Cryptocurrency, Creme Brulee, and Capital Gains Can Be Really Sweet

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Imagine this.

Admiring a view of orange colored trees on a cool Fall day while talking about cryptocurrency and capital gains.

You nibble on the tastiest vanilla bean and caramelized sugar Creme Brulee recipe that your mouth has ever been exposed to. 

All you can think is "isn't life good?"

Unless ...

you've never tasted Creme Brulee and have no idea what cryptocurrency is. 

Cryptocurrency is a digital and secure form of payment that operates like a dollar - without the additional layers of governance from central banks and the government. Bitcoin is the most popular form of cryptocurrency. 

Want free Bitcoin? Use my referral code to earn $10 of free bitcoin when you buy or sell $100 of bitcoin or more. 

If you're just finding out about bitcoin, you're a bit late to the game. 

But don't write yourself off as a loser yet. There's still time to get on the bandwagon and learn more about this digital currency (even if you don't want to invest...yet).

Bitcoin has been in the game since 2009, creating quick streams of income for those who were early adopters.

If you haven't been watching the news (or your Facebook timeline!),you probably didn't know that the price went up from $.08 in July 2010 to $266 in April 2013. 

Did you hear about Bitcoin reaching an all time high on October 21st, rising to over $6000!

Can we say cha Ching? 

If you cashed out at the right time, the number of digits in your bank account most likely doubled (you better get mamma the new car she's been drooling over!).

It's that serious. A number of "lucky" investors quit their depressing 70-hour a week job and became full time crypto traders.

But bitcoin isn't the only digital currency making noise on the market.

There are a universe of other coins, called alt coins, that play their own unique role in the virtual currency world. 

If you're curious, check out the list of cryptocurrencies on Coin Market Cap.

No matter what type of coin you're carrying in your digital wallet, there will come a day when you'll need to have a meeting with Uncle Sam.

Don't worry - there's no phone call required. The numbers on your tax return will do all the talking!

Uncle Sam just wants to know if you had a capital gain or loss when you sold your bitcoin. 

Ready to prepare for your meeting with Uncle Sam? Here's what you should know:

Do the rules for short-term or long-term capital gain or loss apply to me?

Timing is everything. 

Here's the question: When did you buy and sell your bitcoin?

No I don't need to know that you bought it on March 5, 2016. You won't get punished if you don't know the exact date (not remembering the date of your wedding anniversary is a different story!).

I just need to know if you held your investment for over a year. That timing distinguishes short term from long term.

Short term capital gains or losses are investment assets that are held under a year.

Long term capital gains or losses are for assets that had a space in your heart for over a year.

How are short term capital gains taxed?

So let's say you bought your bitcoin in January 2016 for $100 and sold it in September $2016 for $500.

You sold your asset in less than a year. 

You made a profit when your asset went up from $100 (basis) to ) $500 (selling price. 

You have a short term capital gain to report!

Short term capital gains are taxed at your ordinary income tax rate. All short term capital gains are included in your taxable income for the year.

So let's say you earned $15,000 from working your part-time job. Within the year, you bought bitcoin for $3000 and was able to sell it for $30,000. 

My gosh. Your taxable income jumped from $15000 to $42000 ((30,000-3000)+15,000). You're in another tax bracket now! 

Sounds complex. What is the ordinary income tax rate?

For 2017, ordinary tax rates range from 10% to 39.6% depending on your taxable income.

Here are the tax rates and brackets for the 2017 year.

Source: IRS 

Source: IRS 

If you make $50,000 a year, you fall into the 25% tax bracket, or marginal tax rate. Your short term capital gains are subject to a 25% tax.

Get it?

Yeah, I know it may take a minute to digest so take a nap and then send me an email at Charlene@charlenerhinehart.com.

Next...

What if I was a loyal investor and held my bitcoin over a year before I decided to sell?

Loyalty pays off...in some cases.

The IRS will "reward" you for holding your investment for over a year.

You pay lower taxes. Woohoo! 

What if I was a market loser? You know, what if I bought bitcoin for $1000 and sold it for $2. 

Can I say "you lost your mind..."?

I hope you have some capital gains to offset that loss. Wowzers!

If you have a net loss, you better start looking out for those deductions because you're only limited to $3000 net loss on your tax return. 

Want to learn more about cryptocurrency taxes, catch us at the next webinar! 

How to Start Investing in Bitcoin (with less than $100!)

https://www.eventbrite.com/e/how-to-start-investing-in-bitcoin-with-under-100-tickets-36215349084

How to Start Investing in the Stock Market (with less than $100) 

https://www.eventbrite.com/e/how-to-start-investing-in-the-stock-market-with-under-100-tickets-36214793422?aff=erelpanelorg