Bitcoin, Ethereum and other cryptocurrencies have been rising in popularity, and the IRS is taking notice. Tom Wheelwright joined Robert Kiyosaki on the Rich Dad Channel to discuss virtual currencies and income tax.
“The IRS is doing more and more audits, and more and more audits on cryptocurrency,” said WealthAbility® CEO Tom Wheelwright.
The IRS recently released a notice providing guidance on how existing tax principles apply to virtual currency. Download the Cryptocurrency Tax Guide and the full IRS notice here.
Using or trading virtual currency is a taxable transaction.
According to the notice, anytime someone uses or trades virtual currency, it is a taxable transaction. Wheelwright discussed the issue with Robert Kiyosaki on The Rich Dad Radio Show podcast.
“The same thing would happen if you went and used silver or gold to buy something,” Wheelwright said. “That would be a taxable transaction, too.”
This may be a surprise to fans of Bitcoin who think of the cryptocurrency as a way to avoid the eye of the IRS.
“People think that, ‘I have Bitcoin, and so I’m good,’” Wheelwright said. “But you only can use that Bitcoin for the most part when you convert it to dollars.
“It’s not like there’s a huge marketplace where you can go out and buy houses using Bitcoin. Most people aren’t going to accept Bitcoin in exchange for their house, so you’re exchanging it for dollars. When you do that exchange, that’s where the IRS is going to track you.”
The news isn’t all bad for cryptocurrency investors.
Wise investors with a solid tax strategy — whether they choose cryptocurrency or other investments — can legally and permanently reduce or eliminate their tax liabilities by managing their tax deductions and making strategic investments in things that the government incentivizes through tax credits.
“There are all sorts of things you can do here once you understand the tax law and how incentives work,” Wheelwright said.