Bitcoin prices have been fluctuating and showing instability for the past few weeks. The logical conclusion up till now was that people were selling off their digital assets in response to the governments coming out with new crypto-related regulations and rules. However, recent reports indicate that the price drop even though resulted from investor sell-offs, the motive behind it was to avoid Capital Gains Tax.
Back in 2014, the Internal Revenue Service or IRS had announced that they would treat bitcoins as a property and not as a currency. This makes the cryptocurrency subject to tax laws. The past year, people who had invested in the digital asset made huge profits, so much that “they don’t have enough in crypto to pay for it,” stated Cathie Wood, CEO, and CIO at ARK. ”For younger people who don’t have taxes top-of-mind, or have never invested before, they’re shocked.”
In the US, investors have to file taxes in April. And so “they’re[investors are] stuck with a large tax bill and they’re doing payment plans, or they’re selling off crypto,” said Vincenzo Villamena, the CEO of onlinetaxman.com.
When a person purchases and sells bitcoins in the same year, it accounts for their short-term capital gain, which can be taxed at a rate as high as 39%. However, when they keep the bitcoins for over a year and then sell it, they are subjected to long-term capital gains and gets taxed at a significantly lower rate of 15% - 23.8%.
All this will depend on which tax bracket the person falls under. Do note, profits from Bitcoin mining and airdrops are treated as ordinary income, and taxed accordingly.
“The amount of capital gains from just US investors in the rise of crypto pays for the damn wall.[…]I think most people are just connecting those dots but its an important dot,” said Vice Chairman of Rivetz, Bradley Rotter.
Meanwhile, as the investors are panicking, Bitcoin prices are falling and has reached an all month low yesterday following another bad news that Google will ban all cryptocurrency based advertisements.