Bitcoin taxation: Keep it simple
Tucson Tax Team would like to help you keep the tax side of Bitcoin easy.
We don’t want to sell you special software for handling complex transactions that will, increasingly, make your life complex too. Life and taxes are complex enough.
Instead, through our secure online portal, we help Bitcoin users and small businesses (sole proprietors, S Corps, partnerships) all over the country understand the issues involved. We also offer free consultations by phone so you can get a sense of how we might help you.
In addition, if you want to learn the basics, we offer a quick synopsis of how Bitcoin taxation works.
Three ways to manage Bitcoin taxation
Depending on how you manage it, Bitcoin taxation can be very complicated or very simple. If you want to keep your life simple, we recommend you employ one (or some combination) of the following three strategies:
- Easiest: remember that earning Bitcoin is not a big problem. The wallet tells you what the dollar value is at the time you earned it, so it’s easy enough for you or your favorite tax person to take a look at the exported Excel spreadsheet and calculate your income. The trick, though, is to convert your earned Bitcoin to dollars as soon as you earn them. This way there’s no capital gain or loss. Then spend dollars, not Bitcoin. This way the only thing we have to deal with at tax time is a simple income calculation; the capital gains/losses, while still reportable, net out to zero. This strategy will keep your life simple and your tax return less expensive.
- Relatively easy: this option is for people who both earn/spend Bitcoin and want to hold Bitcoin for investment. For the earning and spending, use the “easiest” scenario, but purchase your investment Bitcoin in separate transactions, hopefully as few transactions as possible. Ditto when you sell: minimize the number of transactions.
- Less easy but still doable: if you feel that you must spend Bitcoin instead of dollars, then minimize your Bitcoin expenditures to a few big purchases/donations/trades each year. This way your tax pro can track your Bitcoin inventory (from past years and from this year) and determine fairly easily which Bitcoin were sold/donated/traded. From this point, capital gains and losses can be calculated. Note that you will have to pay your tax pro a little bit extra for this service.
Talk to us about how you can use these strategies. If you’ve gotten yourself into a complicated Bitcoin tangle, we’ll untangle it and get you started down an easier path. (We love a challenge.)
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How to contact us
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Visit our office in Old Farm Executive Park just west of Costco
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Tucson Tax Team
6111 E. Grant Rd.
Tucson, AZ 85712
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