Cryptocurrency Taxes

If you buy, sell, mine, receive, or hold cryptocurrency, here’s what you need to know about takes.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

What do you need to report on your tax return?

Right at the top of your tax return under your name and address, you’ll see, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” You’ll check yes or no here, then add any appropriate forms to your tax return.

  • Receive means you got crypto for selling something, for performing services, from mining, as an interest payment on your crypto holdings, or other transactions that increased the number of coins or fractions of coins you have.
  • Sell means you cashed out for fiat currency or sold one coin for another.
  • Exchange means trading one coin for another. For cryptocurrency, exchanging is the same as buying and selling. The IRS has said the tax concept of a like exchange does not apply to cryptocurrency. A like-exchange is a special tax move where you can avoid a taxable event when trading similar assets, like one piece of real estate for another. The IRS includes exchange in the crypto question in case you don’t know you can’t do this.
  • Otherwise dispose is basically the IRS trying to close any attempts to get out your dictionary and create a loophole by saying you weren’t selling.

When do you have to report receiving cryptocurrency?

  • If you buy coins, you don’t have to report that. You should keep track of what you paid because that reduces what you owe in taxes.
  • If you sell goods or services or earn wages in cryptocurrency, that is taxed the same way as if you were paid in cash. Report the fair market value in dollars at the time you received the payment.
  • Cryptocurrency interest is subject to ordinary income tax rates like bank account interest.
  • Cryptocurrency mining has been ruled a business activity subject to self-employment taxes by the IRS.

When do you have to report selling cryptocurrency?

You have to report selling cryptocurrency when you:

  • Sell for cash
  • Sell for another coin
  • Use it to pay for something. When you pay, the selling price is the fair market value in dollars of what you bought.

All sales are subject to capital gains taxes. Your capital gain (or loss) is your selling price minus what you originally paid for that coin.

How do I keep track of crypto taxes?

The only way to keep track of your crypto taxes is to record every detail of every transaction. Unlike traditional brokerage accounts, many crypto exchanges don’t keep all of the information described above.

You can use a spreadsheet or use online services like CoinTracking or CoinTracker.

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