay taxes.” This article is geared toward the U.S. tax code, as the way bitcoin is treated varies depending on jurisdiction. Once the IRS declared that virtual currency, such as bitcoin, would be taxed as “property” and not currency, it became the obligation of bitcoin holders to pay taxes on any gains (See IRS Notice 2014-21, Guidance on Virtual Currency, March 25, 2014).

These gains include, but are not limited to, earnings from any type of exchange or sale; gains from selling that may have been made upon the purchase of a good or service with bitcoin (including those lambos); and on fair market value of any mined bitcoin, as of the date of receipt. Needless to say, record keeping can be particularly burdensome for the unwary, inexperienced or careless.

For individuals holding bitcoin for investment purposes, gains or losses from a sale of bitcoin, or virtual currency, is reported on IRS Form 1040 Schedule D and IRS Form 8949 (Sales and Other Dispositions of Capital Assets). Individuals with realized gains on bitcoin held for one year or less are taxed with ordinary tax rates, while those that hold for over one year are subjected to capital gains tax rates.

It’s important to have IRS Form 8949 in mind when keeping track of transactions because the IRS requires detailed information for each transaction. This includes a description of the amount and type of cryptocurrency, when it was acquired and sold, the amount of proceeds from the sale, the cost or basis when acquired, and the amount of the gain or loss. Due to the IRS prohibiting the use of like-kind exchanges covered by Section 1031(a) for cryptocurrency transactions, taxable gains or losses must be recognized at the time that any cryptocurrency is converted into another cryptocurrency — a signal that no one should ever trade their bitcoin.

For those who think the anonymity of Bitcoin provides enough cover while moving one’s bitcoins off an exchange, keep in mind that there is already less privacy than one would think. Independent contractors, gig workers or basically anyone who receives a bitcoin payment for goods or services over $600 in the course of trade or business is already subject to informational reporting to the IRS. Moreover, laws such as the Foreign Account Tax Compliance Act (FATCA), require most foreign bank and non-bank institutions to report information regarding U.S. residents who maintain accounts in those institutions. Going forward, bank accounts with bitcoin transactions may attract more attention as bitcoin goes mainstream.

The general trend is toward more regulation and scrutiny of bitcoin transactions to identify tax liability issues. Just in April 2021, a federal court judge authorized the IRS to use subpoenas to obtain information on those with over $20,000 in transactions on two bitcoin exchanges.

Just as eBay and PayPal have been required for several years to report and provide a 1099k for 200 transactions and more than $20,000 in gross sales in a calendar year, it’s reasonable to expect exchanges to eventually follow similar reporting guidelines in the future, as federal law evolves over time. In fact, it may become the norm to report $600 or more.

All in all, it’s important to be as careful and accurate as possible with bitcoin taxation. While most bitcoin HODLers will not have any tax reporting concerns as long as nothing is done to trigger a loss or gain, those engaging in taxable events, such as those juicy arbitrage plays, will be subject to taxes. Most trades count as short-term capital gains that are taxed up to 37%, depending on the tax bracket. However, the best benefit of holding bitcoin for over a year is to avoid short-term tax rates in favor of long term capital gains rates. Those long-term rates are usually between 15 to 25%, which are much lower.

Fortunately, most exchanges provide ways to download transactions so accounting is less of a headache. As always, consult with tax professionals regarding your obligations and track those filing deadlines. Hopefully as bitcoin continues to rocket to the moon, the pain of paying taxes on any bitcoin income will feel less painful.

This is a guest post by S.J. Ware. Opinions expressed are entirely her own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Source: Bitcoin magazine

Categories
Crypto News Updates

Do I Have To Pay Taxes On Bitcoin?

What is the current outlook on bitcoin taxes, and what might the future hold as the network and asset grows?

While many joke about that unfortunate boating accident that magically makes all bitcoin disappear, the vast majority of us know that as the popular meme goes, “One does not simply not pay taxes.” This article is geared toward the U.S. tax code, as the way bitcoin is treated varies depending on jurisdiction. Once the IRS declared that virtual currency, such as bitcoin, would be taxed as “property” and not currency, it became the obligation of bitcoin holders to pay taxes on any gains (See IRS Notice 2014-21, Guidance on Virtual Currency, March 25, 2014).

These gains include, but are not limited to, earnings from any type of exchange or sale; gains from selling that may have been made upon the purchase of a good or service with bitcoin (including those lambos); and on fair market value of any mined bitcoin, as of the date of receipt. Needless to say, record keeping can be particularly burdensome for the unwary, inexperienced or careless.

For individuals holding bitcoin for investment purposes, gains or losses from a sale of bitcoin, or virtual currency, is reported on IRS Form 1040 Schedule D and IRS Form 8949 (Sales and Other Dispositions of Capital Assets). Individuals with realized gains on bitcoin held for one year or less are taxed with ordinary tax rates, while those that hold for over one year are subjected to capital gains tax rates.

It’s important to have IRS Form 8949 in mind when keeping track of transactions because the IRS requires detailed information for each transaction. This includes a description of the amount and type of cryptocurrency, when it was acquired and sold, the amount of proceeds from the sale, the cost or basis when acquired, and the amount of the gain or loss. Due to the IRS prohibiting the use of like-kind exchanges covered by Section 1031(a) for cryptocurrency transactions, taxable gains or losses must be recognized at the time that any cryptocurrency is converted into another cryptocurrency — a signal that no one should ever trade their bitcoin.

For those who think the anonymity of Bitcoin provides enough cover while moving one’s bitcoins off an exchange, keep in mind that there is already less privacy than one would think. Independent contractors, gig workers or basically anyone who receives a bitcoin payment for goods or services over $600 in the course of trade or business is already subject to informational reporting to the IRS. Moreover, laws such as the Foreign Account Tax Compliance Act (FATCA), require most foreign bank and non-bank institutions to report information regarding U.S. residents who maintain accounts in those institutions. Going forward, bank accounts with bitcoin transactions may attract more attention as bitcoin goes mainstream.

The general trend is toward more regulation and scrutiny of bitcoin transactions to identify tax liability issues. Just in April 2021, a federal court judge authorized the IRS to use subpoenas to obtain information on those with over $20,000 in transactions on two bitcoin exchanges.

Just as eBay and PayPal have been required for several years to report and provide a 1099k for 200 transactions and more than $20,000 in gross sales in a calendar year, it’s reasonable to expect exchanges to eventually follow similar reporting guidelines in the future, as federal law evolves over time. In fact, it may become the norm to report $600 or more.

All in all, it’s important to be as careful and accurate as possible with bitcoin taxation. While most bitcoin HODLers will not have any tax reporting concerns as long as nothing is done to trigger a loss or gain, those engaging in taxable events, such as those juicy arbitrage plays, will be subject to taxes. Most trades count as short-term capital gains that are taxed up to 37%, depending on the tax bracket. However, the best benefit of holding bitcoin for over a year is to avoid short-term tax rates in favor of long term capital gains rates. Those long-term rates are usually between 15 to 25%, which are much lower.

Fortunately, most exchanges provide ways to download transactions so accounting is less of a headache. As always, consult with tax professionals regarding your obligations and track those filing deadlines. Hopefully as bitcoin continues to rocket to the moon, the pain of paying taxes on any bitcoin income will feel less painful.

This is a guest post by S.J. Ware. Opinions expressed are entirely her own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Source: Bitcoin magazine