Is Giving Bitcoin As A Gift Taxable?

On: January 24, 2020

Many cryptocurrency investors, or those who get paid in cryptocurrency are looking for ways to avoid taxes on crypto. The IRS is conspicuously clamping down on crypto tax avoidance in 2019, and beginning to provide more clarifications and guidance for paying taxes on crypto. As the tax authorities shed more light on the growing blockchain industry, you may be curious to know the answer to the question: Is giving bitcoin as a gift taxable? Selling your cryptocurrency assets still triggers a taxable event as far as the IRS is concerned. When you sell crypto, you’ll have to calculate your cost basis and determine if there were any capital gains, then file it with the IRS and pay any taxes owed on crypto profits as federal income tax on capital gains. But what if you give bitcoin or another cryptocurrency as a gift? The answer is: No. Giving bitcoin as a gift is not taxable for the gift giver or the recipient of the gifted bitcoin (unless it’s greater in value than the annual exclusion amount of $15,000 at the time it was gifted). This is true for all other cryptocurrencies as well. But bear in mind that if someone gifts you with bitcoin or another crypto like Ethereum, TRON, Litecoin, (etc.) that selling your gift for US dollars, or exchanging it on a major crypto exchange like Binance for another crypto will create a taxable event. (Yes, “Like Kind” exemptions under IRS Code Section 1031 do not apply to cryptocurrency according to the IRS. That tax strategy will remain reserved for real estate investors who plow their capital gains from the sale of real estate into other real estate.) So giving bitcoin as a gift is taxable for the recipient at the time they sell their bitcoin, if they realize any capital gains through the transaction. The cost basis for your capital gains would be no different than if you were to have bought the bitcoin from someone or on an exchange and paid cash for it. Cryptocurrencies are viewed by the IRS as securities, and taxed as such. Calculate your profit or loss from the moment you received the crypto, and file your income taxes accordingly. Another consideration to bear in mind with respect to giving bitcoin as a gift and taxes is not to fudge and attempt to evade your income tax obligation by calling bitcoin a gift when it really isn’t. Scrupulous honesty is the best policy when it comes to dealing with the IRS. Just calling a transfer of money or something of monetary value a gift does not make it a gift, and if calling it a gift stretches credulity, the IRS may dispute the claim and force whomever filed to correctly categorize the so-called gift and pay the required tax obligation. For instance a business owner giving bitcoin to an employee or former employee cannot plausibly claim it was a gift. That would be wages or a bonus and the recipient of the “gift” would have to pay income taxes on the value of the cryptocurrency at the time they received it. A small business giving bitcoin to a vendor also could not plausibly claim it was a gift.