The CEO and Chief Investment Officer of Ark Invest, Cathie Wood, has a few words for Bitcoin investors who have profited in recent months.
The asset manager has advised cryptocurrency investors against using cryptocurrency for transactions because of the incoming tax rules, as they may have to pay massive taxes. She made the comments at a webcast hosted by Cboe Global Markets on Thursday.
Why Bitcoin Investors Should Suspend Transactions
Until the tax rules are changed, Wood thinks cryptocurrency investors should steer clear of using their Bitcoin to make payments. Two days ago, Elon Musk announced that Bitcoiners can now buy a Tesla with BTC.
“The IRS has something to say about this, so if you have huge gains in your Bitcoin, I don’t think I would bear much in the way of transactions until we get maybe some changes on the tax front,” Wood said.
Wood also thinks Bitcoin is ready for “prime time” and that prices will continue climbing over the long haul as more companies will adopt crypto-friendly strategies like Tesla and Square have done.
The IRS Bitcoin Tax Policies
Since 2014, the IRS has considered virtual currencies as capital assets that must be treated as property for taxes. Any gains or losses from the sale or exchange of cryptocurrencies are taxed as capital gain or loss similar to stocks or bonds.
Income generated from mining bitcoin and other cryptocurrencies is also taxable by the IRS.
However, the IRS only recently started getting smarter in making sure Bitcoin taxpayers actually pay up. The agency had set up several strategies to discover crypto investors who had been under-reporting their holdings.
Back in 2018, Coinbase was forced to disclose information on 13,000 user accounts under an IRS summons. Since Bitcoin’s meteoric rise in 2017, the IRS has put crypto front and center of its policies. In 2019, it chased down 10,000 taxpayers who failed to report taxes owed.
A few months ago, the IRS started asking questions directly on tax forms. “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” the question stated.
With this new development, the IRS is making its stance clear on Bitcoin taxes while also making it harder for taxpayers to conceal their cryptocurrency transactions. Whether one decides to sell their Bitcoin or use it as a form of payment, it is taxable in the United States because the IRS treats it as a property and not a currency.