What is “Bitcoin” and how do I include it in my Will or on my Taxes
Bitcoin is legally known as cryptocurrency. It is an Internet Asset.
As the world expands and “real” life becomes intertwined with the internet, more and more people are going to have internet assets. One of the most popular forms of internet assets is cryptocurrency, for example, “Bitcoin.”
Cryptocurrency actually refers to a code with a unique number that takes immense computer power to generate. This code can be traded, much like money, and keeps a digital record of every transaction it has been a part of. Many people will accept this in lieu of centralized, government backed money, making it a potentially valuable asset that should be protected accordingly. Although Bitcoin is the most popular type, there are over a thousand different forms of cryptocurrency and growing.
The IRS considers cryptocurrency to be property, rather than money for tax purposes. Therefore, if you are have not been reporting either selling your cryptocurrency or using it to purchase goods or services as you would with money, or have been reporting it incorrectly, now is the time to change it! Start reporting your income correctly using IRS guidelines. That means keeping track of what you sell and report the gain. Though buying or possessing cryptocurrency and not making any money off of it does not require you to report it, all other transactions do. Visit https://bitcoin.tax/ and https://www.irs.gov/pub/irs-drop/n-14-21.pdf for more information on the specifics of cryptocurrency and taxes.
Similarly, you should make sure to protect your cryptocurrency assets during Estate Planning. You must include this in your asset list. You should keep extensive written records on your cryptocurrency, including how much you have, where you got it, where it currently is, and the digital key to access it. This will make it much easier when the time comes to pass your cryptocurrency on.
Additionally, the cryptocurrency could be set up so that it goes directly into a Trust as soon as you die. This will make it significantly easier for your heirs to protect and control the assets. Ideally, you want to make it as easy as possible for your beneficiaries to take full advantage of the assets you leave them.
Whatever you choose to do to protect your assets, we can help.