Simply exchanging or trading bitcoins does not necessarily mean you owe additional incomes taxes. But, like with trading any real currency, stock or commodity, or selling any property, if you earned gains from bitcoin, you have to report that as income to the Internal Revenue Service.
And then there is the outright mining of virtual currencies, which can produce profits or losses (the value of the cryptocurrency mined versus the cost of mining equipment, utilities to keep the equipment running, and so on.)
Now comes the possible moment of reckoning for bitcoin traders or miners: A federal district court has ordered that San Francisco-based Coinbase, the largest U.S. exchange for bitcoin and other virtual currencies, should turn over its customer account information to the government for the years 2013, 2014 and 2015.
Many bitcoin and other digital currency users are concerned that the IRS will get their account information from Coinbase. And the result might be audits to see if incomes gains were properly reported to the IRS.
Nonetheless, bitcoin traders have time to put their financials in order if they need to. Coinbase said it is committed to customer privacy and will oppose the government’s efforts to obtain its customer account information. Coinbase and the IRS may eventually reach a settlement, with the government more tightly defining the category of users or a threshold for the amount or value of transactions that the agency is seeking. Although, the IRS will not reveal those specifics if a deal is reached.
If you had a Coinbase account in 2013, 2014 and 2015 and you reported your bitcoin income, you have nothing to worry about. If you did not report the income from your Coinbase transactions, you may have a problem.
Daniel Winters, the owner of Global Tax Accountants and a specialist in bitcoin and cryptocurrency taxation, writes for CoinDesk that you should consider filing an amended return.
“To avoid this situation, you may want to consider filing amended tax returns to report any bitcoin income which was not previously reported,” Winters says. “You should contact your tax advisor if you want to discuss your individual circumstances.”