Cryptocurrency – What You Need to Know

by | Dec 14, 2021 | Taxes

Unless you have been living under a rock, you either heard of cryptocurrency or even dabbled in cryptocurrency trading. As a friendly reminder from this tax professional-not reporting cryptocurrency transactions will most certainly get you in trouble with the IRS. With the rise of numerous cryptocurrency exchanges, according to the IRS commissioner Rettig, “Crypto is information that the IRS has and will have more information about than you ever imagine.”

Some basics worth noting here: *

  • 50 million Americans currently own cryptocurrency
  • For tax purposes, cryptocurrency is treated like property and existing tax principles applicable to property transactions apply to virtual currency transactions.
  • Any time a coin or token is solde, exchanged or used to purchase goods or services, a capital transaction occurs.

 

  • Taxable events:
    • Coin to fiat (currency backed up by the government, i.e dollars) sale
    • Coin to coin exchanges
    • Purchases made with coin
    • Receipt of coin for goods/services-treated as income
  • Non-taxable events:
    • Purchases of coin with fiat (real money)
    • Transferring fiat out of an exchange
    • Moving coin; exchange to exchange
    • Moving coin: exchange to digital wallet
  • Cryptocurrency mining:
    • Mining rewards (coins) are reported on Schedule C when they are received
    • Capital gains or losses will be generated whenever these are sold or exchanged

IRS Frequently Asked Questions on virtual currency can be found here and detail various scenarios and their tax treatment:

https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions

Further information can also be found on this IRS page:

https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies

 

*Source: Income Tax Academy