How To Pay Money Into A Bitcoin Account
- How To Pay Money Into A Bitcoin Account Online
- How To Deposit Money Into Someone Else's Bitcoin Account
- How To Pay Money Into A Bitcoin Wallet
- How To Transfer Money Into A Bitcoin Wallet
- The IRS considers Bitcoin to be property rather than money, so transactions are subject to the same tax treatment as other investments.
- Bitcoin taxes can be triggered by trading, exchanging, or simply spending the cryptocurrency, so documenting everything is essential.
- Bitcoin is taxed at the special capital gains tax rate, which is often less than the ordinary income tax rate.
Bitcoin seems to be everywhere these days. From its mysterious origins in 2008, it has grown into a widely accepted currency, used for everything from investing to shopping to employees' wages.
But many Bitcoin users don't realize that buying/selling, exchanging, and even using Bitcoin to pay for things has tax implications. Yes, you read that last phrase right. In some cases, just spending your Bitcoin could be considered a profitable investment - and taxable.
From how exactly it's taxed to how to prepare for filing, here's what you need to know about Bitcoin taxes.
How Bitcoin is taxed
Bitcoin withdrawals and deposits must be enabled to get started. You can deposit up to $10,000 worth of bitcoin in any 7-day period. Depending on network activity, it can take hours before transfers into or out of your Cash App are confirmed on the blockchain. Cash App only supports Bitcoin (BTC). The first scam on the list is one that you may well be familiar with already, as it’s also. In the United States you can buy bitcoin with a connected bank account via ACH bank transfer. In Europe you can buy with your bank account via SEPA transfer. Purchases made with ACH take 5 days for the coins to be delivered, while SEPA purchases take less than two days. Coinbase charges a flat 1.49% fee on all transactions.
Bitcoin and its comrade cryptocurrencies (Ethereum, Ripple, Tether, and Litecoin) appeal to users because they are secure and provide a degree of anonymity. It's that anonymity, along with the growing value of cryptocurrency transactions taking place worldwide, that has increasingly drawn attention from the Internal Revenue Service (IRS) in recent years.
Since you can use Bitcoin and other cryptocurrencies for everything from online shopping to donating to charity, you might assume the IRS treats cryptocurrency like cash. That assumption can get you into hot water.
According to IRS Notice 2014-21, the IRS classifies cryptocurrencies as property, not cash or currency. That means it treats Bitcoin transactions like sales of stocks and other investments. Purchasing cryptocurrency with cash and holding on to it isn't a taxable transaction, but selling, exchanging, or using it to purchase goods and services is.
For example, say you purchase 10 crypto coins for $10 (basically, $1 apiece) on December 1, 2020, and load them onto a cryptocurrency debit card. On December 20, 2020, that cryptocurrency is trading for $5 per coin, up from the $1 per coin you paid for it back at the beginning of December. On that day, you use your cryptocurrency debit card to pay for a $5 cup of coffee.
On your 2021 tax return, you are supposed to report a $4 short-term capital gain ('short-term' because it happened within one year). That's the $5 per coin value you received when you purchased the cup of coffee, minus your $1 per-coin basis (what you paid for it) in the cryptocurrency.
That's a level of record keeping that few taxpayers are willing to keep up with - if they're aware of the requirement at all.
Why is Bitcoin taxed?
According to a survey conducted by The Harris Poll on behalf of Blockchain Capital, roughly 9% of American adults own Bitcoin. However, the IRS estimates that only a tiny percentage of them report crypto-related gains and losses on their tax returns.
In 2017, the IRS searched its database for the 2013 through 2015 tax years. It found:
- 807 individuals reported cryptocurrency transactions in 2013
- 893 individuals reported cryptocurrency transactions in 2014
- 802 individuals reported cryptocurrency transactions in 2015
That discrepancy is why the IRS is making cryptocurrency taxes an enforcement priority in 2021. In fact, Form 1040 for the 2020 tax year includes a question about cryptocurrency on the front page. It asks whether you've received, sold, sent, exchanged or otherwise acquired a financial interest in any virtual currency.
If you check 'no' to this question when you did, in fact, engage in cryptocurrency transactions, the IRS can consider that a willful attempt to avoid taxes, and you could face harsher penalties if the IRS uncovers your omission.
How to prepare and report Bitcoin tax filing
The IRS taxes Bitcoin as an investment. That means it's subject to the same tax rate of capital gains and losses that other financial assets are subject to when you sell any holdings in it, realizing a profit or loss.
Video: Taxing Bitcoin: The IRS wants people to disclose virtual currency activity (CNBC)
Step 1: Gather information for Bitcoin tax reporting
For each transaction, you need to know the following:
- The amount (in dollars) you spent to buy the cryptocurrency
- The date you purchased (or received) them
- The date you sold or exchanged the coins
- The amount in dollars the cryptocurrency was worth when you sold it (or value you received in the exchange)
When you sell stocks, at the end of the year, your broker will send you a Form 1099-B that includes all of the necessary information to report those sales on your tax return. But don't expect the same service from a cryptocurrency exchange. Most crypto exchanges only send 1099 forms to customers with gross payments over $20,000 or more than 200 cryptocurrency transactions during the year.
However, you can typically generate reports through your cryptocurrency exchange platform that will include all buys, sells, sends, and receipts of cryptocurrency from the account. If all of your cryptocurrency transactions take place on one exchange, gathering the information you need for tax reporting should be relatively easy. If your cryptocurrencies are scattered across several exchanges, you'll need to download separate reports from each of them.
Step 2: Calculate your Bitcoin gains and losses
Once you have all of the information on your cryptocurrency activity during the year, you need to determine whether you incurred a gain or loss on each transaction. To do this, you'll need to decide which method you'll use to value the cryptocurrencies you sell. Your options are:
- First-in-first-out (FIFO). The coins you purchase first are the ones you sell first.
- Specific identification. You select which coins you're disposing of in each transaction.
The method you choose can greatly impact the amount of taxes you end up owing in a particular year.
Say you purchase 100 crypto coins for $1 each on January 1, 2021, and another 100 coins for $20 each on June 1, 2021. On February 1 of the following year, you sell 40 coins for $15 each.
Using the FIFO method assumes the 40 coins sold came from the January 2021 lot. As a result, you would have a long-term gain of $560. That's 40 coins at $15 each less 40 coins at $1 each, or $600 - $40 = $560.
Using the specific identification method, you could decide that the four coins sold in February of 2022 came from the lot purchased in June of 2021. In that case, you would have a short-term loss of $200. That's 40 coins at $15 each less 40 coins at $20 each, or $600 - $800 = -$200.
Some cryptocurrency exchanges provide a gain/loss report. However, these reports are typically only provided on the FIFO method, so you won't be able to benefit from using the specific identification method if you rely on them.
Step 3: Report your Bitcoin transactions
Capital gain transactions are reported on IRS Form 8949. The form is divided into two sections:
- Cryptocurrencies held for one year or less go in the short-term section. Short-term gains are taxed at the same rates as ordinary income, with the top rate being 37%.
- Cryptocurrencies held for longer than one year go in the long-term section. Long-term gains qualify for more favorable long-term capital gains rates, which cap out at 20%.
Include your totals from Form 8949. If you sold other non-crypto investments, report those on a separate Form 8949. Carry the totals from all 8949 forms to IRS Schedule D.
The financial takeaway
You might have figured that investing in Bitcoin could have tax implications, especially if you make a profit on it. But it might surprise you to know that just spending your Bitcoin could trigger that taxable profit.
Purchasing cryptocurrency with cash and holding on to it isn't a taxable transaction, but selling, exchanging, or using it to purchase goods and services is.
Tracking the ins and outs of cryptocurrency transactions can be challenging. If you own cryptocurrency and have many transactions, it's a good idea to talk to a CPA or other tax professional familiar with cryptocurrency tax reporting. They may be able to recommend software to help track transactions and ensure you're properly accounting for them on your tax return.
Related Coverage in Investing:
Alternative investments are exotic assets that can diversify your portfolio - here are the five major kinds and everything you should know about them
What are liquid assets? A guide to the investments that are easiest to cash in, and why they're important
How to diversify your portfolio to limit losses and guard against risk
'I have changed my mind': A top market strategist and long-time crypto skeptic explains why he now believes bitcoin should be in investor portfolios
Reddit cofounder Alexis Ohanian and tennis star Serena Williams backed a startup which helps people calculate taxes on crypto, without seeing a pitch deck
How Much Money do i Need to Open a Bitcoin Account?
I thought the question of ”how much money do I need to open a Bitcoin account?” was a really funny one.
Now, I understand that despite the hype surrounding Cryptocurrencies, some people are still not conversant with what Bitcoin is, or even the current investment opportunities that are surrounding Bitcoin as a Cryptocurrency.
Note: Click here to open a Bitcoin account where your funds can be invested while you collect your profits at the end of the day.
To answer the question that formed the title of this post, I’d say that the amount of Bitcoin you need and the purpose for buying Bitcoin will dictate the amount you will need for an account.
The answer is now very clear. But I’d say that a newbie would still struggle to grasp what am talking about here.
Therefore, in the next section of this post, I shall break it into bits that can easily be swallowed since am assuming that only newbies are looking for answers on ”how Much Money do i Need to Open a Bitcoin Account?”
The amount you need to open a Bitcoin account will depend with the goal you have in mind.
For example, if you want to start mining Bitcoin in the cloud, you can start with as little as 0.05 Bitcoin or more.
Some Cloud mining companies (like Genesis Mining)are even asking for less than 0.05 Bitcoin at times.
But there is also something I’d wish to bring to your attention:
First, to determine how much Bitcoin you’ll need in your account, you’ll have to figure out how to exchange regular currencies such as USD, EUR, JPY etc into Bitcoin.
There are several exchanges on the internet which do this job very well.
Most of the time, I use Topedgefx, a platform that helps you sell fiat currencies like USD into Bitcoin and vice versa.
And then there are scam exchanges (others controversial) too.
The ones I have in my archives are Gatehub, CoinTree, and Cryptopia exchanges.
The purpose for which you are determining how much Bitcoin to keep in your account is generally determined by what you want to do with it.
If you are someone who has a knack for trading Bitcoin, and is always looking for best way to invest in Bitcoin, you will always find a number of sites claiming to offer an opportunity to make money with Bitcoins or any other Cryptocurrency.
Those sites usually have their minimum deposit requirement which can be in any amount of Bitcoin.
This reminds me of the different ways that people can invest in Bitcoin.
I have lately seen that Initial Coin Offerings (ICOs) are a big thing.
Some websites in this space are even claiming that their coins will be the next big thing, even bigger that Bitcoin.
Of course you can’t take them seriously because this is the language of business here.
Those who get sucked in get ripped off by these sites.
Nearly every website in the blockchain space is offering an ICO.
A good number of them are not legitimate as the aim is usually to collect as much money as possible before abandoning ship.
A good examples would be Crypterium and Envion. These are disasters waiting to happen.
Therefore, the amount you will need for any Bitcoin account is whatever you decide to buy and hold in that account.
Usually when I buy Bitcoin, I don’t have a minimum BTC in mind to buy.
I just go to my favorite exchange here, and then buy whatever the amount of Bitcoin my dollar amount can afford me.
That means I can buy 0.1 BTC, 0.05 BTC, 0.0004 BTC or whatever.
The choice is always with me. But to some extent, this choice is influenced by what I want to do with the Bitcoin in question.
how much money do I need to open a Bitcoin account and invest
Seasoned traders like I and a few investors in this industry go into the market with an open mind.
Like I said before, I buy Bitcoin of any amount.
I have been mining Bitcoin with these platforms as a side hustle for some time now.
I remember the first time I started mining Bitcoin in 2015. I started with 0.05 Bitcoin.
I have somehow managed to grow that investment to an amount I don’t wish to disclose in this post.
The point is, you can invest any amount in Bitcoin.
But like any other market, things can be a bit uncertain.
I remember that it was the year 2014 when I first got interested in Bitcoin.
How To Pay Money Into A Bitcoin Account Online
When I saw its value rising very fast and steadily, I ask myself ”Should I invest in Bitcoin?”
Unfortunately back in the day, there was not so much information on the internet about whether or not to invest in Bitcoin.
It was a gamble for me. So I figured out a Bitcoin investment strategy and decided to stick to it.
A small part of my portfolio was allocated to Bitcoin mining.
The other small percentage of the trading capital remained with my Forex broker since am a Forex trader myself.
Of course Bitcoin’s value continued to increase at a faster pace. By mid-2016, I had gained a significant amount of profit because I am typical a trader/investor with long term goals in mind.
MyFXchoice, the broker that I use, announced that they had revised their spreads downwards to $3 per unit from their initial $5 per unit.
That must have helped me in one way or another since I was able to trade Bitcoin pairs at a much cheaper price than before.
So yes, with a Bitcoin investment strategy in place (whether mining or trading it like me), you can make lots of money. You can also invest as much or as little as you want.
Should I Invest in Bitcoin?
The answer is yes and no.
It’s a yes because if you have the steel to trade, you will make a lot of money.
Suppose you found this blog in 2015 and bought Bitcoin with me, how much do you think you could be having—- assuming you never sold it?
How To Deposit Money Into Someone Else's Bitcoin Account
A lot, isn’t it?
Well, do you think the current rate of Bitcoin growth will be sustained in the long term future?
I advice caution here because most people are now much aware of Bitcoin than before.
So that means many people are buying and holding or selling when they have a profit.
I know most of my students here have Bitcoins in storage somewhere.
I advised some of them to buy Bitcoins last year (2016), which they did.
Along the way, some sold their Bitcoin when price became a little bit unstable. Others decided to buy and hold up to this very day.
I can assure you that these guys can’t get to thank me any better.
What to know with Bitcoin investing
Bitcoin isn’t affected by economic or geo-political factors.
Generally, the price has maintained an upward trend.
The recent devaluation of the Chinese Yuan created more demand from the Chinese people.
This in turn caused the USD to increase in value in relation to the Yuan. It affected Europe-based exchanges as well.
From what the world has seen, Bitcoin is apolitical. It is not influenced by Global chaos, governments or financial institutions in the world.
And even if I have to think that economics and politics will significantly influence the value of Bitcoin, I have to do so on a global scale as opposed to just observing what is happening in a particular country.
How much money do I need to open a Bitcoin account and store it?
Since we already know that we can buy Bitcoin of any amount, the next concern is how to safely store it.
Will you store it in the short or long term?
The choice of storage depends on these two goals.
If you’re planning to store your Bitcoin in the short term, simply open an account with an online wallet.
I use Topedgefx for exchanging and temporarily storing my Cryptocurrencies online.
But that does not mean that you should leave your coins there for a significant length of time.
With scammers on the loose, I have been cautious enough and even devised ways to store my Bitcoin in a safe hardware wallet.
How To Pay Money Into A Bitcoin Wallet
How To Transfer Money Into A Bitcoin Wallet
You can read my review of that product here.
With hackers and scammers lurking on the internet, the best way to secure your Cryptocurrency after buying for any amount is to use a Cryptocurrency hardware wallet.
It’s a very useful tool indeed as I have used my Bitlox wallet for close to one year now.
My final word
That being said, I don’t think anyone still has questions related to ”how much money do I need to open a Bitcoin account?”
The absolute truth is that you can still make money with Bitcoin, just like we do with any other market.
Your concern should be how to invest and secure your proceeds afterwards.
So if you’d like to learn more, join my students mentorship program where I teach and show people how to make money with Forex and Cryptocurrencies.