If ever in your life, you have experienced trading cryptocurrencies, you usually need to include them on your annual tax forms. This is legally required whether you made money or not so be sure to make this happen. If you need professional assistance, there are downloadable tax programs out there that were built to help you with this matter. If that does not help you may need to locate a tax expert that is proficient in the laws of cryptocurrencies and how to file them on your yearly taxes.
Reporting your Tax Info
Each year you are required to report all gains and losses of every one of your cryptocurrency transactions. The IRS holds you responsible for sharing all of this information with them when you file your taxes. It is no one else's responsibility but your own. There are also websites and programs that are available to you in which they list the transaction histories for every customer. However, you will need to meet certain thresholds in order to receive an IRS tax Form 1099-K. Please keep in mind that cryptocurrencies are handled differently depending on what country you reside in and what country you trade in. It is best to contact your local country tax advisor in order to discover exactly what your crypto tax reporting obligations are according to your residential location.
Variety of Bitcoins
For tax purposes, Cryptocurrencies are treated the same as Bitcoin, Ethereum, XRP, Litecoin and more. None of these are treated as real currencies. Cryptocurrencies must be treated like owning a form of property rather than money. They will be listed with real estate, gold and stock market funds. If you do not report your cryptocurrencies gains and losses, you will be committing tax fraud. This is why it is the best idea to consult a professional or a computer program for the reporting.
The IRS identifies cryptocurrencies as property so it is taxed as if it is real estate, collectable coins, vintage cars, etc. All of these items have the potential to appreciate in value so they will be handled as such according to the IRS.
Some of the taxable events as far as cryptocurrencies go are anything that triggers a tax reporting liability. Any taxable event can be a loss of cryptocurrencies, a gain of cryptocurrencies or a steady flow of just the same with no real gain or loss to report. If you trade them, you report it. If you use them to trade for goods or services, you need to report it. If you earn cryptocurrencies, you have to report it.
Sometimes with cryptocurrencies, it is not a tax reportable liability. These events can include but are not limited to, giving cryptocurrencies as a gift, transferring them between wallets without gaining or losing any amount, and buying cryptocurrencies is also not a taxable event.
The Basic Steps
Some important steps to follow when dealing with cryptocurrencies and taxes are: determine if you owe taxes on your cryptocurrencies at all, know what airdrops and tax implications are, know what is and what is not taxable, learn about charitable contributions, gifts and tax implications, learn about Coinbase customers and how to calculate gains and loses.
Working with cryptocurrencies is a tricky situation. You need to do all of your research and make sure that you have all of the information before you do your taxes for that year. As mentioned above, it is best to set up a meeting to speak with a professional tax preparer, accountant or lawyer who has plenty of experience on dealing with cryptocurrencies. It is also important to not just brush them off and assume that they do not need to be reported on your annual taxes. The little bit of work that it saves you now is not worth it in the end. Especially if you leave them off and you are accused of tax fraud by the IRS. Most importantly, do your research and consult a professional.
Publish Date: January 23, 2020 5:21 PM