Having been in operation since 2014, Bittrex is based in Seattle, USA and is among the largest cryptocurrency exchanges. Currently, the platform lists hundreds of coins and users can take advantage of hundreds of cryptocurrency trading pairings. However, you might be more interested in the answer to the question does Bittrex report to IRS?
The short answer is yes. According to https://international.bittrex.com/, the official website of Bittrex, the company does not provide any consultation, evaluations or recommendations for:
• Regulatory compliance or legal advice
• Financial planning or services
• Tax preparation, planning or filing
• They do not provide tax reports or forms
• Investment or trading advice
In addition, personal information, customer identification and records of trading activity, withdrawals and deposits, are confidential except as a court order or the law requires.
However, multiple forums have indicated that any and all information found on a person by the IRS is done via 1099 form. There are some exchanges that require your identification, while some do not. The exchanges that do will file on your behalf in cases where over $10,000 has been transacted under the account; this is in accordance with the regulations of the FDIC. Included in this is any master card or visa branded BTC debit cards. Unless freely disclosed by an individual, the financial information will not be available to any agencies.
When Should Taxes be Paid?
As stated by the IRS guidance, all convertible digital currencies are subjected to tax as property for the purposes of United States income tax. As a rule of thumb, whenever property is traded for another property in a barter deal or sold for USD (like Bitcoin for another convertible digital currency), there is an occurrence of a tax event.
So it can be concluded that tax payment is required when:
• Cryptocurrency is used for goods and services
• Cryptocurrency to cryptocurrency is traded
• Your digital currency is converted to fiat
The final one can be quite difficult. A profit is made when you sell; however, it is not converted to fiat and you’ll still be required to pay tax on the profit. Cointracking.info, Bitcoin.tax and other crypto tax software come in handy as they offer a variety of rep
orts for unrealized and realized gains. With cointracking.info, you have the option of choosing a number of different options to calculate these numbers such as LIFO (Last in first out) or FIFO (first in first out):
Over the past few years, significant interest has been shown in cryptocurrencies as a revenue source by the IRS. In addition, it is alleged that the IRS uses software to track transactions and reminds holders of cryptocurrency to pay their taxes. This is said to be done by way of memos, that highlight the intrinsically pseudo-anonymous feature of cryptocurrency transactions.
It cannot be promised by anyone that US-based crypto exchanges like Bittrex do not share or will have to share information on the transactions of their clients with IRS and other government bodies. As such, it is highly recommended that you do not rely on luck and all the required forms be filed, including Bittrex tax forms.
Bitcoin / Cryptocurrency Tax Guidelines
Cryptocurrencies like Bitcoin is treated by the IRS as assets. It is claimed by the IRS that digital currencies like Bitcoin are not official currencies since they are not issued by any central bank. Under the tax laws, the crypto definition provides insight as to how tax obligations should be handled.
Obligations of Crypto Owners
Tax institutions view cryptocurrencies as assets and as such, all relevant transactions have to be reported by crypto owners, whether they are large or small. Furthermore, a record of all transactions has to be kept by crypto owners. These include all investments, sales, purchases and payments made with crypto for goods and services.
Mined Cryptocurrencies Taxation
Miners are required to report cryptocurrency transactions to the IRS. There are attached tax obligations to using and selling Bitcoins that have been personally mined. The value of the mined currencies like Bitcoins is taxed by the IRS as either business or personal income. For example, if an individual mines 5 Bitcoins and sell them for $100 each, $500 will have to be reported as taxable income prior to the deduction of any expenses.
Bought Cryptocurrencies Taxation
Purchased cryptocurrencies such as Bitcoins is treated by the IRS as an investment in assets. The earned profits from these transactions are subjected to a capital gains tax. Additionally, there are long-term and short-term capital gains taxes. The short-term variety is seen as cryptocurrencies that are held for under a year prior to a transaction. These taxes are treated by the authority at ordinary income taxable rates; however, long-term capital gains taxes are used for those that take over a year.
How to Legally Pay Taxes on Bittrex Trading Profits
As previously established, if you had a gain after selling your cryptocurrency, then the appropriate capital gains tax must be paid. Additionally, if you are paid in crypto currency, taxes should be deducted from it.
To calculate taxes, your cost basis is needed, which is the original value of the asset and finding this information can be difficult. Additionally, no official reporting mechanism is in place. The IRS expects individuals to find their cost basis but this can be challenging when multiple exchanges are used. One method of addressing the issue of using various exchanges would involve using a weighted index to assist you in cracking the cost basis.
Arnold Webb received a Masters Degree in Computer Science from Harvard University. Arnold currently is a full-time researcher and trader in the cryptocurrency industry. Arnold contributes content to CryptoCelebrities.co, The Bitcoin Magazine and several other publications.