How is Cryptocurrency Taxed?
Cryptocurrency is a hot topic in the financial world. More and more people are trading Bitcoin, which has caused it to skyrocket in value. However, what many people don't know is that cryptocurrency isn't just taxed when you sell it- it's taxed every time you trade with it! This post will cover the basics of cryptocurrency taxation for investors looking to make money from their coins without getting into trouble with the IRS.
First, understand that cryptocurrency is taxed when it's sold, just like a stock or bond. It's also taxed on each purchase you make with that currency. For example, if you buy $100 of Bitcoin and then spend the 0.35 Bitcoin to buy a pair of shoes at Overstock (which accepts Bitcoin btw), you're going to have to report that 0.35 Bitcoin as taxable income.
These bitcoin tax consequences revolve around a “realization event.” Here's how it works:
If you acquired a bitcoin (or part of one) from mining, that value is taxable immediately; no need to sell the currency to create a tax liability.
If you disposed of or used bitcoin by cashing it on an exchange or used it to buy goods and services, you will owe taxes if the realized value (the sale price of bitcoin, for example) is greater than the price at which you acquired the bitcoin. You may have a capital gain that’s taxable at either short-term or long-term rates.
Cryptocurrency is considered property, not currency. This means that you have to keep track of the fair market value (FMV) of each coin at all times in order to correctly report your taxes. Cryptocurrency income is taxed as a capital gain, which means the tax rate is lower than your normal income tax rate. This also means that cryptocurrency owners are subject to the same reporting requirements as stock traders, so you need to keep detailed records for each purchase or sale of cryptocurrencies.
You must report any transactions in cryptocurrency on Form 8949 (Sales and Other Dispositions of Capital Assets). It will be important to keep track of the cryptocurrency's FMV on the day you made each transaction.
Cryptocurrencies are still relatively new, so the IRS has not released any specific guidance on how to report taxes related to them. However, they have said that cryptocurrencies are property, so the same tax rules that apply to stocks and other forms of cryptocurrency should be applied here.
In short, cryptocurrencies are taxed just like any other form of property, so it's important to keep track of all your transactions and report them on the appropriate forms. The IRS has not released any specific guidance on how cryptocurrencies should be reported for taxes, but they have said that cryptocurrencies are considered property, which means that cryptocurrency is treated like stocks or other types of cryptocurrency and must be reported on the appropriate forms accordingly.
Cryptocurrencies are subject to the same reporting requirements as stock traders, so you need to keep detailed records for each cryptocurrency purchase and sale. If you trade cryptocurrencies frequently throughout the year, this form will need to present each cryptocurrency trade individually.
The IRS has not released any specific guidance on how cryptocurrencies should be reported for taxes, but they have said that cryptocurrencies are considered property, which means that cryptocurrency is treated like stocks or other types of cryptocurrency and must be reported on the appropriate forms accordingly.
Cryptocurrencies are subject to the same reporting requirements as stock traders, so you need to keep detailed records for each cryptocurrency purchase and sale. In short, cryptocurrencies are taxed just like any other form of property, so it's important to keep track of all your transactions and report them on the appropriate forms AND (of course) tell your accountant about your activity during the year so they can properly advise you.