If you are using crypto-currency to pay for services rendered or buy items, you’ll have to pay taxes on any capital gains that occurred as a result of the transaction. Here’s a non-complex scenario to illustrate this:
You have .01 BTC that cost you $50 to acquire. You buy a $100 gift card with that .01 BTC. You’ve profited $50 off this transaction, and therefore you will have to pay a capital gains tax on the $50.
Paying for services rendered with crypto can be bit trickier. Here’s a more complex scenario to illustrate how to assess gains for paying for services rendered:
You have .01 BTC that cost you $50 to acquire. You hire someone to cut your lawn and pay him .01 BTC for his services. Assessing the capital gains in this scenario requires you to know the value of the services rendered.
- If the lawn cutting service charges $100 to cut lawns, and accepts your .01 BTC, you’ve realized a gain of $50 that you must pay capital gains taxes on.
- If the lawn cutting service charges $100 OR .01 BTC to cut lawns, the service is effectively worth $100, so the gain would still be valued at $50, which you would pay capital gains taxes on.
- If the lawn cutting service charges .01 BTC to cut lawns, you would use the fair market value of BTC at the time of your payment. So if .01 BTC is worth $75 at the time of your payment, you would realize a gain of $25, which you would pay capital gains taxes on.
Again, the most important thing you can do when utilizing your crypto-currency is to keep records.
This data can be entered on the Spending Tab.