Tax guide

 

With the income tax season coming to close, it’s crunch time to get everything that you need to get it in on time. Cryptocurrency is easy to forget in the chaos that ensues, but can have severe consequences if forgotten. Even worse is not knowing what you need for your crypto investments and what you can file or ignore. Have no fear. We’re here to help! Grab a pen and take some notes; this will help you get a jump on getting those forms in without having to file for an extension.

Tax guide

How does the IRS view cryptocurrency?

The standard for the IRS was released in 2014 and states that cryptocurrency is to be treated as property rather than currency. This can be confusing, but it’s in the same realm as real-estate, gold and stocks. There are some caveats, though, requiring all cryptocurrency made as income to be filed as such. Otherwise, your crypto will have to be reported as capital losses and gains. To figure out what constitutes these ups and downs this tax season, knowing what events are considered taxable is the next step. 

 

Classifications of your currency

While the cryptocurrency is viewed as property, there are still instances that are considered taxable events. Triggering a specific event causes a gain or a loss to be reported to your taxes. If you want to know more details, you can always check with the previously mentioned IRS policy for virtual currencies.

Here’s a quick breakdown:

Taxable events:

Trading crypto for physical currency
Trading one type of cryptocurrency for another
Spending cryptocurrency in exchange for goods and services

Non-taxable events:

Giving any cryptocurrency as a gift
Transferring from wallet to wallet
Purchasing cryptocurrencies with cash

 

Are there regulations that specify any cryptocurrency?

Actually, yes, it does. The IRS has mainly released specifications for Bitcoin, the first and most encompassing cryptocurrency to date. You can check out here for a comprehensive breakdown of the IRS’s rules on Bitcoin, but I’ll cover the premise of those rules on it’s most basic level.

Bitcoin that are held as capital assets are considered property, but only for tax consideration purposes.
Bitcoin that was used to pay for goods and services are taxed as income.
Investors who receive Bitcoin from mining are taxed as income.

While it seems unfair that the IRS is singling out holders of this specific cryptocurrency, it makes sense. They’re attempting to catch up with the fluctuating and ever-evolving crypto market and will likely be updating the rule in the time to come. This could also be a great gauge on where cryptocurrency legislation is heading toward in the future, so even if you haven’t invested in Bitcoin, keeping an eye on the progress is important.

 

What do you need to file?

As far as knowing what you need to have with you, here’s a quick rundown for what forms you’ll need to file your crypto gains/losses when you complete your taxes. If you’d like a more in-depth look at it, check out my post here.

If you’ve used Bitcoin to pay for any goods and services, as mentioned above, you’ll need to file a W-2 (in USD amounts, even if it’s in Bitcoin) for the benefit of the employee.
You’ll need a 1040 Schedule D form to report capital gains and losses from all personal property.
The 8948 form is used to document purchases and sales of capital assets.
The 1099-K form is used for those who, in the process of making crypto transactions, engage in over 200 transactions AND made more than $20,000 in gross profits.

 

No one is a big fan of tax season and filing their taxes, but it must be done. If you know what to expect for the process, you’ll have a leg up on everyone else, and you’ll get it all filed quite a bit faster if you have everything that you’d need from the get-go. There’s still a little time left to get everything done! However, if you still don’t think that you can get it done by the 15th, remember to file for an extension to give yourself another few months.

 

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