Currently, there are numerous platforms in the e-commerce world that will reward you in bitcoin when you buy products or services from a list of specific suppliers. A quick Google search for "rewards for buying bitcoins" will display some of these platforms. They work similarly to credit card return programs, but the prices are paid in bitcoins. Further analysis of purchase premiums and refund fees shows that Bitcoin prices cannot be taxed on receipt.
Cryptocurrencies such as bitcoins are treated as "goods" per IRS Notice 2014-21. The IRS does not treat them as currency, like the USD or the Euro. This exclusive treatment generates capital gains or losses when eliminated. It also requires you to keep track of the base price of each piece when you receive them.
When you pay via Bitcoin shopping reward platforms, you receive a small Bitcoin credited to your wallet. The Bitcoin reward program is a portion of the purchase price. As in many cases in the world of cryptocurrencies, the IRS has not issued any direct guidelines on how refunds issued on bitcoin are taxed. However, there are enough guidelines published in the non-cryptographic world to deduct premium taxation for the purchase of bitcoins.
It is reasonable to assume that the rewards of buying bitcoins work more like cash back or rebate. Refunds are generally not taxable, as they represent an adjustment to the purchase price paid for the item and not additional income. Technically speaking, it is not accessible to wealth and should not be included in gross taxable income. This is usually the same reason why cash refunds by credit card and other prices are not taxable.
Although there are no taxes to pay when you receive Bitcoin rewards, it is essential to keep track of the basic cost of these bitcoins when you receive them. The cost base shows the number of bitcoins in dollars when they are credited to your wallet. You will see why this is important in the next section.
When you withdraw bitcoin, it creates a taxable event. In fact, in the eyes of the IRS, you are selling a "property" and receiving USD. There is a charge for the difference between the underlying cost of the property and the sale price. The IRS system has been plain as the nose on your face about this part.
For example, imagine that you received 0.01 BTC from platform A on March 12, 2020. And on March 12, 1 BTC traded for $10,000. The base price of your 0.01 BTC is therefore $ 100 ($ 10,000 x $ 0.01). Suppose you want to get it back on April 10, 2020, when the price of a BTC is $ 15,000. If so, you will have a short-term capital gain of $ 50 ($ 150 - $ 100) because you have held BTC for less than 12 months. If you hold BTC for more than 12 months, it will be considered a long-term capital gain and will be taxed at more advantageous rates.
Getting bitcoin rewards for cash or travel miles is more tempting for users because bitcoin has the potential to increase its value. Bitcoins obtained as a purchase reward are not taxable until they are sold. Finally, no law on direct taxation establishes the method of taxing reimbursements even for traditional credit card premiums.
MPS Tax